DECISION MAKING
Chapter 18 :
Decision Making
The Nature of
Decision Making
Decision Rationality
Types of Decisions
Programmed
Decisions
Non-programmed
Decisions
Models of Behavioral
Decision Making
Economic
Rationality Model
Simon's Bounded
Rationality Model
The Judgmental
Heuristics and
Biases Model
The Social Model
Behaviorally Oriented
Decision-Making
Techniques
Traditional
Participative
Techniques
Modern
Participative
Techniques
Creativity and
Decision Making
Group Decision Making
Group
Polarization
Groupthink and
Group Problem
Solving
Chapter Summary
Decision making is an
integral function of
management. Decision
making involves selecting
or choosing a particular
course of action from
among the various
alternatives available in
the decision making
situation. The process of
decision making, as
described by Herbert
A.Simon, involves 3
phases, namely intelligence
activity phase, design
activity phase and choice
activity phase. The
intelligence activity phase
relates to identification of
the problem. The design
activity phase includes
developing and analyzing
various courses of action
and the choice activity
phase involves choosing
the best course of action.
Rationality in decision
making refers to the
appropriateness of the
chosen means towards
accomplishment of the end
objectives. Decisions made
by managers may be
programmed or non-
programmed in nature
depending upon the
frequency of occurrence of
the decision making
situation. A programmed
decision is the decision
that is made when the
decision maker has
adequate information
pertaining to the decision
making situation. These
decisions are routinely
made decisions. Non-
programmed decisions, on
the other hand, are the
decisions made in
situations which occur
rarely or are unfamiliar. In
this case, the process of
decision making involves
identification and
evaluation of alternatives
without the aid of a
decision rule.
The role and importance of
human behavior is
emphasized by the
behavioral model of
decision making. Four
variations of behavioral
models are discussed in
the chapter. The economic
rationality model assumes
that the decision maker is
perfectly rational while
deciding over a particular
course of action and
follows a logical and
systematic sequence of
actions. Simon's bounded
rationality model proposes
that decision makers
operate with a 'bounded'
rationality. Bounded
rationality is said to occur
when decision makers get
satisfied with a 'less-than-
ideal' solution to a
particular problem. The
judgmental heuristics and
biases model takes the
bounded rationality model a
step ahead by clearly
identifying the cognitive
biases of the decision
maker that influence his
decisions. This model
identifies three biases -
the availability,
representative and the
anchoring and adjustment
heuristics.
Finally the social model, in
contrast to the economic
rationality model, states
that human feelings and
emotions, by and large,
affect the decisions made
by the decision maker.
Behaviorally oriented
decision making techniques
emphasize the importance
of employee participation in
the process of decision
making. Increased
employee participation
leads not only to better
understanding of the
decision making situation
but also helps identify a
wider range of alternatives
for the problem on hand.
Besides, increased
employee participation in
decision making results in
increasing employee
productivity and job
satisfaction, apart from
reducing employee
turnover.
The Scanlon Plan is one of
the most important
traditional participative
techniques of decision
making. It involves creation
of formal committees to
encourage labor
participation in the decision
making process.
Introduction of suggestion
boxes is another technique
of problem solving. On the
other hand, quality circles
and self-managed teams
are examples of modern
participative techniques of
decision making.
Organizations, of late,
have realized the
importance of creativity in
the process of decision
making. Individuals or
organizations are said to
be creative when they not
only identify the problem
accurately but also
possess the ability of
generating innovative
alternatives to the given
problem solving situation.
Two major dimensions of
creativity are divergent
thinking and cognitive
complexity. Divergent
thinking refers to 'out-of-
box' or innovative
thinking. Cognitive
complexity describes the
extent to which an
individual uses elaborate,
intricate and complex
stimuli towards solving
philosophical or abstract
problems. These two
dimensions affect the
degree of creativity among
different individuals.
Decision making in a group
involves two phenomena -
group polarization and
groupthink. Group
polarization refers to the
shift of employee attitude
towards a more extreme
and reinforced state after
a discussion within the
group, than was the state
before the discussion.
Groupthink, on the other
hand, happens when the
group decides upon a
course of action which is
accepted by a majority of
its members, even before
actually discovering all the
alternative solutions to the
problem.
The most common forms of
group problem solving are
brainstorming, nominal
group technique and the
Delphi technique.
Brainstorming aims at
generating all possible
alternatives to a given
problem without actually
attempting to evaluate or
assess these alternatives.
The nominal group
technique involves
employee participation in
problem solving, without
the need for any verbal or
physical interaction among
the members. The nominal
group technique nullifies
the dysfunctional effects of
group decision making.
The Delphi technique is
similar to the nominal group
technique with a difference
that in Delphi technique,
the participants do not
actually meet at a common
place. Instead, these
members are informed
about the problem through
mails and are requested to
post their opinions about
the problem on hand.
Depending upon the
decision making situation,
managers employ any of
the problem solving
techniques.