DECISION

MAKING
DEFINITION
• A characteristic of humans is trying to make
sense of incomprehensible things.
• Can be regarded as the mental progression of
resulting in the choice of a path of action among
some alternative scenarios.
• Every decision making process produces a final
choice. The output can be an action or an opinion
of choice.
• Decision making is said to be a psychological
construct.
• Meaning, that although we can never “see” a
decision, we can infer from visible behavior that a
decision has been made.
• It is a construction that imputes
obligation to action.
• Due to many considerations involved in
many decisions, decision support systems
have been developed to assist decision
makers in considering the implications of
various courses of action.
• They can help reduce the risk of errors.
 DEFINITION: PROBLEM
• A formal statement of a set of
assumptions about the world.
• The assumptions are rarely made explicit.
• Whether we see an event or situation as a
”problem” depends on our view of the
world.
• Problems do not exist independently of
the person who sees them.
• Mistaking the map for the territory.
 BOUNDED RATIONALITY PRINCIPLE

”The capacity of the human mind for formulating and

solving complex problems is very small compared to the
size of those problems whose solution is required for
objectively rational behavior in the real world or even
for a reasonable approximation to such objectivity.”

Simon, H.A. (1957). Administrative Behavior: A study of decision making processes

in administrative organizations, 4th ed. New York: The Free Press.
FACTORS INFLUENCING DECISION-
MAKING
o Complexity
o Uncertainty
o Long time delays between action and
reaction
o Conflicting objectives
o Multiple decision makers
 TYPES OF DECISION
Ill-structured Nonprogrammed Top
Decisions
Type of Level in
Problem Organization
Programmed
Well-structured Decisions Bottom

• Programmed Decision
• A decision that is repetitive and routine and can be made by using a
definite, systematic procedure.
• Nonprogrammed Decision
• A decision that is unique and novel.
• The Principle of Exception
• “Only bring exceptions to the way things should be to the
manager’s attention. Handle routine matters yourself.”
G.Dessler, 2003

April 4, 2006 LIS580- Spring 2006 7

 DECISION-MAKING MODELS
• The Classical Approach

• Have complete or “perfect” information about the situation.

• Distinguish perfectly between the problem and its symptoms.

• Identify all criteria and accurately weigh all the criteria according
to preferences.
• Know all alternatives and can assess each one against each
criterion.
• Accurately calculate and choose the alternative with the highest
perceived value.
• Make an “optimal” choice without being confused by “irrational”
thought processes.
 DECISION-MAKING MODELS
• The Administrative Approach
• Bounded Rationality (Herbert Simon)
• The boundaries on rational decision making
imposed by one’s values, abilities, and limited
capacity for processing information.
• Satisfice
• To stop the decision-making process when
satisfactory alternatives are found, rather than to
review solutions until an optimal alternative is
discovered.
THE DECISION-MAKING
PROCESS

 Define the problem.

 Clarify your objectives.
 Identify alternatives.
 Analyze the consequences.
 Make a choice.
 MULTIPLE PERSPECTIVE
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choices mental models
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 BIASES
Assumptions:
• Judgment is plagued by random error and systematic biases.
• Good judgment requires mental skills exceeding our
capabilities.
Capacity of the mind is small relative to the size of the
problems.
Heuristics and rules of thumb are used to cope with
problem complexity.
Good news
 This allows us to deal with the real world.
Bad news
 This often leads to faulty data acquisition and
processing.