Business Decision Analytics

Week 3b
Decision-Making Models
Dr Heinz Herrmann
Typical decision-making traps
Traps in thinking specifically about happiness
Decision Models

https://www.inspiredworking.com/wp-content/uploads/2015/06/Paradox-Decision-Approach-Illistrated.jpg
Perspectives: Logical versus Intuitional Decision-Making
Intuitive Decisions versus Rational Decisions
 Rational model
Process model (Harrison, 1999 p. 40)

The foundation of the model is “managerial objectives”, and these can be

hierarchical and multiple decision processes can occur simultaneously
A rational model in 8 steps
Identify the problem

Establish the criteria

(Cooke & Slack, 1991)

Allocate the weights

List alternatives

Analyse alternatives

Select alternative

Implement the decision

Evaluate the decision

Rational decision-
making also has
shortfalls
-- blind spots and
ambiguity are the
issue

Unknown
Knowns
(Blind Spots) (Ambiguity)
There is a marked
trend towards
rational decisions
(enabled by Data Science)

ERP, CRM, MIS, Data Science &

Transaction Business Intelligence
Processing Systems

Dealing with Dealing with

The danger with rational Unknown Knowns: Unknown
decision-making tools is
Data Science, Unknowns:
that intuition is
Data Mining & Big Data &
increasingly undervalued
Supervised ML Unsupervised
– we must stay vigilant of
ML
blind spots, use intuition to
validate what machines
Source: Ashta & Herrmann, 2021
tell us and judge whether
to disobey a machine
A scene of the 1968 film “2001: A Space Odyssey”
Bounded Rationality acknowledges blind spots
Merits & demerits of Bounded Rationality
 Dual/balanced decision-making
Rationality Challenges Intuition Challenges
• Assumptions & blind spots • Cognitive bias & heuristics
• Limited cognitive ability • Ethics/motivation
• Pressures of time • Experience

Balanced decision-making
• Relies on facts/data
• Considers ethics, values, morality, legal elements
• Trust – but challenge – your gut reaction/intuition by iterative cycling

Cycle through!
 Dumbfounding in balanced decision-making

https://static01.nyt.com/images/2012/10/05/opinion/stone-chart/stone-chart-blog427.jpg
Thinking fast and slow to overcome dumbfounding
and cognitive bias

1. Rational model > rational answer

2. Test this answer with intuition to see if it protests

3. Then consider more data in the rational model

4. Re-compute answer > test new answer using intuition

5. Keep cycling until intuition and reasoning align

 Click on the following links to complete the Decision Style Instrument:
Intuition
Intuition
Logic
Logic
Balance
Balance

• CLASS ACTIVITY

Team up in pairs

Share and discuss one dumbfounded situation from

your work or life

Practise thinking fast and slow to overcome

dumbfounding (cycling through Systems 1 & 2)

Make notes for Assessment 1

When under stress consider this: Blink
Decision-Making Under High Stress
Recognition-Primed Decision (RPD) Model
Extreme stress: Recognition Primed Decision Model

https://www.researchgate.net/profile/Ute_Fischer/publication/230601061/figure/fig3/AS:339963360104459@1458
064989861/Recognition-primed-decision-making-model-from-A-recognition-primed-decision-RPD.png
(RPD)
RPD Case Exercise – watch these two clips and
see how the RPD model was applied

https://www.youtube.com/watch?v=JSlbHK07fkY

https://www.youtube.com/watch?v=JzkCnBQRHjw
But consider the ongoing effects of stress
 History of Decision Models
Timelines Authors Decision Theories/ Decision Models
1940-1960 Simon, H. (1955) Bounded Rationality

1961-1980 Kahneman, D. & Tversky, A . (1973) Biases and Heuristics: Behavioural Decision
Theory
Hammond , K. (1978) Cognitive Continuum Theory

1981-1990 Klein, G. and colleagues Naturalistic Decision Making (NDM)

1991-2000 Stanovich, K. & West, R. (2000) System One –System Two Processing

Klein, G.(2003) Recognition Primed Decision Model (RPD)

Gigerenzer, G.(2001) Fast and Frugal Processing

2001-2010 Hodgkinson, G. & Sadler-Smith, E. (2003) Dual Model of Cognitive Styles

Kahneman, D. and Klein, G. (2009) Intuitive Expertise

Adapted from: Akinici, C., & Sadler-Smith, E. (2012). Intuition in Management Research: A historical review. International Journal of Management
Review, 14, 104-122.