Rational Decision Making: Factors, Shortcuts, and Ethics

1. Chapter 9 Decision Making, Creativity, and Ethics

2. Decision Making, Creativity, and Ethics • Is there a right way to make decisions? • How do people actually make decisions? • What kinds of shortcuts do people use in making decisions? • What factors affect group decision making? •  Should the leader make the decision, or encourage the group to participate? • How can we get more creative decisions? •  What is ethics, and how can it be used for better decision making? Questions for Consideration

3. How Should Decisions Be Made? • Decision making occurs as a reaction to a problem or an opportunity. • A problem is a discrepancy between some current state of affairs and some desired state, requiring consideration of alternative courses of action. • Opportunities occur when something unplanned happens, giving rise to thoughts about new ways of proceeding.

4. Define the problem Select the Identify the best alternative criteria Making a Decision Evaluate the Allocate weights alternatives to the criteria Develop alternatives Exhibit 9-1 Steps in the Rational Decision-Making Model

5. 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

6. Assumptions of the Rational Decision-Making Model • Constant Preferences • Specific decision criteria are constant and 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

7. 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

8. Bounded Rationality • Bounded Rationality • Limitations on one’s ability to interpret, process, and act on information • Satisficing • Identifying a solution that is “good enough”

9. Intuitive Decision Making • A subconscious process created out of distilled experience • Best used: • When time is short • When policies, rules, and guidelines do not give clear cut advice • When there is a great deal of uncertainty • When detailed numerical analysis needs a check and balance

10. Judgment Shortcuts or Heuristics • Framing • The selective use of perspective • Statistical Regression to the Mean • Failure to recognize that performances tend towards the average, rather than extremes • Availability Heuristic • The tendency of people to base their judgments on information readily available to them

11. Heuristics or Judgment Shortcuts • Representative Heuristic • The tendency to assess the likelihood of an occurrence by trying to match it with a preexisting category • Ignoring the Base Rate • Ignoring the statistical likelihood of an event when making a decision • Escalation of Commitment • An increased commitment to a previous decision in spite of negative information

12. Exhibit 9-2 Scenario 1 Answer part A before reading part B. • A: Threatened by a superior enemy force, the general faces a dilemma. His intelligence officers say his soldiers will be caught in an ambush in which 600 of them will die unless he leads them to safety by one of two available routes. If he takes the first route, 200 soldiers will be saved. If he takes the second, there’s a one-third chance that 600 soldiers will be saved and a two-thirds chance that none will be saved. Which route should he take? • B: The general again has to choose between two escape routes. But this time his aides tell him that if he takes the first, 400 soldiers will die. If he takes the second, there’s a one-third chance that no soldiers will die, and a two-thirds chance that 600 soldiers will die. Which route should he take?

13. Scenario 2 • Linda is 31, single, outspoken, and very bright. She majored in philosophy in university. As a student, she was deeply concerned with discrimination and other social issues, and participated in anti-nuclear demonstrations. Which statement is more likely: • a. Linda is a bank teller • b. Linda is a bank teller and active in the feminist movement.

14. Weaknesses of Group Decision Making More time consuming Conformity pressures in groups Discussion can be dominated by one or a few members Decisions suffer from ambiguous responsibility Strengths of Group Decision Making Generates more complete information and knowledge Offers increased diversity of views Generates higher-quality decisions Leads to increased acceptance of a solution Group Decision Making

15. Effectiveness and Efficiency • Accuracy: Group Decisions • Speed: Individual Decisions • Creativity: Group Decisions • Acceptance: Group Decisions • Efficiency: Individual Decisions

16. Groupthink and Groupshift • Groupthink • Phenomenon in which the norm for consensus overrides the realistic appraisal of alternative courses of action • Groupshift • Phenomenon in which the initial positions of individual members of a group are exaggerated toward a more extreme position

17. Symptoms of Groupthink • Illusion of Invulnerability • Assumption of Morality • Rationalized Resistance • Peer Pressure • Minimized Doubts • Illusion of Unanimity

18. What Causes Groupshift? • Discussion creates familiarization among group members • Group discussion motivates individuals to take risks • Group diffuses responsibility

19. Group Decision-Making Techniques • Interacting Groups • Brainstorming • Nominal Group Technique • Electronic Meeting

20. Exhibit 9-3 Nominal Group Technique Individual Activity Group Activity Individual Activity Individuals silently Individuals take turns Individuals silently rank Team members receive write down describing solutions (or vote on) each description of problem. possible solutions. to each other; solution presented. Group then discusses and evaluates ideas.

21. Exhibit 9-4Evaluating Group Effectiveness

22. Leader Behaviours with Groups • AI • You solve the problem or make a decision yourself using whatever facts you have at hand. • AII • You obtain the necessary information from subordinates and then decide on the solution to the problem yourself. • CI • You share the problem with relevant subordinates one-on-one, getting their ideas and suggestions. However, the final decision is yours alone.

23. Leader Behaviours with Groups • CII • You share the problem with your subordinates as a group, collectively obtaining their ideas and suggestions. Then you make the decision that may or may not reflect your subordinates’ influence. • GII • You share the problem with your subordinates as a group. Your goal is to help the group concur on a decision. Your ideas are not given any greater weight than those of others.

24. Quality requirement: How important is the technical quality of this decision? QR CR Commitment requirement: How important is subordinate commitment to the decision? LI Leader's information: Do you have sufficient information to make a high-quality decision? ST Problem structure: Is the problem well structured? CP Commitment probability: If you were to make the decision by yourself, is it reasonably certain that your subordinate(s) would be committed to the decision? Goal congruence: Do subordinates share the organizational goals to be attained in solving this problem? GC Subordinate conflict: Is conflict among subordinates over preferred solutions likely? CO SI Subordinate information: Do subordinates have sufficient information to make a high-quality decision? Yes AI CP Yes No GC Yes GII SI No No Yes CP Yes CII No No No No SI Yes No ST GC GII No LI Yes Yes High CO Yes Yes CII No AII GC CP CR No Yes No No CI Low GC Yes CO Yes Yes No High ST CII LI No State Yes the QR AI Low Low problem Yes CR CP GII High No Exhibit 9-5 Revised Leadership-Participation Model

25. Creativity • The process of creating products, ideas, or procedures that are novel or original, and are potentially relevant or useful to an organization

26. De Bono’s Six Thinking Hats • White hat • Impartial thinking, focussing strictly on the facts. • Red hat • Expression of feelings, passions, intuitions, emotions. • Black hat • A critical, deliberate, evaluating outlook.

27. De Bono’s Six Thinking Hats • Yellow hat • An optimistic, upbeat, positive outlook. • Green hat • Creativity, inspiration, imagination, and the free flow of new concepts. • Blue hat • Control, an overall “managerial” perspective of the process.

28. Organizational Factors Affecting Creativity • Challenge • Freedom • Resources • Work-Group Features • Supervisory Encouragement • Organizational Support

29. Creativity Blocks • Expected evaluation • Surveillance • External motivators • Competition • Constrained choice

30. Ethics • The study of moral values or principles that guide our behaviours, and inform us whether actions are right or wrong

31. 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 Canadian Charter of Rights and Freedoms. • Justice criterion • Decisions that impose and enforce rules fairly and impartially so there is an equitable distribution of benefits and costs.

32. Exhibit 9-6 Factors Affecting Ethical Decision-Making Behaviour Stage of moral development Ethical Organization decision-making environment behaviour Locus of control

33. Principled 6. Following self-chosen ethical principles even if they violate the law. 5. Valuing rights of others and upholding absolute values Conventional and rights regardless of the majority’ s opinion. 4. Maintaining conventional order by fulfilling obligations to which you have agreed. 3. Living up to what is expected by people close Preconventional to you. 2. Following rules only when doing so is in your immediate interest. 1. Sticking to rules to avoid physical punishment. Exhibit 9-7 Stages of Moral Development

34. Unethical Ethical Yes Yes Question 3 Question 1 Is the decision Is the decision Question 2 fair and equitable? motivated by self- Yes serving interests to No Does the the exclusion of the decision organization ’ s goals? Unethical respect the No rights of the No individuals affected? Unethical Exhibit 9-8 Is a Decision Ethical?

35. Social Responsibility • A number of Canadian corporations are beginning to acknowledge the need to accept responsibilities beyond those of the shareholder. • Not everyone agrees with this position of organizations assuming social responsibility, however. • For example, economist Milton Friedman remarked, in Capitalism and Freedom, that “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

36. Summary and Implications • 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. • Group decision making • Organizations that use teams face additional problems and synergies with respect to decision making • Leader-participation model can be used to determine when to allow teams to make decisions

37. Summary and Implications • Creativity • Organizations need to reward and encourage creativity • Ethics • Managers set the tone for ethics in the organization

38. OB at Work

39. For Review 1. What is the rational decision-making model? Under what conditions is it applicable? 2. Describe organizational factors that might constrain decision makers. 3. What role does intuition play in effective decision making? 4. Describe the three criteria that individuals can use in making ethical decisions. 5. What is groupthink? What is its effect on decision-making quality?

40. For Review 6. What is groupshift? What is its effect on decision-making quality? 7. Identify factors that block creativity. 8. Are unethical decisions more a function of the individual decision maker or the decision maker’s work environment? Explain.

41. For Critical Thinking 1. “For the most part, individual decision making in organizations is an irrational process.” Do you agree or disagree? Discuss. 2. What factors do you think differentiate good decision makers from poor ones? Relate your answer to the six-step rational decision-making model.

42. For Critical Thinking 3. Have you ever increased your commitment to a failed course of action? If so, analyze the follow-up decision to increase your commitment and explain why you behaved as you did. 4. If group decisions are of consistently better-quality than individual decisions, how did the phrase “a camel is a horse designed by a committee” become so popular and ingrained in our culture?

43. Breakout Group Exercises • Form small groups to discuss the following: 1. Apply the rational decision-making model to deciding where your group might eat dinner this evening. How closely were you able to follow the rational model in making this decision? 2. The company that makes your favourite snack product has been accused of being weak in its social responsibility efforts. What impact will this have on your purchase of any more products from that company? 3. You’ve seen a classmate cheat on an exam or an assignment. Do you do something about this or ignore it?