Decision Making

in Organizations

Chapter 10
Rational Decision-Making Model

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 Assumptions Of Rationality
Single, well-
defined goal
is to be achieved
All alternatives Problem is
and clear and
consequences unambiguous
are known
Rational
Decision Final choice
Preferences Making will maximize
are clear payoff

Preferences
No time or cost
are constant
constraints exist
and stable
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 Alternative Decision Model
 Bounded Rationality:
Rationality There are
organizational, social, and human
limitations that makes optimal decisions
not possible
 Alternative Decision Model
 Satisficing: the first alternative solving the
problem
 Implicit preference: adding alternatives but
bias toward the implicit favorite
 Successive comparison: incremental
improvement
 Intuitive: An unconscious process out of
distilled experience
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 Cultural Differences
 Whether situations are perceived as
problems requiring a decision be
made.
 What type of decision-making unit
(individual or group) is employed.
 Who is expected to make the
decision (i.e., at what level is the
decision made).
 How much time should be taken to 5
Time Pressure
Inexperienced individuals generally take
longer to make decisions than experts
do.
 Expert decision makers rely on their “gut
instinct” by drawing on a wealth of
accumulated experiences.
To increase decision-making
effectiveness under time constraints:
 Recognize your prime objectives
 Rely on outside experts
 Anticipate crises
 Learn from mistakes 6
Biases: Risky Choice
Framing
The government is combating a rare
disease expected to take 600 lives. Two
alternative programs have been
proposed. Program A will save 200
people if adopted. Program B has a 1/3
chance of saving all 600 people, but a
2/3 chance of saving no one. Which
program do you prefer?
Suppose you have to choose between
Program C and D. Program C will cause
400 people to die, while Program D has
a 1/3 chance that no one will die, and a
2/3 chance that all 600 will die. 7
Biases: Attribute Framing
You and your friend are walking in the desert
and feel so thirsty. Your friend remembers a
last bottle in your backpack, and asks you to
see how much water is in the bottle. He wants
to quit if there is not much water.
You find the bottle and there is 50% water.
How you do tell your friend?
Hey, the bottle is still half full!
Oops, the bottle is already half empty!

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Biases: Goal Framing
If you visit the dentist regularly,
you have good chance of healthy
teeth.
If you fail to visit the dentist
regularly, you have good chance of
toothache, cavities, and
extractions.

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 Ethics Questions
1. Does the contemplated decision
violate the obvious “shall nots”?
2. Will anyone get hurt?
3. How would you feel if your decision
was reported on the front page of your
newspaper?
4. What if you did it 100 times?
5. How would you feel if someone did it to
you?
6. What’s your gut feeling?
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