Individual & Group Decision Making

1. Individual & Group Decision Making af chelte mcja 602-95

2. Perception & Decision Making • How individuals make decisions & the quality of final choices are largely influenced by their perceptions. • Requires interpretation and evaluation of information • Most importantly, it requires a focus on the right problem.

3. How Should Decisions be Made? • Rational Decision Making Process • define the problem • identify the decision criteria • weight the identified decision making criteria • generate possible alternatives • rate each alternative against the dm criteria • compute the optimal decision

4. Assumptions • Assumes the decision maker is rational • Assumes the problem is clear and unambiguous • assumes the dm has complete information • no time or cost constraints • choice will be one with the maximum payoff

5. How decisions are actually made... • most decisions don’t result from the rational dm model. • Issues: • bounded rationality • intuition • problem identification • making choices

6. Bounded Rationality • limited capability of information processing • simplify complex problems • choose first solution that is good enough (I.e. satisfactory and sufficient).

7. Making Choices • Sources of bias: • heuristics (judgmental shortcuts) • availability (information readily available) • representatives (analogies between a current issue and a previous one).

8. Organizational Constraints • People constrain their decisions to reflect: • performance evaluation system • reward system • programmed routines • time constraints • historical precedent

9. Cultural Differences • Americans • time orientation • time is a resource • creation of deadlines • creation of timelines

10. Perception and Individual Decision Making LEARNING OBJECTIVES Explain how two people can see the same thing and interpret it differently. List the three determinants of attribution. Describe how shortcuts can assist in or distort our judgment of others. Explain how perception affects the decision-making process. Outline the six steps in the rational decision-making model. Describe the actions of the boundedly rational decision maker. Identify the conditions in which individuals are most likely to use intuition in decision making. Describe four styles of decision making. Define heuristics and explain how they bias decisions. Explain the factors that influence ethical decision-making behavior.

11. Person Perception: Making Judgments About Others • Attribution Theory • When individuals observe behavior, they attempt to determine whether it is internally or externally caused. • Fundamental Attribution Error • The tendency to underestimate the influence of external factors and overestimate the influence of internal factors when making judgments about the behavior of others. • Self-Serving Bias • The tendency for individuals to attribute their own successes to internal factors while putting the blame for failures on external factors.

12. Factors in the Perceiver • Attitudes • Motives • Interests • Experience • Expectations • Factors in the situation • Time • Work setting • Social setting Perception • Factors in the target • Novelty • Motion • Sounds • Size • Background • Proximity Exhibit 3 - 2Factors that Influence Perception

13. Factors Influencing Perception • The Perceiver • The Target • The Situation

14. Perception • What is Perception? • A process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. • Why Is it Important? • Because people’s behavior is based on their perception of what reality is, not on reality itself. • The world that is perceived is the world that is behaviorally important.

15. Frequently Used Shortcuts in Judging Others • Selective Perception • People selectively interpret what they see on the basis of their interest, background, experience, and attitudes. • Halo Effect • Drawing a general impression about an individual on the basis of a single characteristic. • Contrast Effects • Evaluations of a person’s characteristics that are affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics. • Projection • Attributing one’s own characteristics to other people • Stereotyping • Judging someone on the basis of one’s perception of the group to which that person belongs.

16. Attribution of cause Observation Interpretation High External Distinctiveness Low Internal High External Individual behavior Consensus Low Internal High External Consistency Low Internal Exhibit 3 - 3Attribution Theory

17. Assumptions of the Rational Decision-Making Model • Problem Clarity- • The problem is clear and unambiguous. • Known Options- • The decision-maker can identify all relevant criteria and viable alternatives. • Clear Preferences- • Rationality assumes that the criteria and alternatives can be ranked and weighted. • Constant Preferences- • Specific decision criteria are constant and that the weights assigned to them are stable over time. • No Time or Cost Constraints- • Full information is available because there are no time or cost constraints. • Maximum Payoff- • The choice alternative will yield the highest perceived value.

18. Exhibit 3 - 5Steps in the Rational Decision-Making Model • Define the Problem. • Identify the Decision Criteria. • Allocate Weights to the Criteria. • Develop the Alternatives. • Evaluate the Alternatives. • Select the Best Alternative.

19. How Do Decision-Makers Identify & Select Problems • Problems that are visible tend to have a higher probability of being selected than ones that are important. Why? • It is easier to recognize visible problems. • Decision-Makers want to appear competent and “on-top of problems.” • Decision-Makers self-interest affects problem selection because it is usually in the Decision-Maker’s best interest to address problems of high visibility and high payoff. This demonstrates an ability to perceive and attack problems.

20. How Are Decisions Actually Made in Organizations? • Bounded Rationality • individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity. • Intuitive Decision Making • An unconscious process created out of detailed experience.

21. Alternative Development • Decision makers rarely seek optimum solutions but satisficing ones. • Efforts made are simple and confined to the familiar. • Efforts are incremental rather than comprehensive. • Many successive limited comparisons rather than calculating value for each alternative. • This approach makes it unnecessary for the decision maker to thoroughly examine an alternative and its consequences. • Thus the decision makers steps are small and limited to comparisons of the current or familiar options.

22. Making Choices • Many decision makers rely on heuristics or judgmental shortcuts in decision making. There are two common categories of heuristics -- • Availability Heuristic --or the tendency of people to base their judgments on information readily available to them. • Representative Heuristic -- The tendency to assess the likelihood of an occurrence by trying to match it with a preexisting category. • Escalation of Commitment --an increased commitment to a previous decision in spite of negative information, all too often creeps into decision making.

23. Decision-Making Styles • Research on decision styles has identified four different individual approaches to making decisions. • Directive Style -- people using this style have a low tolerance for ambiguity and seek rationality. • Analytic Style -- people using this style have a much greater tolerance for ambiguity than do directive decision makers. • Conceptual Style -- people tend to be very broad in their outlook and consider many alternatives • Behavioral Style -- people who tend to work well with others.

24. High Analytical Conceptual Tolerance for Ambiguity Directive Behavioral Low Rational Intuitive Way of Thinking Exhibit 3-6Decision-Style Model

25. Organizational Constraints • Performance Evaluations • Reward Systems • Programmed Routines • System-Imposed Time Constraints • Historical Precedents

26. Ethics in Decision Making • An individual can use three different criteria in framing or making ethical choices. • Utilitarian criterion -- Decisions are made solely on the basis of their outcomes or consequences. • Rights criterion -- Decisions consistent with fundamental liberties and privileges as set forth in documents like the Bill of Rights. • Justice criterion -- Decisions that impose and enforce rules fairly and impartially so there is an equitable distribution of benefits and costs.

27. Stage of moral development Ethical decision-making behavior Organizational environment Locus of control Exhibit 3-7Factors Affecting Ethical Decision-Making Behavior

28. Summary and Implications for Managers • Perception • Individuals behave based not on the way their external environment actually is but, rather, on what they see or believe it to be. • Evidence suggests that what individuals perceive from their work situation will influence their productivity more than will the situation itself. • Absenteeism, turnover, and job satisfaction are also reactions to the individual’s perceptions. • Individual Decision Making • Individuals think and reason before they act. • Under some decision situations, people follow the rational decision-making model. • What can managers do to improve their decision making? • Analyze the situation. • Be aware of biases. • Combine rational analysis with intuition. • Don’t assume that your specific decision style is appropriate for every job. • Use creativity-stimulation techniques.