Decision Making

DECISION MAKING DECISION MAKING

DEFINATIONSDecision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that

Has the highest probability of success or effectiveness and Best fits with our goals, desires, lifestyle, values, and so on.

Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them. This definition stresses the information-gathering function of decision making. It should be noted here that uncertainty is reduced rather than eliminated. Very few decisions are made with absolute certainty because complete knowledge about all the alternatives is seldom possible. Thus, every decision involves a certain amount of risk.

KINDS OF DECISIONS

Decisions whether. This is the yes/no, either/or decision that must be made before we proceed with the selection of an alternative. Should I buy a new TV? Should I travel this summer? Decisions whether are made by weighing reasons pro and con. It is important to be aware of having made a decision whether, since too often we assume that decision making begins with the identification of alternatives, assuming that the decision to choose one has already been made.

Decisions which. These decisions involve a choice of one or more alternatives from among a set of possibilities, the choice being based on how well each alternative measures up to a set of predefined criteria.

Contingent decisions. These are decisions that have been made but put on hold until some condition is met.

For example, I have decided to buy that car if I can get it for the right price; I have decided to write that article if I can work the necessary time for it into my schedule. OR even, we’ll take the route through the valley if we can control the ridge and if we detect no enemy activity to the north.

Most people carry around a set of already made, contingent decisions, just waiting for the right conditions or opportunity to arise. Time, energy, price, availability, opportunity, encouragement--all these factors can figure into the necessary conditions that need to be met before we can act on our decision.

DECISION MAKING IS A RECURSIVE PROCESS

A critical factor that decision theorists sometimes neglect to emphasize is that in spite of the way the process is presented on paper, decision making is a nonlinear, recursive process. That is, most decisions are made by moving back and forth between the choice of criteria (the characteristics we want our choice to meet) and the identification of alternatives (the possibilities we can choose from among). The alternatives available influence the criteria we apply to them, and similarly the criteria we establish influence the alternatives we will consider.

COMPONENTS OF DECISION MAKING

The Decision Environment

Every decision is made within a decision environment, which is defined as the collection of information, alternatives, values, and preferences available at the time of the decision. An ideal decision environment would include all possible information, all of it accurate, and every possible alternative. However, both information and alternatives are constrained because the time and effort to gain information or identify alternatives are limited. The time constraint simply means that a decision must be made by a certain time. The effort constraint reflects the limits of manpower, money, and priorities. Since decisions must be made within this constrained environment, we can say that the major challenge of decision making is uncertainty, and a major goal of decision analysis is to reduce uncertainty. We can almost never have all information needed to make a decision with certainty, so most decisions involve an undeniable amount of risk.

The Effects of Quantity on Decision Making

Many decision makers have a tendency to seek more information than required to make a good decision. When too much information is sought and obtained, one or more of several problems can arise.

A delay in the decision occurs because of the time required to obtain and process the extra information. This delay could impair the effectiveness of the decision or solution.

Information overload will occur. In this state, so much information is available that decision-making ability actually declines because the information in its entirety can no longer be managed or assessed appropriately. A major problem caused by information overload is forgetfulness. When too much information is taken into memory, especially in a short period of time, some of the information will be pushed out.

Selective use of the information will occur. That is, the decision maker will choose from among all the information available only those facts which support a preconceived solution or position.

Mental fatigue occurs, which results in slower work or poor quality work.

Decision fatigue occurs, where the decision maker tires of making decisions. Often the result is fast, careless decisions or even decision paralysis--no decisions are made at all.

The quantity of information that can be processed by the human mind is limited. Unless information is consciously selected, processing will be biased toward the first part of the information received. After that, the mind tires and begins to ignore subsequent information or forget earlier information.

Decision Streams

A common misconception about decision making is that decisions are made in isolation from each other: we gather information, explore alternatives, and make a choice, without regard to anything that has gone before. The fact is, decisions are made in a context of other decisions. The typical metaphor used to explain this is that of a stream. There is a stream of decisions surrounding a given decision, many decisions made earlier have led up to this decision and made it both possible and limited. Many other decisions will follow from it.

HOW SHOULD DECISIONS BE MADE?

RATIONAL DECISION MAKINK

ASSUMPTIONS OF THE MODEL- Problem clarity- the problem is clear and unambiguous. The decision maker is assumed to have complete information regarding the decision situationKnown options- it is assumed the decision maker can identify all the relevant criteria and can list all the viable alternatives.Clear preferences- rationality assumes that the criteria and alternatives can be ranked and weighted to reflect their importance. Constant preferences- it is assumed that the specific decision criteria are constant and that the weights assigned to them are stable over time.No time or cost constraints- the decision maker can obtain full information about criteria and alternatives.Maximum payoff- the rational decision maker will choose the alternative that yields the highest perceived value.

THE MODELThe model begins with defining the problem. The problem exists when there is a discrepancy between an existing and a desired state of affairs. Many poor decisions can be traced to a decision maker overlooking a problem of defining a wrong problem.Once the problem is defined the decision maker needs to identify the decision criteria,that will be important in solving the problem. In this step the decision maker identifies what is relevant in making the decision. This step brings the decision maker’s interest, values, and similar personal preferences into the process.The criteria identified are rarely all equal in importance. So the third step requires the decision maker to weight previously identified criteria in order to give them the correct priority in the decisionThe fourth step requires the decision maker to generate possible alternatives that could succeed in solving the problem.

Once the alternatives have been generated, the decision maker must critically analyze and evaluate each one. This is done by rating each alternative on each criterion. The strength and weakness of each alternative become evident here.The final step in this model requires computing the optimal decision. This is done by evaluating each alternative against the weighted criteria and selecting the alternative with the higher total score.

IMPROVING CREATIVITY IN DECISION MAKINGThe rational decision maker also needs creativity, that is, the ability to produce novel and useful ideas. These are ideas which are different from what’s been done before but that are also appropriate to the problem or opportunity presented.Creativity potential- people differ in their inherent creativity, and exceptional creativity is scare. Intelligent people are more likely to be creative. Other traits that have been found to be associated with creativity are- self confidence, risk taking, an internal locus of control, tolerance to ambiguity and perseverance in the face of frustration.The three component model of creativity- based upon the extensive body of research, this model proposes that individual creativity essentially requires:

Expertise Creative thinking skills Intrinsic task motivation

HOW ARE DECISIONS ACTUALLY MADE?

BOUNDED RATIONALITYWhen faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood. This is because the limited information processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize.Because the capability of the human mind for formulating and solving problem is far too small to meet the requirements for full rationality, the individuals operate with in the confines of bounded rationality. They construct the simplified models that extrat the essential features from problem with capturing all the complexity.

One of the more interesting aspects of bounded rationality is that the order in which the alternatives are considered is critical in determining which alternative is selected.Assuming that a problem has more than one potential solution, the satisfying choice will be the first accepted one, the decision maker encounters.

COMMON BIASES AND ERRORSOverconfidence bias- when an individual is given factual question and is asked to judge the probability that the answer will be correct, the person tends to be far more optimistic. Anchoring bias- the tendency to fixate on initial information. The anchoring bias occurs because our mind appears to give a disproportionate amount of emphasis to the first information it receives. So initial impression, ideas, prices, and estimates carry undue weight relative to information received later.Confirmation bias- this represents a specific case of selective perception. We seek out information that reaffirms our past choices, and we discount information that contradicts past judgments. That is we tend to accept information at face value. Availability bias- tendency of people to base their judgment on information that is readily available. Events that evoke emotions, that are particularly vivid, or that have occurred more recently tend to me more available to our memory.Representative bias- tendency to assess the likelihood of an occurrence by inappropriately considering the current situation as identical to the past ones.Escalation of commitments- refers to staying with a decision when there is clear evidence that it is wrong.Randomness error- our tendency to believe we can predict the outcome of random event is randomness error. Winner’s curse- this is a decision making dictum that argues that the winning participants in an auction typically pay too much for the winning item. The winner’s cure occurs in competitive bidding.

INTUITIVE DECISION MAKING- This is an unconscious process created out of distilled experiences. It is well known that experienced decision makers are able to directly recognize the best option or course of action in many tricky situations. The solution just comes to them from somewhere in their subconscious mind, instead of being a result a lengthy chain of logical derivations or a computer output from a complicated Monte Carlo simulation.Decision making situations where intuitive approach can help most include the following.

Expedient decision making and rapid response are required. The circumstances leave us with no time to go through complete rational analysis.

Fast paced change. The factors on which we base our analysis change rapidly. The problem is poorly structured. The factors and rules that you need to take into account are hard to articulate in an

unambiguous way. One has to deal with ambiguous, incomplete, or conflicting information. There is no precedent.

The subconscious mind somehow finds links between your new situation and various patterns of your past experiences. We may not recall most of the details of those experiences. And even if we did, it may be very hard to express the lessons you learnt in a form acceptable for analytical reasoning. Yet, our subconscious mind still remembers the patterns learnt. It can rapidly project your new circumstances onto those patterns and send you a message of wisdom. That message comes as our inner voice and will most likely be expressed in the language of your feelings.

EIGHT STEPS TO IMPROVE THE

DECISION-MAKING! “Half of all decisions fail.” These are the findings from twenty years of studying decision-making at Ohio State.

When faced with a decision, think about the desired outcome rather than facing the decision as a problem to be solved. Problems are negative almost by definition and negative thoughts invoke the constricting “fight or flight” response in us rather than helping us to relax and be inspired and creative. Good decisions need a creative thought process.

Not to think oneself as Superman or Wonderwoman. Enlisting the aid of others has been proven to improve decision-making. Multiple voices mean more options to choose from. Involving others in the process facilitates parallel processing versus sequential processing by the lone decider.

Consider the Golden Rule. Over the last few years, ethics has become a hot topic in our society. There are all kinds of initiatives being undertaken in our schools to address this issue, but the easiest and quickest solution is to teach decision makers to, “Do unto others as you would have others do unto you.”

Sleep on it. There are few times in life when instant decisions are required. Most decisions can be considered before any action is taken. There are some who will take this as an approval to put off the decision indefinitely which is not recommended. Rather, we should sleep on a decision before taking any action. This allows our subconscious a chance to participate in the process and possibly provide you with new insights.

Always state the decision in a positive frame. Since we have been trained to approach decisions as problems to be solved, it is not surprising that our decision is to not have the problem. There are two things at play here. We get what we focus on. Our mind doesn’t recognize the word “not”. As an example, an organization has a check list of reasons for why an order was delivered late. This only compounded the problem until they changed their focus to measuring and rewarding when orders were on time or ahead of schedule.

Trust the gut. This is a tuff one for some of us fact based people to accept, but the truth is that when your gut tells you something is wrong you need to pay attention. At the very least, think about the words of Henry Ford when he said, “If you think you can do a thing or think you can't do a thing, you're right.” Something in you doesn’t believe you can make this decision work.

Tell the self “why”. Traditional decision-making focuses on how to make decisions and it results in only a fifty percent success rate. It is convinced that we will make better decisions if we focus on why we are making a particular decision.

Begin Now. Aristotle said, “Well begun is half done.” Begin the implementation of our decision immediately with the one small thing you can do right now to move us toward the desired outcome.

REFRENCES:

BOOKS RFERED-

ORGANIZATION BEHAVIOR By- Stephen P. Robbins

Timothy A. Judge

Seema Sanghi

WEBSITES REFERED- VIEWED ON -1ST ARRIL 2009

http://www.virtualsalt.com/crebook5.htm

http://en.wikipedia.org/wiki/Decision_making