Decision Making Management - Assignment Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Tutor : xxxxxxxxxxx Title : Decision Making Management Course : xxxxxxxxxxx @2009 1. What are the key differences between Naturalistic and more traditional Decision Theoretic explanations of human decision making? Which of these two approaches provides the better explanation of managerial decision making? Introduction Naturalistic decision making basically involves looking at what is actually happening in the real world in making decisions and interpreting issues rather than using of outlined theories. The traditional theoretic explanation on the other hand uses explanatory and rigid theories in order to make decisions. The use of naturalistic decision making in managerial decision making is more advantageous in the managerial decision making process, due to the fact that this particular approach involves evaluation of what is really happening in the real world .Many decisions made in organizations involves choosing between many options that should be effectively analyzed in order to come up practical decision that can enhance effective running of the organization. Various options are weighed in accordance to the realistic situation on the ground, or by measuring chances of success as evident in the real world, as opposed to theoretic explanation approach were options are not weighed based on realistic facts and varied view points but rather rigid outlined theories, which may not actually facilitate realistic decisions according to the present needs of the organization. The naturalistic approach can also be described as the best method for facilitating situational assessment in managerial decision making. The aspect of situational assessment requires analyzing all the available options rather than judging one option that is superior to others as is practiced in the traditional decision theoretic approach. Situational features assists in correct evaluation and also offers a good ground for the building skill. Conclusion Among the two approaches used in decision making, the naturalistic approach is much more suitable in managerial decision making as opposed to the traditional theoretic approach in decision making which is not has not been sufficiently tested in the context of the real world .Furthermore theories have only been made applicable in limited situations and thus their significance may be limited. 2. In what ways do motivational factors bias how managers make decisions? Introduction Motivation can be defined as a goal directed behaviour or a driving force that makes an individual to act in a particular way in order to attain a certain goal. In the running of any organization, managers have particular goals that they set in order to meet certain needs of the organization. Motivational factors may affect a mangers way decision making if biasness is involved. Motivational biasness offers faulty thinking that can lead to poor judgment which may in tern be difficult to correct. There are various ways in which motivational factors may bias the way a manager makes decisions. In situations were a manager has illusions that are very positive about the goals that he or she wants to achieve at a particular time. The manager may actually be overconfident with his or her ability to achieve the set goals as a result the manager can make bias decisions. Optimism that is unrealistic in the achievement of objectives or goals of an organization may result in bias decisions by managers. If the manager feels that he or she is automatically going to achieve positive results in a particular task and the chances of an outcome that is negative are less likely to occur. Then decisions made may be bias due to lack of weighing the outcome in a realistic manner, which is by analyzing the possibility of failure or success of a particular project. Motivational factors may also bias the decision made by managers if the manager has attributes that are basically self serving. If the manager believes that success is attributed to his or her own skills and ability then this type of positive image may be overestimated. The implication of this is that a manager may make decisions that are bias according to goals that are basically self serving. Individuals often show determination in the things that they mostly have preference, this may justify the reason for biasness. Conclusion Motivational factors can result to bias how managers make decisions it is therefore essential that managers to set goals that are basically attainable in order to avoid making decisions that are bias, which intern may affect the performance of the organization. 3. Outline some of the major aspects of mental accounting and the implications they have for the effectiveness of financial decision making. Introduction Mental accounting can be defined as a group of cognitive operations that help people and households to evaluate and categorize financial activities. Mental accounting is essential in understanding how people formulate financial transactions within their heads this therefore influences their choice of behavior when it comes to financial matters. The implication of mental accounting, on effectiveness of financial decision making is that the organization can make good financial decisions that are economical .The aspect of preparation of a good budget should first start with mental analysis of the companies gains and looses in order to come up with a good budget. Secondly mental accounting can influence effective financial decision making in terms of editing which involves weigh various options that affect consumer choice. For instance the information that is presented about a certain product can influence the choice made by a consumer of whether or not to purchase a product. Editing involves how people perceive and make decisions. Such analysis may involve both losses and gains which are evaluated before a decision is made. For instance if a company is trying to evaluate if advertising through posters, is more effective and economical as opposed to advertising through the media. The concept of editing which basically requires mental accounting is useful, in making the most suitable decision. The evaluation of the outcome of an organizations performance can effectively be performed through mental accounting. This particular approach is used traditionally to ensure that consumers gain from the transactions made by the organization. This is done by enhancing utility through transaction utility and acquisition utilities were the value of a good is relevant to its price. The process of evaluation is essential in giving benefits which should be the core agenda for any organization. Mental accounting is thus essential the evaluation process. Conclusion 4. What distinguishes reason-based and value-based approaches to decision making? What implications does the reason based approach have for managers? Introduction The use of reason based approach of decision making involves the use of the cognitive aspects or our thinking in the making of decisions. The rationale model assumes that decisions are built basing on facts that are measurable and applicable. Value based decisions on the other hand involves the aspect of basing the decisions made on the significance of a particular choice in order to make decisions. The aspect of value based approach of decision making involves challenging the characteristic of a person acting according to their own best interests but rather putting into consideration other factors such as looking at the interests of others or the moral values that are stated by society. Through the use of reason based approach in decision making, a manager can eliminate the aspect of biasness. It is common for biasness to influence the decision making process within an organization. Cognitive interventions help in improving the out come of any particular decision. The rationale model can be effective in the elimination of biasness in the decisions made by a manager, due to the fact that one is able to make an assessment through reasoning and analysing available choices in order to come up with maximum utility out of each choice. It is important that the decisions made by a manager should be fair therefore biasness should not exist in the decisions of an organization. This basically requires that a manager posses good reasoning capacity. For example; if a manager is faced with the decision of hoarding stock, or increasing the price of the present stock. The disadvantage associated to rationality is that decisions may sometimes be made in a rush in order to avoid use of much effort by reasoning. This therefore results to difficulty in getting outcomes that are objective. Conclusion Good decision making skills are can make the running of an organization to be successful, however it is essential that managers make decisions basing on maximum evaluation of the situation at hand. 5. Outline the distinguishing characteristics of System 1 and System 2 thinking, why people use these different forms of thinking and the relationship between them. What are the implications of the distinction between these forms of thinking for managerial decision making? Introduction When trying to make decisions people are usually faced with alternatives that require that interpretation in order to come up with the right decision to influence the best course of action. Decisions can either be in the form of System 1 that can later results to interpretations that are biased or the system 2 form which bases thinking on the existing facts. The reason as to why people usually use different forms of thinking in decision making is to come up with a positive outcome of the choices they make. For instance the use of various criteria’s to make decisions is essential for making an analysis of whether the outcome will produce expansion in the demand for a product in the future. Furthermore the second related factor is to determine the attractiveness of the outcome in relations to utility and value. The implications of the distinction between these forms of thinking for managerial decision making is that the rules that are linked to the system 2 of thinking , consists of a theorem that is binominal. However since many people are not usually aware of the theorem, they have to rely on system 1 if they have to make judgment without evaluating the quality of the decision they are going to make. In this particular situation people turn to their personal experience in order to make decisions. The implication of using personal experience in managerial decision making is that bias and quick decisions may actually be made. This is because it is usually rare for common occurrence to take place therefore the aspect of basing decisions on evidence and facts that one has witnessed or experienced can not actually be a solution to solving a new problem. Conclusion People need to be encouraged to use the system 2 kind of thinking due to the fact that judgement is usually based on the data that is available at hand rather than experience, in order to come up with more practical and useful decisions. 6. Outline some of the heuristic forms of thinking that people use when making judgements about risk and uncertainty and consider what implications their use has for managerial decision making effectiveness. Introduction The heuristic form of thinking involves making decisions based on a particular knowledge domain in order to give solution to a particular problem. The various forms of heuristic thinking that people use in the making of decisions about uncertainty and risk include situations whereby the aspect that is being judged brings about a feeling of anxiety then the anxiety results to reflecting on the issue as being risky, on the other hand if the situation induced emotions that are positive, then it is again reflected as being safe. Secondly if an individual uses the approach avoidance criteria in order to make judgment .Thirdly if more of positive response is induced in a person, the individual can therefore judge situations as less risky. The implications the use of the heuristic thinking for managerial decision making is that proper analysis of the situation at hand can be done due to the fact that the heuristic approach tries to resolve issues in the pattern of identification of the problem, analysing the problem systematically then coming up with a relevant solution .It can therefore be stated that the heuristic form of thinking can be essential in managerial decision making .This is because decisions made will be effectively analysed. 7. In what ways do stress and emotion change how people make judgements and take decisions? What are the implications of these changes for managerial decision making? Introduction The aspects stress and emotions that an individual faces may have an impact on the decisions that one makes. Managers on the other hand are not excluded from such feelings. For instance if one of the staff members is not effectively performing his or her duties and is rude, the manager can develop certain negative feelings towards this individual, or in situations whereby a manager is going through stress as a result a divorce. Such circumstances can actually affect the thinking of a manager thus affecting decisions of that affect the entire organization. Stress and emotions can therefore affect the way people make judgments about issues, for instance research indicates that stress affects the human cognition. The result of this is that the decisions made will actually not be very realistic due that the thinking of an individual is not properly coordinated. Different states of stress can also result to changes in the information processing system of a person whereby the signals that are associated to a certain way of behaviour do not occur normally. For instance a person would respond to being angry by laughing. Stress can also result to changes in the emotions of an individual thus affecting the way in which the person makes decisions. Evidence also indicates that stress can cause changes in cognitive strategies that are underlying within an individual the result of this is that an individual’s behaviour may change and so is the way in which he or she makes judgement. Another impact is that an individual will have change of moods which again can affect the decisions made. Particular events/phenomena become emotionally marked such that whenever one thinks of them the emotion is experienced they tend to feel sad this can in tern affect their judgment. The implications of these changes for managerial decision making is that decisions made will definitely be faulty in many circumstances .Judgments and decisions would actually be bias , unrealistic and not relevant to the situation at hand . The changes in moods that are as a result of stress for instance may lead to inconsistency in finding, increased or reduced risk taking and also anxiety. The impacts of such behavioural changes will result to making wrong decisions thus the organization may experience failure. Conclusion It is essential that managers who are undergoing stress or high levels of emotional changes to find mechanisms such as counselling which will enable him or her to develop mental stability, which is very necessary for decision making. 8. What are some of the key differences between the decision strategies used by managers? On what basis do managers adopt one strategy rather than another? Introduction The use of strategies of decision making is a framework that is important for decision making in an organization. Strategy can be defined as criteria for performing a certain task. The key differences that exist within each strategy that is used in making decisions by managers is governed by the advantages and disadvantage that is associated to each strategy. The second aspect is the complexity that is associated to the chosen strategy. In addition considerations are made on the problem being dealt with, the environment in which the decision is made, and the decision maker’s abilities to use that particular strategy in solving the situation at hand. The adoption of any particular strategy is associated to the principal of cost benefit that is the using of the benefits associated to the using of the strategy in balance to the potential costs associated to the strategy. The selection of a strategy is also associated to the desire to make a decision that that is most accurate and the need for an information processor that is limited in order to minimize efforts. Accuracy that is associated to a strategy also influences if a manager may choose to adopt one strategy at the expense of another. The strategy should also be flexible in that changes can be made from moment to moment in light of the available information or task conditions. 9. Briefly outline Prospect Theory and identify the relevance it has for understanding and improving managerial decision making The prospect theory is a contemporary that is associated to traditional theories. This particular theory involves the terms of probability and utility. Judgment s of uncertainty is also drawn from this particular theory. This particular theory is relevant in the understanding of managerial decision making due to the fact that decision making basically requires the weighing of probability or chances of success of the chosen decision. Furthermore decision making also requires the analysis of usefulness of any particular decision in improving managerial decisions. The disadvantage associated to this model is that it basically relies on theoretic perspective that consists of using a ridged view point rather that using varied view points. 10. Critically evaluate the RPD (Recognition-primed Decision Making) model and consider the extent to which it can explain how managers take decisions The Recognition-primed Decision Making model is developed in the context of decision making were experience and knowledge is used in the decision making process. If for instance one is required to make a decision out of various options, such as in a state were the situation is obvious and recognized, understanding the types of goals to be accomplished in that particular situation is important .The formulation of expectations that aims to serve and check the accuracy the suggested situations is also important. Recognition-primed Decision Making also involves the development of a course of action when dealing with complex situations that are known rather than recognized. This will allow a typical action to be modified to the particular features of the current situation. Complex RPD Strategy is used in situational assessment were a single interpretation of situation is being assessed, a course of action is modified rather than being evaluated. This particular attributes thus makes the RPD model a suitable mechanism for decision making by managers. 11. What are errors of coherence and correspondence in human judgement and why do they come about The errors of coherence and correspondence to human judgment include aspects as biasness, in some circumstances human judgment may be affected by biasness .Secondly errors associated to the outcome or goal error, were there is confusion when it comes to outlining the outcome of a Particular decision .The other error in human judgment involves availability error were the information to be analyzed is incomplete and thus the judgment made becomes narrow. These particular errors come about due to issue such as time and pressure. Time and pressure will vary across different situations. Also, there is some evidence to suggest that time pressure reduces the quality of the decisions, though this is partly dependent upon the strategy adopted to cope with time and pressure. 12.Discuss the primary differences between compensatory and non compensatory decision strategies, explain why managers might adopt one of these types of strategy rather than another and the implication this may have for the effectiveness of their decision making. Categories of strategies that are used in decision making can be categorized as non compensatory and compensatory .The compensatory of making decisions ensures that the available information is analysed carefully and substitutions are made between the available choices. Non compensatory decision making strategy on the other hand involves the use of enclosed rationality in making decisions. The non compensatory criterion does not involve analysis of information and substitution of the available choices. Furthermore the strategy aims at reducing the number of strategies to be carefully evaluated. When it comes to choosing the best method for decision making, findings have indicated that the use of the non compensatory strategies is widely used in order to save efforts of using the cognitive domain in decision making. However the best criterion is compensatory of making decisions which ensures that the available information is analysed carefully and substitution are made between the available choices. This is due to the fact that the decisions made will be well analyzed. 13. Outline some of the errors in thinking and reasoning which underlie managerial judgement and decision making and consider procedures that can be put in place to overcome them. Errors of thinking are mistakes in reasoning that can be made by an individual in order to find an easy solution to a particular problem. There are various errors of reasoning such as errors of justification whereby an individual tries to avoids being responsible for their actions. For instance if a manager made wrong financial decisions which later affect the earnings of the company however he later blames it on the junior workers. Another error in decision making involves errors of omission which is associated to omission of real facts in order to attain a good out come. The error of commission is another form of decision making error which involves denial of true facts. Super optimism is another form of error whereby an individual becomes unrealistic about the occurrences of the future. The procedures of effectively dealing with the errors of reasoning involves proper analysis of the problem then later finding varied opinions about the decision , then later weighing all options effectively before coming up with a decision. 14. What is a decision frame? Use Prospect Theory to explain how decision framing influences later stages of the decision process and the implications that this may have for the effectiveness of managerial decision making Decision frames are maps or directives that are used in making a decision, during the decision making process. Direct comparison between the loss and gain is involved in evaluating the out come of a particular problem.The prospect theory on the other hand involves Judgment s of uncertainty which is basically drawn from this particular theory. The last stage of the decision making process which is implementation requires that proper analysis of the outcome of the decision ways effectively made in order to find out if the outcome will be loss or gain oriented. The prospect theory can also be used to make judgment of the out come of the decision made whereby the uncertainty of the success of a particular project can be evaluated basing on the available theories. These factors are essential to managers when it comes to making decisions concerning the running of the organization. 15. ‘Time pressure, stress and emotion are major factors in determining managerial judgement and decision making’. Discuss Managerial decision making is influenced by both intrinsic and extrinsic factors such as time and pressure. Under the influence of time pressure, negative information is actually given more importance, this may affect the quality of the decision. Furthermore under the influence of time pressure, fewer attributes of the information can be attended to due to the fact that there is limited time to analyze the information effectively. Time pressure also changes the strategy; increased use of non-compensatory strategies; modeling studies show this change to be adaptive – if decision makers had used a normative model that would have run out of time before looking at all alternatives. Stress and emotions on the other hand influence decision making in various ways. For instance an individual under stress may experience changes in the information processing system. The impact of this is that the individual may have narrow attention span, which affects decisions made because the individual was not able to concentrate and understand the problem effectively. Emotions on the other hand may influence a mangers decision if he or she is experiencing frequent shifts in moods such as always being angry, the decisions that he or she makes may actually be influenced by negativism. Conclusion Managers should be aware of the factors that affect the out come of the decisions they make, in order for them to make good decisions for the running of the organization. Bibliography Bazerman, M. & Moore, D. A. (2008). Judgement in managerial decision making. 7th Edition; Wiley. Chapter 5. Read More