Why study decision making?

681

Why study decision making?

Decision making is the process of making a choice from among
a number of alternatives. Why is the study of decision making
important? Within organizations, decisions are made at all hierarchical
levels, not just at the top. Both managers and non-managers make
them. Herbert Simon (1957) believed that management theory should
be based upon the question of choice, and that decision making was
the very core of management. Henry Mintzberg (1989) concurred
stating that decision making is one of the most important – if not the
most important – of all managerial activities, and represents one of
the most common and crucial work tasks of managers.
Behind each of the recent organizational scandals (e.g. ‘dieselgate’
car emissions manipulation; misselling of payment protection
insurance (PPI); social media’s misuse of personal data; patients dying
prematurely in hospitals; and the manipulation of the Libor exchange
rates) there was an organizational, group or individual decision. The people affected by those
Decision making decisions experienced inconvenience, financial loss and death.
the process of making Given the central role that decision making plays within organizations and the effect that
choices from a number it has on the lives of all organization members, it is not surprising that it has attracted the
of alternatives. attention of practising managers, consultants and researchers. It can be analysed at a number
of different levels as Table 20.1 shows. Each level focuses on its own key issues and possesses
its own theoretical perspectives. However, the levels are interrelated with one affecting and
being affected by the others.

Table 20.1: Levels of decision making

Level of analysis Key issues Theoretical perspectives

Individual Limits to information processing Information processing theory

Personal biases Cognitive psychology

Group Effects of group dynamics on individuals’ Groupthink, group polarization and group
perceptions, attitudes and behaviours cohesiveness

Organizational Effects of conflicts, power and politics Theories of organization conflict, power, politics
and decision making.

What did they decide? Decision making at Tham Luang

?
On the 23 June 2018, 12 boys (aged 11–17) and their
football coach (25) became trapped in the Tham
Luang cave complex in the Chiang Rai region of
Thailand. They had entered the cave when it was dry,
but sudden heavy rain flooded the cave and blocked their exit.
To much rejoicing, the group was found alive and well nine
days later on 2 July by two British rescue divers on a rock shelf
4 kilometres from the mouth of the cave. The trapped group
received food and medical treatment.

What had been a race against time now became a race against
water. Following a dry spell, a deluge was expected to force
water levels up in the pocket where the group was taking
refuge. The journey from the cave entrance to the group’s location took 11 hours – six in and five back
out. None of the boys could swim. The oxygen levels in the cave were dropping. The cave in which the
➔
682 Chapter 20 Decision making

boys and coach were trapped was a snaking system of caverns. Some parts of the cave were 10 metres high
while others were a tight squeeze for a grown man (see diagram). On the fifth day of rescue, a diver who
was delivering supplies to the boys, died on his way back.

Once the monsoon rains start, they last until October, and make rescue efforts far more difficult. If the
group did not dive, they would have to wait four months for the flood waters to recede. Food and
other supplies were prepared for this eventuality. The group was huddled on a small rock ledge. To
avoid hypothermia, they needed to keep warm and dry. Rock falls were a problem but the main danger
was rising flood levels. The complicated access routes threatened air supplies into the underground
chamber and hindered evacuation attempts. The boys had to remain calm and stay on the ledge
otherwise they could fall down a crevice in the rock or get washed away by the water. About 1,000
people were involved in the rescue operation including navy divers, military personnel and civilian
volunteers. Someone had to make the decision as to how to get them out. There were three options:

1. Wait for waters to recede: With food and other essential being delivered by regular diving supply trips,
the group could wait for the water levels to drop. They could then leave safely on foot. This could take
months and the place where they were living could become flooded.
2. Drilling: Boring a shaft down into the mountain to extract the group. The boys are 1 kilometre below
the mountain top. This requires heavy equipment, new roads to get it to the drilling spot and a detailed
cave survey. Groups are searching the mountain for unknown entrances.
3. Diving: The boys would be taught to swim and dive. They would be supplied with diving masks,
wetsuits and fins. Dive lines and dive bottles of compressed air would be installed along the tunnels as
well as glow sticks to light the path. The boys would swim and walk through the passages. Each boy
would have a rescue diver accompanying him.

If the lives of 13 people had been in your hands, what would have been your decision? What did the
authorities decide? (Answers in chapter Recap.)

Source: based on BBC Online News (2018a)

Models of decision making

Classical decision The traditional approach to understanding individual decision making is based upon classical
theory assumes that decision theory and the rational model of decision making. These were originally developed
decision-makers are in economics and they make certain assumptions about people and how they make decisions.
objective, have complete The rational economic model of decision making is described in Figure 20.1.
information and consider
all possible alternatives
and their consequences
before selecting the
optimal solution.

Rational model of
decision making
assumes that decision
making is and should
be a rational process
consisting of a sequence
of steps that enhance
the probability of
attaining a desired
outcome.

However, to understand the weaknesses of the rational model of decision making, it is

necessary to list its assumptions and demonstrate how they fail to match up to reality. These
are shown in Table 20.2.
 Models of decision making 683

Step Example

Recognition of a problem ‘I need to buy a new car’

or opportunity

Identifying choice criteria Price

Engine (diesel, petrol, electric, hybrid)
Reliability
Cost per mile
Brand image

Assigning weightings Price ----------------------------- 10

to the criteria Engine -------------------------- 9
Reliability --------------------- 6
Cost per mile ----------------- 8
Brand image ------------------ 4

Gathering data about Nissan

alternatives Toyota
Vauxhall
Ford

Evaluation alternatives Nissan

Toyota
Vauxhall
Ford

Selection from among the Nissan

alternatives Toyota
Vauxhall
Ford

Implementation Buy the Ford

of preferred alternative

Figure 20.1: Rational model of decision making

Table 20.2: Rational model of decision-making assumptions and reality

Assumption Reality

All alternatives will be • Rarely possible to consider all alternatives since there are too many
considered ome alternatives ill not have occurred to the decision ma er

The consequences of • Impractical to consider all consequences

each alternative will be • Impractical to estimate many of the consequences considered.
considered
• Estimation process involves time and effort

Accurate information
about alternatives is
available at no cost
• Information available is rarely accurate, often dated, and usually
only partially relevant to the problem
• Information costs money to be generated or purchased
• Decisions have to be made on incomplete, insufficient and only
partly accurate information

Decision makers are • Individuals lack the mental capacity to store and process all the
rational information relevant to a decision
• Frequently they lack the mental ability to perform the mental
calculations required
684 Chapter 20 Decision making

Information
An information manager reported that on appointment The information that you can obtain costs more than you
to his job, he was told by his staff that: want to pay.

The information you have is not what you want. What you are willing to pay will get you exactly the
The information you want is not what you need. information you already have.
Source: Beske (2013)
The information that you need is not what you can obtain.

EMPLOYABILITY CHECK (self-awareness)

Think of some personal decision that you have recently made. How did you make it? Was the result good or
bad for you?

Rationality the use The rational view of decision making employs the concepts of rationality and rational
of scientific reasoning, decisions in its discussions and prescriptions. Rationality is equated with scientific reasoning,
empiricism and empiricism and positivism, as well as with the use of decision criteria of evidence, logical
positivism, along with argument and reasoning. Rational decisions are decisions which are based on rationality, that is,
the use of decision on a rational mode of thinking rather than on feelings or emotions (Simon, 1986; Langley, 1989)
criteria that include
evidence, logical
argument and reasoning.

Rational decisions
decisions that are made
using evidence, logical
argument and reasoning.

The rational decision-making model is now being challenged. It is no longer seen as providing
an accurate account of how people typically make decisions (if it ever did). Moreover, its
prescriptions for making better decisions have proved to be incorrect. Instead, contemporary
cognitive research by psychologists has revealed the ways in which decisions are made based
on heuristic models, judgements and tacit knowledge. Emotions now play a greater role in
decision making. People are increasingly asked and explain not what they think but what they
feel. University economics textbooks are being rewritten to match the new realities.

Descriptive model of decision making

Descriptive model Descriptive models of decision making focus on how individuals actually make decisions.
of decision making Each decision made by an individual or group is affected by a number of factors. Some of
a model which seeks to these include:
portray how individuals
• Group relationships
actually make decisions.
• Decision to be made
 Models of decision making 685

• Organizational factors
• Individual personality
• Information availability
• Environmental pressures
• Power relationships and political behaviour

The aim of these models is to examine which of these factors are the most important, and
how they interrelate to produce the decision that is to be made.
One of the earliest, and still among the most influential descriptive models, is the
Behavioural theory behavioural theory of decision making. It was developed by Richard Cyert, James
of decision making March and Herbert (Simon, 1960; Cyert and March, 1963). It is called ‘behavioural’
recognizes that bounded because it treats decision making as another aspect of individual behaviour. For example,
rationality limits the if a researcher interviewed brokers who bought and sold shares in the stock market to
making of optimal determine what factors influenced their decisions, it would be an example of a descriptive
decisions. approach to decision making. It is also sometimes referred to as the ‘administrative model’
and it acknowledges that, in the real world, those who make decisions are restricted
Bounded rationality
in their decision processes. Behavioural theory holds that individuals make decisions
a theory which says
while they are operating within the limits of bounded rationality. Bounded rationality
that individuals make
recognizes that:
decisions by constructing
simplified models that • The definition of a situation is likely to be incomplete
extract the essential • It is impossible to generate all alternatives
features from problems
• It is impossible to predict all the consequences of each alternative
without capturing all
their complexity. • Final decisions are often influenced by personal and political factors

Maximizing a decision- The effect of personal and situational limitations is that individuals make decisions that are
making approach where ‘good enough’ rather than ‘ideal’. That is, they ‘satisfice’, rather than ‘maximize’. When
all alternatives are maximizing, decision makers review the range of alternatives available, all at the same
compared and evaluated time, and attempt to select the very best one. However, when satisficing, they evaluate one
in order to find the best option at a time in sequence, until they alight on first one that is acceptable. The option
solution to a problem. chosen will meet all the minimum requirements for the solution, but may not be the very
best (optimal) choice in the situation. Once an option is found, decision makers will look
Satisficing a decision- no further. The differences between the rational decision making described previously, and
making approach where the bounded rationality discussed here are shown in Table 20.3.
the first solution that
is judged to be ‘good
enough’ (i.e. satisfactory
and sufficient) is
selected, and the search
is then ended.