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What is decision making?
The process of identifying problems and opportunities and then resolving them
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What are the two categories of decision making?
Programmed decisions and non programmed decisions
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What are programmed decisions?
situations occur often, decision rules can be employed
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What are non programmed decisions?
Situations are ambiguous, problem is ill-defined, complex and unique. (rare occurrence)
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What is a rational decision model? List other name and definition.
- a prescriptive model;
- -advises the decision maker how decisions should be made.
- -Bases a decision model a logical, factual analysis that leads the decision maker to an optimal decision.
- ex: buying a car
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What does the rational decision model assume?
- -people attempt to make logical decisions.
- -the alternative chosen offers the greatest benefits.
- -There is little uncertainty and risk in the decision.
- -Decision makers rely on rules and procedures to reach a decision.
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Rational decisions models are most appropriate for:
- -Programmed decisions
- -Situations where all the alternatives are known.
- -Unambiguous decisions.
- -Situations where information is readily available.
- -Individual decision making.
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What are the decision making steps for rational models? (8) ex: steps buying car
- 1.Identify & define problem or opportunity: Managers must first realize that a decision must be made.
- 2. Establish Decision Criteria: determine the standards that must be met for an acceptable decision.
- 3. Weigh Criteria: rank the importance of the decision criteria.
- 4.Develop alternatives: managers must develop feasible alternative courses of action.
- 5.Evaluate: what are the advantages and disadvantages of each alternative?
- 6. Make a decision: Select the best alternative.
- 7. Implement the decision: managers must now carry out the alternative.
- 8.Examine feedback and evaluate: managers should learn from feedback. Managers should consider what went right and wrong with the decision and learn for the future.
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What is the administrative decision model?
- -a descriptive model of decision making-it makes more realistic assumptions about the decision context and human nature.
- -assumes managers have all info to make decisions
- -decision makings are risky because of time restraints, and incomplete information
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What is bounded rationality?
- refers to people having a limited ability to process information
- -There is a large number of alternatives and information is vast so that managers cannot consider it all.
- -Decisions are limited by people's cognitive abilities
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Most managers do not see all alternatives and decide based on _____________.
incomplete information
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What are administrative decisions most appropriate for?
- -a complex decision or situation with limited information
- -Programmed or nonprogrammed decisions
- -Preferences of individuals or a group
- -Unclear alternatives
- -Greater participation through group decision making
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What is satisfice?
- to seek a satisfactory decision, one that is good enough but not perfect.
- -choosing the 1st option that meets most of your needs
- (coined by Herbert Simon)
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What is a political decision making model?
- -non-programmed decisions ruled by political concerns rather than a logical analysis of the situation
- -Not the best decision, but the alternative (decision) that will be accepted by the groups involved in the decision
- -more political the more diverse are the participants in the decision-making process.
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What are the characteristics of political decisions?
- -are non-programmed
- -contain ambiguous information
- -entail low consensus on goals among stakeholders.
- -involve groups that can influence the decision process
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What are the 3 decision making models?
Rational, Administrative, Political
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What are the 4 factors that influence decision making?
- personality
- risk tolerance
- cognitive dissonance
- values
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What are individual values?
- guidelines a person uses when confronted with a choice
- -belief about what is right or wrong
- -what they aspire to
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What are the 6 value orientations?
- 1. Theoretical-value set based on science, order, and the discovery of truth and knowledge
- 2. Economic-prioritize decisions that focus on being practical, tangible, and useful
- 3. Aesthetic-prioritize art, design, form, and harmony
- 4. Social- prioritize human interaction and membership to a group
- 5. Political- prioritize acquisition of power and dominance of others
- 6. Religious- prioritize faith, morals, and a higher power and purpose
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What are personality variables?
- qualities that explain how you'll behave; how you perceive things
- introversion/extroversion
- conscientiousness
- altruism ability to deal with new situations
- neuroticism
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What are situational variables?
variables related to the decision context or the external (physical and social) situation
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What are interaction variables?
the combined, unique effect of personality and the situation
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What is the cognitive dissonance theory?
A conflict exists among an individual's various cognitions (attitudes, beliefs, and intentions) about the consequences of a particular decision after the decision has been made.
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When is cognitive dissonance likely to appear greater?
- the decision is important psychologically or financially
- there are a number for forgone alternatives
- the foregone alternatives have many favorable features
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How do individuals try to reduce their cognitive dissonance?
- seek information that supports the wisdom of the decision
- selectively perceive/distort information in a way that supports the decision
- develop a less favorable view of foregone alternatives
- minimize the importance of the negative aspects of the decision and exaggerate the importance of the positive aspects
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What does framing refer to?
decision maker's perception of decision's possible outcomes in relation to gains or losses.
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Framing information is the result of ________.
cognitive biases
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What are the 5 cognitive biases?
- loss aversion bias
- Representativeness bias
- base rate bias
- escalating commitment
- illusion of control
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What is loss aversion bias? list example
- Tyversky and Kahneman
- framing of the problem influences decision making
- people prefer sure gain over risky loss
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What is escalation of commitment?
- continuing to invest resources in a failed decision
- ex-compulsive gambling
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What is prior hypothesis bias (base rate bias)?
- ignores underlying probability
- manager relies on prior belief of relationships between variables despite conflicting evidence
- ex: Bill the librarian
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What is representative heuristic (availability bias)?
- The tendency to judge the likelihood that something will happen by the ease with which one can recall examples of it.
- stereotyping
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What is illusion of control?
Manager overestimates their ability to control events
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What is group think?
the tendency of the group to be swayed collectively can negate the benefits of group decision making
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What are the symptoms of groupthink?
- illusion of invulnerability
- illusion of morality
- rationalization
- stereotype
- self-censorship
- unanimity
- direct pressure
- mindguards
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What is brainstorming?
a group technique, much like a focus group, where people with specific content knowledge are assembled to work as a group on the problem issue
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What is nominal group technique?
a structured six step decision making process that brings seven to ten people together to make group decisions that are structured by rules, the initial group being a group in name only
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What is delphi technique?
a decision making tool in which several expert judges solicit anonymous responses through a series of sequential questionnaires, interspersed with summarized information and feedback of the opinions of participants, after which a final results report is prepared.
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