DECISION MAKING

V M Salima Habeeb
MSc. Clinical Psychology, 1st year
• Decision making : Classical Theory and its critique
• Satisficing,
• Elimination by aspect,
• Naturalistic decision making;
• Biases and heuristics,
• Process of group thinking
• Decision making is a process that chooses a preferred option or a course of
actions from among a set of alternatives on the basis of given criteria or
strategies.
• As a person grows up, he/she is frequently confronted with serious choices that
require his/her attention.
• One must prioritize and make choices, but at the same time be fully aware of
the possible consequences of those choices.
• One must learn to understand the consequences before making a decision.
• (It is the ability to weigh the pros and cons of alternative and accepting
responsibility for the consequences of the decision)
 CLASSICAL DECISION THEORY

• The earliest models of how people make decisions are referred to as classical
decision theory.
• It is applied in certainty condition which the decision maker has full information
relating to the problem and also knows all the alternative solutions. It is an
ideal way in making decision.
• It is rational in the sense that it is scientific, systematic and step-by-step
process.
• Classical decision theory assumes that decisions should be completely rational
and optimal; thus, the theory employs an optimizing strategy that seeks the
best possible alternative to maximize the achievement of goals.
1. A problem is identified and framed.
2. Goals and objectives are established.
3. All the possible alternatives are generated.
4. The consequences of each alternative are evaluated in terms of goals.
5. The best alternative is selected—that is, the one that maximizes goal
achievement.
6. Finally, the decision is implemented and evaluated.
The Model of Economic man and woman
This early model of decision making assumed three things:
1. Decision makers are fully informed regarding all possible options for their decisions
and of all possible outcomes of their decision options.
2. They are infinitely sensitive to the subtle distinctions among decision options.
3. They are fully rational in regard to their choice of options.

• The assumption of infinite sensitivity means that people can evaluate the difference
between two outcomes, no matter how subtle the distinctions among options may be.
• The assumption of rationality means that people make their choices to maximize
something of value, whatever that something may be.
 Subjective Expected Utility theory
• According to subjective expected utility theory the goal of human action is to
seek pleasure and avoid pain.
• In making decisions people will seek to maximize pleasure (positive utility)
and to minimize pain ( negative utility).
• To do so, we calculate two things: the subjective utility which is based on the
individual's judged weightings of utility (value) rather than on objective criteria
and the subjective probability which is based on individual's estimates of
likehood rather than objective statistical computations.
 CRITIQUE

• The classical model is an ideal (a normative model), rather than a description of

how administrators really make decisions.
The drawbacks of the classical decision-making model include:
Since decision making includes a choice between alternatives, with the increase
in the number of alternatives available the probability/chance of alternatives being
wrong also increases ―― leading to the increase of risk/uncertainty in choice.
Decision makers virtually never have access to all the relevant information.
Generating all the possible alternatives and their consequences is impossible.
Insufficient information: In the classical model, making the best decision
involves coming up with many well-researched alternatives. Insufficient
information will affect the effectiveness of the process.
The classic model assumes information-processing capacities, rationality, and
knowledge that decision makers simply do not possess.
Although it may be an ideal, the classic model is not very useful to practicing
administrators. Due to the drawbacks of this model, it is vital to understand
when to use it. For example, management can consider using it when they are
not in a hurry.
 SATISFICING
• As early as the 1950s some researchers began to challenge the notion of
unlimited rationality.
• These researchers recognized that humans do not always make ideal decisions
and that we usually include subjective considerations in our decisions.
• We show bounded rationality—we are rational, but within limits.
• Classical decision theory suggested that people optimize their decisions, but
researchers began to realize that we have only limited resources and time to
make a decision, so we often try to get as close as possible to optimizing,
without actually optimizing.
• Herbert Simon (1947), the U.S. Nobel Prize-winning economist was the first to
introduce an administrative model of decision making to provide a more accurate
description of the way administrators both do and should make organizational
decisions.
• The basic approach is satisficing—that is, finding a satisfactory and sufficient
solution rather than the best one. The satisficing decision making includes the
following steps. The administrator must:
1. Recognize a problem and then frame it and define it clearly and concisely.
2. Analyze the problem by examining relevant data.
3. Before proceeding: Establish criteria for success—outcomes that are satisfactory
and sufficient.
4. Develop a plan of action by identifying a set of alternatives, considering the likely
consequences of each option.
5. Initiate the action plan
6. Evaluate the implemented plan in terms of the criteria you have established for a
satisfactory solution.
• The major difference between the classic model (optimizing) and the administration
model (satisficing) is that the administrative model calls for a decision that is
satisfactory rather than the ultimate best solution.
• With respect to decision making, people generally fall into two groups:
• Satisficers consider options until they have found one that is good enough for
them.
• Maximizers try to consider every single option before choosing the best one.
• Think about buying a car: Depending on which strategy you employ, you can
either search for a potential car until you have found one that satisfies your
criteria, or you can try out every single car that is an option for you and only
then make a purchase decision.
• Maximizers also tend to be more overconfident in their decisions than satisficers.
• When choosing which car to purchase, for instance, Jacob the satisficer will consider the use of
the vehicle (for his long commute to work) and decide that he would like his new car be fuel
efficient. He may also decide that he would like the seats to be heated. He thens looks at
three cars for sale:

• Car 1: A new car with heated seats, but low fuel efficiency.
• Car 2: An older car that is fuel efficient and has heated seats.
• Car 3: A new car which is fuel efficient and boasts heated seats and a spacious interior, at
little more than the cost of car 2.

• Jacob will discount Car 1 as the fuel costs will be too high for his long commute to work. With
a choice between cars 2 and 3, he might will reject the benefit of the additional space in the
third car as being unnecessary and a lavish additional expense, instead opting to buy Car 2,
as it meets his initial decision-making criteria.
• Like satisficers, maximisers refine their options to those that will fulfill their
essential needs when making a decision. But they will subsequently pursue the
option that will provide them with the maximum benefit or highest utility. Had
Jacob, from our previous example, been a maximizer, he would likely have
wanted to pay a little extra money to buy Car 3 for its extra space, regardless of
whether he really needed the additional room for his commute.

• Maximizing tendency is the effort to select the best option, and satisficing
tendency is the willingness to settle for a sufficient or “fairly good” option.
Despite maximizers being able to objectively make better decisions than
satisficers, satisficers feel subjectively better.
 THE ELIMINATION BY ASPECTS MODEL

• The elimination by aspects model was first proposed by psychologist Amos

Tversky in 1972.
• Elimination by aspects is a decision-making strategy in psychology that
involves evaluating options based on a set of criteria or attributes and
eliminating options that do not meet the criteria one-by-one.
• If you are trying to decide which college to attend, the process of elimination by
aspects might look like this:
• focus on one aspect (attribute) of the various options (colleges offering clinical
psychology program)
• form a second criterion for eliminating remaining ones (semester fee must be
under Rs. 20,000)
• eliminate all options that do not meet that criterion (e.g., Christ College and
Sahradaya college, more than RS. 20,000 and would be eliminated);
• continue using a sequential process of elimination of options by considering
aseries of aspects until a single option remains.
 NATURALISTIC DECISION MAKING
• Naturalistic Decision Making is a framework used to study, inform, and improve
how people make decisions in demanding, real-world situations.
• NDM is the research tradition begun in the 1980s to study how people actually
make decisions — people such as firefighters, military commanders, nurses,
design engineers, pilots, and petrochemical unit managers.
• The first proponent of the naturalistic decision making approach was Gary Klein,
who has continued to have an enduring and inspiring influence on the field.
• His background was in cognitive psychology but as he embarked on real world
investigations of decision making by practitioners in high risk domains, he
recognised the limitations of the methods and theories derived from conventional
laboratory research.
• Prior to the development of the NDM theory, most decision-making research was
performed in a research lab setting. However, Klein and colleagues realized that
the artificial setting of the lab may not accurately represent how people make
decisions in their everyday lives.
• NDM examines the kinds of decisions they make in the course of their work, and
how they use their experience to cope with challenging conditions such as time
pressure, uncertainty, vague goals, high stakes, organizational constraints, and
team coordination requirements.
How NDM got started?
• In the late 1980s, Judith Orasanu, working in the Basic Research group at the Army
Research Institute, assembled a cadre of researchers who were investigating
decision making in natural settings.
• Orasanu and Gary Klein convened a small workshop in 1989 to bring this
community together to share ideas.
• Since that time, a dozen NDM conferences have been held, at roughly two-year
intervals, alternating between the U.S. and Europe.
• In addition, the Cognitive Engineering and Decision Making Technical Group was
established in 1995 to provide an annual opportunity for NDM researchers to
exchange ideas; it quickly grew to become the largest Technical Group within the
Human Factors and Ergonomics Society.
• NDM framework share several basic principles.
• First, decisions are made by holistic evaluation of potential courses of action (COAs)
rather than by feature-by-feature comparison of alternatives. Typically, the decision
maker sequentially generates and evaluates potential COAs against some criterion of
acceptability.
• The second principle is that decisions are recognition-based in that decision makers
rely on recognition of the situation and pattern matching of COAs rather than an
exhaustive generation and comparison of alternatives.
• The third principle is that decision makers adopt a satisficing criterion rather than
search for an optimal solution.
• Real world problems often demand rapid responses and decision makers may have to
accept a merely workable solution without considering whether a better solution exists.
The familiarity of the situation, however, will determine the success of these strategies.

What has the NDM movement achieved?

• We used to believe that the only way to make good decisions was to generate several
options and pick the best one. NDM studies found that experienced decision makers
recognize patterns and don’t compare options. They evaluate an option by imagining
how it would play out.
• We used to believe that we could reduce uncertainty by gathering more information.
NDM researchers found that performance seems to suffer when too much information
is gathered, and that uncertainty can result from inadequate framing of data, not just
the absence of data.
Features of Naturalistic Decision Making
1. Ill-defined goals and ill-structured tasks
2. Uncertainty, ambiguity, and missing data
3. Shifting and competing goals
4. Dynamic and continually changing conditions
5. Action-feedback loops (real-time reactions to changed conditions)
6. Time stress
7. High stakes
8. Multiple players
9. Organizational goals and norms
10. Experienced decision makers
Recognition-primed decision (RPD) is a model of how people make quick, effective decisions
when faced with complex situations. In this model, the decision maker is assumed to generate
a possible course of action, compare it to the constraints imposed by the situation, and select
the first course of action that is not rejected.
RPD has been described in diverse groups including trauma nurses, fireground commanders,
chess players, and stock market traders. It functions well in conditions of time pressure, and
in which information is partial and goals poorly defined.
The limitations of RPD include the need for extensive experience among decision-makers (in
order to correctly recognize the salient features of a problem and model solutions) and the
problem of the failure of recognition and modeling in unusual or misidentified circumstances.
It appears, as discussed by Gary A. Klein in Sources of Power,[1] to be a valid model for how
human decision-makers make decisions.
The RPD model identifies a reasonable reaction as the first one that is immediately
considered. RPD combines two ways of developing a decision; the first is recognizing which
course of action makes sense, and the second, evaluating the course of action through
imagination to see if the actions resulting from that decision make sense. However, the
difference of being experienced or inexperienced plays a major factor in the decision-making
processes.
RPD reveals a critical difference between experts and novices when presented with recurring
situations. Experienced people will generally be able to come up with a quicker decision
because the situation may match a prototypical situation they have encountered before.
Novices, lacking this experience, must cycle through different possibilities, and tend to use
the first course of action that they believe will work. The inexperienced also have the
tendencies of using trial and error through their imagination.
• In addition to trying to understand more aspects of thinking in complex settings,
NDM researchers are also seeking ways to improve performance: better decision
making, better sensemaking, quicker and more accurate problem detection.
• In contrast to the other decision making community which focuses on human
limitations and tries to reduce biases, NDM researchers try to understand
human capabilities.
• While it is important to cut down on mistakes, good performance is not just the
absence of mistakes — it consists of discoveries and achievements. It depends
on the strengths of decision makers.
 BIASES

• Biases that frequently occur when people make decisions:

• illusory correlation,
• overconfidence, and
• hindsight bias.
a) Illusory Correlation: Illusory correlation is defined as a cognitive bias in
which an individual’s perception of the relationship between two variables
is distorted, creating a false connection.
Examples of illusory correlation in everyday life include the belief that
certain groups of individuals are more prone to violence, or that a certain
lifestyle causes certain diseases.
• Illusory correlation even may influence psychiatric diagnoses based on
projective tests such as the Rorschach and the Draw-a-Person.
• Researchers suggested a false correlation in which particular diagnoses would
be associated with particular responses.
• For example, they suggested that people diagnosed with paranoia tend to draw
people with large eyes more than do people with other diagnoses (which is not
true).
• So, what happened when individuals expected to observe a correlation between
a drawing with large eyes and the associated diagnosis of paranoia?
• They tended to see the illusory correlation, although no actual correlation
existed.
b) Overconfidence: Another common error is overconfidence—an individual’s
overvaluation of her or his own skills, knowledge, or judgment.
• If we were appropriately humble about psychological vulnerabilities, we
would be better able to protect ourselves from the errors to which human
nature makes us prone. Instead, an excessive faith in ourselves and our
judgment means that we too often ignore our vulnerability to bias and error.
• People also tend to be biased in favor of their own attitudes and beliefs.
• For example, if someone believes that people who have business degrees
are particularly well versed in business matters, they may pay particular
attention to news articles and facts that confirm their belief. They also
generate evidence and test their ideas in a way to conform to their beliefs.
This is called myside bias
• c) Hindsight bias is a type of cognitive bias that causes people to convince
themselves that a past event was predictable or inevitable.
• After an event, people often believe they knew the outcome of the event before
it actually happened. This is why it is often referred to as the "I knew it all
along" phenomenon.
• For example, after a person's favorite team loses the ISL, they might feel
convinced that they knew the team was going to lose (even though they didn't
feel that way before the game); when a movie reaches its end and the viewer
discovers who the killer really was.
 HEURISTICS

• Heuristics are mental shortcuts that allow people to solve problems and make
judgments quickly and efficiently. These rule-of-thumb strategies shorten
decision-making time.
• However, there are both benefits and drawbacks of heuristics. While heuristics
are helpful in many situations, they can also lead to cognitive biases.
• Nobel-prize winning economist and cognitive psychologist Herbert Simon
originally introduced the concept of heuristics in psychology in the 1950s. He
suggested that while people strive to make rational choices, human judgment is
subject to cognitive limitations.
• As a result of these limitations, we are forced to rely on mental shortcuts to
help us make sense of the world.
 TYPES OF HEURISTICS
• There are many different kinds of heuristics.
a) Availability: The availability heuristic involves making decisions based upon
how easy it is to bring something to mind.
For example, if you are thinking of flying and suddenly think of a number of
recent airline accidents, you might feel like air travel is too dangerous and decide
to travel by car instead. Because those examples of air disasters came to mind so
easily, the availability heuristic leads you to think that plane crashes are more
common than they really are.
b) Familiarity: The familiarity heuristic refers to how people tend to have more
favorable opinions of things, people, or places they've experienced before as
opposed to new ones. In fact, given two options, people may choose something
they're more familiar with even if the new option provides more benefits.
c) Representativeness: The representativeness heuristic involves making a
decision by comparing the present situation to the most representative mental
prototype.
For example, A soft-spoken older woman might remind you of your grandmother,
so you might immediately assume that she is kind, gentle, and trustworthy.
d) Affect: The affect heuristic involves making choices that are influenced by the
emotions that an individual is experiencing at that moment.
For example, research has shown that people are more likely to see decisions as
having benefits and lower risks when they are in a positive mood. Negative
emotions, on the other hand, lead people to focus on the potential downsides of a
decision rather than the possible benefits.
e) Anchoring: The anchoring bias involves the tendency to be overly influenced by
the first bit of information we hear or learn.
• Our first impression sets the anchor for future interactions.
• For example, if you set a great first impression, you can cause a ‘halo effect ’
where someone has a long-term positive impression of you, all based on that first
interaction.
f) Scarcity: Scarcity is a principle in heuristics in which we view things that are
scarce or less available to us as inherently more valuable.
• The scarcity heuristic is one often used by marketers to influence people to buy
certain products.
• This is why you'll often see signs that advertise "limited time only" or that tell
you to "get yours while supplies last.
THANK YOU!