Chp 12: Decision Making, Creativity, and Ethics

How Should Decisions Be Made?

Decision - The choice made from two or more alternatives
Decision making is a reaction to a problem or an opportunity
Problem - A discrepancy between some current state of affairs and some desired state,
requiring consideration of alternative courses of action
Opportunity - Occurs when something unplanned happens, giving rise to thoughts about
new ways of proceeding
The Rational Decision-Making Process
Rational - Refers to choices that are consistent and value-maximizing within specified constraints
Rational Decision-Making Model - A six-step decision-making model that describes how individuals
should behave in order to maximize some outcome
1. Define the Problem: Poor decisions caused by overlooking problem or defining wrong problem
2. Identify the Criteria: Determining what is relevant, bringing interests, values and preferences
3. Allocate Weights to the Criteria: Prioritizing importance of criteria
4. Develop Alternatives: List ways to resolve problem
5. Evaluate the Alternatives: Strengths and weaknesses
6. Select the Best Alternative
Assumptions:
1. Problem Clarity: Problem is clear and unambiguous
2. Known Options: Relevant criteria identifiable and can list workable alternatives
3. Clear Preferences: Criteria and alternatives can be ranked
4. Constant Preferences: Decision criteria are constant
5. No Time or Cost Constraints
6. Maximum Payoffs: Choose alternative that yields highest perceived value
How Do Individuals Actually Make Decisions?
Bounded Rationality in Considering Alternatives
Bounded Rationality - Limitations on a person's ability to interpret, process, and act on information
List will represent familiar criteria and tested solutions
Individuals settle for alternative that is "good enough"
Satisfice - To provide a solution that is both satisfactory and sufficient
Intuition
Intuitive Decision Making - A subconscious process created out of a person's many experiences
Not rational, but not wrong
Does not operation against rational analysis, but rather complements it
Best applied when:
time is short
policies do not give clear-cut advice
there is a great uncertainty
quantitative analysis needs check and balance
Judgment Shortcuts
Overconfidence Bias - Error in judgment that arises from being far too optimistic about one's own
performance
Individuals whose intellectual and interpersonal abilities are weakest most likely have
overconfidence bias
Anchoring Bias - A tendency to fixate on initial information, from which one then fails to adequately
adjust for subsequent information
Takes place most often during negotiations
Confirmation Bias - The tendency to seek out information that reaffirms past choices and to discount
information that contradicts past judgments
Information we gather is typically biased toward supporting our views, influencing where we
look for information
Availability Bias - The tendency for people to base their judgments on information that is readily
available to them rather than complete data
Tend to overestimate unlikely events (plane crashes) than likely events (car crashes)
Managers tend to give more weight to recent behaviours than previous behaviours
Escalation of Commitment - An increased commitment to a previous decision despite negative
information
Demonstrate initial decision was not wrong and avoid having to admit mistakes
Randomness Error - The tendency of individuals to believe that they can predict the outcome of random
events
Decisions are impaired when we try to create meaning from random events
Winner's Curse - The tendency for the winning participants in an auction to pay too much for the item
won
The more bidders there are, the more likely some will have greatly overestimated the value
Hindsight Bias - The tendency to believe falsely after an outcome of an event is actually known, that one
could have accurately predicted that outcome
Reduces our ability to learn from the past
Improving Decision Making Through Knowledge Management
Knowledge Management (KM) - The process of organizing and distributing an organization's
collective wisdom so that the right information gets to the right people at the right time
Increasingly important for three reasons:
1. Organizations that can quickly and efficiently tap into employee's collective experience more
likely to have competitive edge
2. Capture Baby Boomer's knowledge before they leave workforce
3. Reduces redundancy and makes organization more efficient
How do organizations implement knowledge and expertise?
1. Develop computer databases of pertinent information that employees can access
2. Create a culture that promotes sharing knowledge
3. Develop mechanisms that allow employees who built expertise to share them with others
Group Decision Making
Group vs. Individual
Strengths
Groups generate more complete information and knowledge
Groups bring an increased diversity of views
Groups generate higher-quality and more accurate decisions
Groups tend to be more creative
Groups lead to increased acceptance of a solution
Weaknesses
Groups are time-consuming and not always efficient
There are conformity pressures
Groups can be dominated by one or a few members
Groups suffer from ambiguous responsibility
Groupthink - A phenomenon in which group pressures for conformity prevent the group from
critically appraising unusual minority, or unpopular views
Symptoms of Groupthink:
Illusion of Invulnerability: Members become overconfident and take huge risks
Assumption of Morality: Members believe highly in moral rightness of group objectives
and do not need to debate ethics of their actions
Rationalized Resistance: Members rationalize resistance to assumptions made
Peer Pressure: Members apply pressure to those who express doubts on shared views
Minimized Doubts: Members who have doubts avoid deviating from the majority
Illusion of Unanimity: Assumption that silence is compliance
Minimizing Groupthink:
Monitor group size
Encourage group leaders to play an impartial role
Appoint one group member to play the role of devil's advocate
Stimulate active discussion of diverse alternatives to encourage dissenting views and
more objective evaluations
Not all aspects of groupthink are harmful
Illusion of invulnerability, assumption of morality and illusion of unanimity associated
with team performance
Groupshift - A phenomenon in which the initial positions of individual group members become
exaggerated because of the interactions of the group
Group's decision reflects dominant decision-making norm that develops during group's
discussion
Conservative types become more cautious and aggressive types assume more risk
Group Decision-Making Techniques
Four techniques to stimulate decision making:
1. Interacting Groups - Typical groups, where members interact with each other face to face
Often censor themselves and pressure individual members toward conformity
2. Brainstorming - An idea-generation process that specifically encourages any and all alternatives,
while withholding any criticism of those alternatives
Meant to overcome pressures of conformity
Electronic Brainstorming - People interacting on computers in order to generate ideas
Not very efficient as there are many people talking at once, which blocks thought
process and impedes sharing ideas
3. Nominal Group Technique - A group decision-making method in which individual members meet
face to face to pool their judgments in a systematic but independent fashion
Before discussion, members independently write down ideas
Each member presents one idea to group, taking turns to do so
Group then discusses ideas and evaluates them
Members silently rank ideas and decision is made
Allows to meet formally but does not restrict independent thinking
4. Electronic Meeting - A meeting where members interact on computers, allowing for anonymity
of comments and aggregation of votes
Advantages are anonymity, honesty, and speed
Evidence that it doesn't achieve most of proposed benefits
Lead to decreased group effectiveness, require more time to complete tasks,
reduced member satisfaction
Creativity in Organizational Decision Making
Creativity - The ability to produce novel and useful ideas
Creative Potential
High openness to experience are more likely to be creative
Other traits of creativity include independence, self-confidence, risk-taking, positive
core self-evaluation, tolerance for ambiguity, low need for structure, perseverance in
face of frustration
Three-Component Model of Creativity - The proposition that individual creativity requires
expertise, creative-thinking skills and intrinsic task motivation
Expertise: Creativity is enhanced when individuals have abilities, knowledge, and
proficiencies in field
Creative-Thinking Skills: Includes personality characteristics associated with creativity,
analogies, and seeing things in a different light
More creative when we are in a good mood
Weak ties with creative people are beneficial
Analogies allow application of idea from one context to another
Intrinsic Task Motivation: Desire to work on something, turning potential into actual
creativity
Five Organizational Factors that Block Creativity:
1. Expected Evaluation: Focusing on how you're evaluated
2. Surveillance: Being watched while working
3. External Motivators: Tangible rewards
4. Competition: Facing win-lose situations with peers
5. Constrained Choice: Being limited on how you can do work
What About Ethics in Decision Making?
Ethics - The study of moral values or principles that guide our behaviour and inform us whether
actions are right or wrong
Four Criteria in Making Ethical Choices:
1. Utilitarianism - A decision focused on outcomes or consequences that emphasizes the greatest
good for the greatest number
Tends to dominate business as it is consistent with efficiency, productivity, and high
profits
2. Focus on Rights: Decisions are consistent with fundamental liberties and privileges set forth in
documents
Whistle-Blowers - Individuals who report unethical practices by their employer to
outsiders
3. Justice: Impose and enforce rules fairly so there is equitable distribution of benefits and costs
Unions: justifies same sage, using seniority as primary determinant
Protects interests of underrepresented
Encourages sense of entitlement
4. Care: Express care in protecting the special relationships that individuals have with each other
Three Factors That Influence Ethical Decision-Making
1. Stages of Moral Development - The developmental stages that explain a person's capacity to
judge what is morally right
Preconventional Level
i. Sticking to rules to avoid physical punishment
ii. Following rules only when doing so is in your immediate interest
Conventional Level
i. Living up to what is expected by people close to you
ii. Maintaining conventional order by fulfilling obligations to which you have
agreed
Principled Level
i. Valuing rights of others and upholding absolute values and rights regardless of
the majority's opinion
ii. Following self-chosen ethical principles even if they violate the law
The higher a person's moral development, the more predisposed to behave ethically
Most adults are at conventional level
2. Locus of Control
External locus of control rely on external influences to determine behaviour
Internal locus of control rely on internal standards of right or wrong to guide behaviour
3. Organizational Environment - An employee's perception of organizational expectations
Written codes of ethics, moral behaviour by senior management, realistic performance
expectations, performance appraisals
Making Ethical Decisions
Three Questions:
1. Self-Interest vs. Organizational Goals
2. Rights of other parties
3. Conform to standards of equity and justice
Corporate Social Responsibility - An organization's responsibility to consider the impact of its
decisions on society