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Key Insights on Decision Making in Organizations

Dive into the world of decision making with James G. March's seminal work. Explore rational choice theory, optimization strategies, and dealing with uncertainty in organizational decision making. Learn about bounded rationality, coping with uncertainty, collective decision making, and the role of rules and policies. Discover how various determinants impact decision outcomes and how to navigate the complexities of organizational decision making.

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Key Insights on Decision Making in Organizations

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  1. A Primer on Decision Making James G. March. “A Primer on Decision Making” 1994

  2. James G. March • “Most famous scholar few (outside academia) have heard of” • A huge body of work • decision making • organizational learning

  3. Rational Choice Theory • Optimization • Pick the best solution • Construct a table of • Options • Outcomes (in $) • Probabilities • Select the option with the highest expected value

  4. Pure rationality with perfect information Outcome A ( $x ) Option A Option B Outcome B ( $y ) Decision rule/heuristic: Choose A if x > y, else choose B

  5. Rationality with imperfect information Outcome A1 ( $x1 ) p(A1) Option A Outcome A2 ( $x2 ) p(A2) Outcome B1 ( $y1 ) p(B1) Option B Decision rule/heuristic: Choose A if E[A] > E[B], else choose B E[A] = p(A1)*x1+p(A2)*x2 = p(A1)*x1+( 1-p(A1) )*x2 E[B] = p(B1)*y1+p(B2)*y2 = p(B1)*y1+( 1-p(B1) )*y2 p(B2) Outcome B2 ( $y2 )

  6. Problems • “Bounded” rationality • Not all options are enumerated • Not all outcomes can be known • Probabilities are hard (or impossible) to gauge • Aggregate data are often unreliable • Government subsidies to nuclear power industry ranges from $12.8bn and $40bn with no change to the programs being funded. • Not all options are available today (one-arm bandit problem) • AND – this is not how we actually make decisions most of the time

  7. Dealing with Uncertainty • Attention • Urgent vs. important • Risk aversion • Upside and downside asymmetry • A bird in the hand… and the gambler’s fallacy • Satisficing • A Sequential approach: set a threshold and take the first option that meets or exceeds it • The role of: • Emotion • Instinct

  8. Search • Enumerating options and outcomes • Distance from target (failure) • Conservative, centralizing, tighter control • Slack resources (time / money) • Exploratory, delegated, wide-ranging

  9. Organizational Implications • 0.001 vs. 0.00001? • “It’s never happened (yet)…” • High-reliability organizations • Thinking we’re safer than we are… • Chernobyl • Interpreting successes • Promotions • Pilot training and landing

  10. Collective Decision Making • Disparate goals • Political struggle • Bargaining • Framing and ‘lenses’ • HR – “it’s all people issues” • Accounting – “cost control, budgets” • Operations – “it’s about supply chain and optimization” • Marketing - “the message or the product” • R&D – “the product and the underlying technology” • Resources and scripts • If you have a hammer, every problem looks like a nail Graham Alison, “The Essence of Decision: Explaining the Cuban Missile Crisis” 1971

  11. Escalation of Commitment • Persevere or Pivot? • Psychological Commitment • Social (public) Commitment • Political / Organizational Commitment Expectation of future outcomes Questionable outcomes Highly negative outcomes Negative outcomes Time Psychological determinants + Social determinants + Project determinants - Psychological determinants + Project determinants 0 Psychological determinants 0 Social determinants + Project determinants – Organizational determinants + Project determinants + Jerry Ross; Barry M. Staw, “Organizational Escalation and Exit: Lessons from the Shoreham Nuclear Power Plant” AMJ 1993

  12. Organizations Rules • Rules • Policies, SOPs, myths and culture • Rules are the organization’s knowledge • “Rules make the benefits of history available to those who have not experiences that history” • Remain with the organization while people move in and out • Logic of appropriateness vs. logic of consequences • socialized identities James G. March. “A Primer on Decision Making” 1994

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