summary of chapter 6

CHAPTER SIX
DECISION MAKING

HOW DO MANAGERS MAKE DECISIONS?
Decision making is a set of eight steps that include identifying a problem, selecting an alternative, and evaluating the decisions effectiveness.
The eight steps of the decision making process are:-
1. Identification of a problem
2. Identification of decision criteria
3. Allocation of weights to criteria
4. Development of alternatives
5. Analysis of alternatives
6. Selection of an alternative
7. Implementation of the alternative
8. Evaluation of decision effectiveness

HOW ARE DECISIONS MADE?
Rationality: managers make consistent, value maximizing choices within specified constraints.
Bounded Rationality: managers make decisions rationally but are limited (bounded) by their ability to process information, so they end up satisficing.
Intuition: decisions are made on the bases of experience, feeling and accumulated judgment.

WHAT TYPES OF PROBLEMS DO MANAGERS FACE?
STUCTURED PROBLEMS: are straight forward, familiar and easily defined. For instance a server spills a drink on a customer’s coat. The manager has an upset customer and he needs to do something about it. Programmed decision is a repetitive decision that can be handled by a routine approach. A procedure is a series of interrelated steps that manger can use to respond to a structured problem.
UNSTRUCTURED PROBLEMS: are new or unusual and for which information is ambiguous or incomplete. Nonprogrammed decisions are unique and require a custom made solution.
MANAGERS MAKE DECISIONS when there is
1. Certainty
2. Risk
3. Uncertainty

DIFFERENT STYLES OD DECISION MAKING:
1. ANALYTICAL style is characterized by high tolerance for ambiguity and a rational way of thinking
2. DIRECTIVE style is marked by low tolerance for ambiguity and a rational way of thinking.
3. CONCEPTUAL style characterized by high tolerance for ambiguity and a rational way of thinking.
4. BEHAVIORAL style low tolerance for ambiguity and an intuitive way of thinking.

BIASES AND ERRORS THAT EFFECT DECISION MAKING
o Overconfidence
o Anchoring effect
o Confirmation
o Sunk costs
o Representation
o Self-serving
o Immediate gratification
o Selective perception
o Framing
o Availability
o Randomness
o Hindsight