Foundations of Decision Making Chapter 4 Foundations of Decision Making PowerPoint Presentation by Charlie Cook Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Psychological test It is a story about a girl. While at the funeral of her own mother, she met this guy whom she did not know. She thought this guy was amazing, so much her dream guy she believed him to be, that she fell in love with him there but never asked for his number and she went home thinking of that guy all day all night. Then one week later, she killed her own sister.    So why did she want to kill her own sister? ok, start cracking your brains now for the answer. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

good for you. Psychological test If you answered this correctly, you think like a psychopath. This was a test by a famous American psychologist used to test if one has the same mentality as a killer. Many arrested serial killers took part in this test and answered it correctly. If you did not answer correctly - good for you. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

L E A R N I N G O U T C O M E S After reading this chapter, I will be able to: Describe the steps in the decision-making process. Identify the assumptions of the rational decision-making model. Explain the limits to rationality. Define certainty, risk, and uncertainty as they relate to decision making. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

L E A R N I N G O U T C O M E S (cont’d) After reading this chapter, I will be able to: Identify the two types of decision problems and the two types of decisions that are used to solve them. Describe the advantages and disadvantages of group decisions. Explain three techniques for improving group decision making. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Decision Making Decisions 决策 Decision-Making choices from two or more alternatives Decision-Making A set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution © Prentice Hall, 2002 6-6

Decision-Making Process 任何方法不能保证你的决策是正确的，但是合理的方法可使你作出比别人更高明的决策。 a comprehensive, 8-step process 实施方案 确认标准 分配权重 开发方案 分析方案 选择方案 识别问题 评估结果 © Prentice Hall, 2002 6-7

Decision-Making Problem Decision criteria A discrepancy between an existing and a desired state of affairs Decision criteria Factors that are relevant in a decision Decision making is a process rather than a simple act of choosing among alternatives. The decision-making process consists of eight steps which starts with identifying the problem, moves through selecting an alternative that can alleviate the problem, and concludes with evaluating the decision’s effectiveness Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Criteria and Weight in Car-Buying Decision (Scale of 1 to 10) CRITERION WEIGHT Price 10 Interior comfort 8 Durability 5 Repair record 5 Performance 3 Handling 1 After identifying a problem, the manager should select appropriate decision criteria (step 2). These criteria reflect the factors which the manager thinks are relevant in a decision. Because all criteria are not equally important, the manager must prioritize each one by allocating weights to the decision criteria (step 3): that is, indicating the relative importance of the relevant criteria by assigning a weight to each. Copyright © 2004 Prentice Hall, Inc. All rights reserved. EXHIBIT 4.3

Assessment of Car Alternatives INITIAL INTERIOR DURA- REPAIR ALTERNATIVES PRICE COMFORT BILITY RECORD PERFORMANCE HANDLING TOTAL Jeep Cherokee 2 10 8 7 5 5 37 Ford Mustang 9 6 5 6 8 6 40 Mercedes C230 8 5 6 6 4 6 35 Pontiac Grand Am 9 5 6 7 6 5 38 Mazda Tribute 5 6 9 10 7 7 44 Dodge Durango 10 5 6 4 3 3 31 Volvo S60 4 8 7 6 8 9 42 Isuzu Axiom 7 6 8 6 5 6 38 BMW 325 9 7 6 4 4 7 37 Audi A6 5 8 5 4 10 10 42 Toyota Camry 6 5 10 10 6 6 43 Volkswagen Passat 8 6 6 5 7 8 40 Next, the manager must list, but not evaluate, feasible problem-solving alternatives (step 4). Then, he or she must analyze each one (step 5). As each alternative is evaluated against the criteria, the strengths and weakness of each alternative will become evident. Copyright © 2004 Prentice Hall, Inc. All rights reserved. EXHIBIT 4.4

Weighting of Vehicles (Assessment Criteria X Criteria Weight) Obviously, most decisions contain judgments which are reflected in the criteria chosen, the weights assigned to them, and the evaluation of the alternatives. Then, the manager should select the alternative that scored the highest in the fifth step (step 6). Copyright © 2004 Prentice Hall, Inc. All rights reserved. EXHIBIT 4.5

Decision-making (cont’d) Decision implementation Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it The decision-making process can fail if the chosen alternative is not implemented properly. Successful decision implementation (step 7) includes identifying those who will be affected by the decision and gaining their commitment to the decision. The last step in the decision-making process (step 8) answers this question: Did the alternative that was chosen and implemented accomplish the desired result. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Making Decisions: Circumstances Certainty 确定性 the outcome of every possible alternative is known Uncertainty 不确定性 there is not full knowledge of the problem reasonable probabilities for alternative outcomes cannot be determined. Risk 风险性 The probability that a particular outcome will result from a given decision Copyright © 2004 Prentice Hall, Inc. All rights reserved.

一位上海出租司机如何晋身收入前三位？ “给你举个例子。那天人民广场，三个人在前面招手。一个年轻女子，拿着小包, 刚买完东西。还有一对青年男女，一看就是逛街的。第三个是个男子，拿着笔记本包。我看一个人只要3秒钟。我毫不犹豫地停在这个 男子面前。这个男的上车后说：为什么你毫不犹豫地开到我面前？前面还有两个人，他们要是想上车，我也不好意思 和他们抢。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

一位上海出租司机如何晋身收入前三位？ 我回答说，中午的时候，还有十几分钟就1点了。那个女孩子是中午溜出来买东西 的，估计公司很近；那对男女是游客，没拿什么东西，不会去很远；你是出去办事的，拿着笔记本包，一看就是公务。而且这个时候出去，估计应该不会近。那个男的就说，你说对了，去宝山。” Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Making Decisions: The Rational Model Rational Decision Making 理性决策 Describes choices that are consistent and value-maximizing within specified constraints 管理者在具体的约束条件下作出一致的，价值最大化的选择。 When confronted by a complex problem, most people will reduce the problem to its simplest level and satisfice by seeking solutions that are satisfactory and sufficient. Eschewing full rationality, they operate within bounded rationality and construct simplified models to extract the essential features of the problem and then behave rationally within the limits of the simple model. Here is how the bounded rationality typically operates: Once a problem is identified, the search for criteria and alternatives usually results in a limited list of choices that are easy to find or highly visible—familiar criteria and tried-and-true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. The review will not be comprehensive—not all alternatives will be evaluated carefully. Instead, the decision maker will begin with alternatives that differ only to a small degree from the choice currently in effect. Following along familiar and well-worn paths, the decision maker will review alternatives only until one that is “good enough” (that meets acceptable levels of performance) can be found. The first alternative that meets the “good enough” criterion ends the search. So the final solution represents a satisficing choice rather than an optimizing one. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Assumptions of Rationality 理性假设 The model contains seven assumptions: Problem clarity means the problem is clear and unambiguous. Single goal means that a single, well-defined goal is to be achieved. Known options mean that all relevant criteria and viable alternatives can be identified. Clear preferences show that criteria and alternatives have been ranked and weighted. Constant preferences reflect constant criteria and stable weights over time. No time or cost constraints allow for full information about criteria and alternatives. Maximum payoff means a decision maker will pick the alternative with the highest yield. 理性决策 Copyright © 2004 Prentice Hall, Inc. All rights reserved. EXHIBIT 4.6

讨论 a. 理性决策？ b.有限理性决策？ 2、你来到一个陌生的小镇，到了吃饭的时间，你需要选择一个餐馆进餐，请问你的决策属于： 1、中午吃饭时间，你来到食堂，你需要选择几样菜来填饱肚子，请问你的决策属于： a. 理性决策？ b.有限理性决策？ 2、你来到一个陌生的小镇，到了吃饭的时间，你需要选择一个餐馆进餐，请问你的决策属于： a. 理性决策？ b.有限理性决策？ Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Making Decisions: The Rational Model Bounded rationality 有限理性 Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem 把问题的本质抽象为简单的模型，在简化的模型参数下采取理性行动。 Satisfied 满意 Making a “good enough” decision When confronted by a complex problem, most people will reduce the problem to its simplest level and satisfice by seeking solutions that are satisfactory and sufficient. Eschewing full rationality, they operate within bounded rationality and construct simplified models to extract the essential features of the problem and then behave rationally within the limits of the simple model. Here is how the bounded rationality typically operates: Once a problem is identified, the search for criteria and alternatives usually results in a limited list of choices that are easy to find or highly visible—familiar criteria and tried-and-true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. The review will not be comprehensive—not all alternatives will be evaluated carefully. Instead, the decision maker will begin with alternatives that differ only to a small degree from the choice currently in effect. Following along familiar and well-worn paths, the decision maker will review alternatives only until one that is “good enough” (that meets acceptable levels of performance) can be found. The first alternative that meets the “good enough” criterion ends the search. So the final solution represents a satisficing choice rather than an optimizing one. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Common Decision-making Errors Escalation of commitment 承诺升级,认同强化 An increased commitment to a previous decision despite evidence that it may have been wrong 尽管有证据表明先期决策是错误的，仍然进一步增加 对它的承诺 refusal to admit that the initial decision may have been wrong To cope with information overload, we rely on two heuristics, or judgmental shortcuts, when we make decisions: availability and representativeness. Both types create biases in a decision maker’s judgment. Another bias is the tendency to escalate commitment to a failing course of action. Availability Heuristic. Using the availability heuristic, people tend to base their judgments on information that is readily available. Representative Heuristic. People often assess the likelihood of an occurrence by drawing analogies and seeing identical situations where they do not exist. Escalation of Commitment. In spite of negative feedback, some managers escalate commitment to a failing enterprise, “throw good money after bad,” if they believe that they are responsible for the failure. They do so to avoid admitting they made a poor decision and to appear behaviorally consistent. In contrast, effective managers differentiate between situations where persistence will or will not pay off. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

How Do Problems Differ? Well-structured problems 结构良好问题 Straightforward, familiar, easily defined problems Programmed decision 程序化决策 A repetitive decision that can be handled by a routine approach Procedure, rule, policy Well-structured problems are straightforward, familiar, and easily defined. In contrast, ill-structured (poorly structured) problems are so new that pertinent information is either ambiguous or incomplete. Repetitive, programmed decisions that can be handled routinely are the most efficient way to handle well-structured problems. Programmed decisions rely heavily on previous solutions. In many cases, such decisions are made according to some systematic procedure, rule, or policy. When problems are ill-structured, however, managers must develop unique solutions by using nonprogrammed decision making techniques. Such decisions are unique and nonrecurring. When a manager confronts an ill-structured problem, there is no cut-and-dried solution. A custom-made, nonprogrammed response is needed. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Programmed Decision-Making Aids Procedure A series of interrelated sequential steps that can be used to respond to a well-structured problem The only real challenge is to identify the problem. Once the problem is clear, so is the procedure. Rule An explicit （清楚的）statement that tells managers what they ought or ought not to do (limits on procedural actions) A guide for making programmed decisions is a policy. In contrast to rules and procedures, policies establish parameters for the decision maker rather than specifically stating how or what should or should not be done. A procedure is a series of interrelated sequential steps that a manager can use for responding to a well-structured problem. The only real challenge is to identify the problem. Once the problem is clear, so is the procedure. A rule is an explicit statement of limitations that tells a manager what he or she ought or ought not to do. Rules are simple to follow and promote consistency. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Programmed Decision-Making Aids Policy A general guide that establishes parameters for making decisions about recurring problems For example: The consumers are always right. A guide for making programmed decisions is a policy. In contrast to rules and procedures, policies establish parameters for the decision maker rather than specifically stating how or what should or should not be done. A procedure is a series of interrelated sequential steps that a manager can use for responding to a well-structured problem. The only real challenge is to identify the problem. Once the problem is clear, so is the procedure. A rule is an explicit statement of limitations that tells a manager what he or she ought or ought not to do. Rules are simple to follow and promote consistency. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

How Do Problems Differ? Ill-structured problems 结构不良好问题 New problems in which information is ambiguous or incomplete Nonprogrammed decisions 非程序化决策 Decisions that must be custom-made to solve unique and nonrecurring problems Well-structured problems are straightforward, familiar, and easily defined. In contrast, ill-structured (poorly structured) problems are so new that pertinent information is either ambiguous or incomplete. Repetitive, programmed decisions that can be handled routinely are the most efficient way to handle well-structured problems. Programmed decisions rely heavily on previous solutions. In many cases, such decisions are made according to some systematic procedure, rule, or policy. When problems are ill-structured, however, managers must develop unique solutions by using nonprogrammed decision making techniques. Such decisions are unique and nonrecurring. When a manager confronts an ill-structured problem, there is no cut-and-dried solution. A custom-made, nonprogrammed response is needed. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

案例：国家大剧院方案选择 国家大剧院是国务院于1998年4月正式批准立项建设的，该工程位于北京人民大会堂西侧。 该剧院将作为中国最高艺术表演中心，工程耗资巨大，至少要30亿元人民币(比林肯中心贵四倍)。 筹建委员会收到了来自10个国家的36个设计单位参赛，先后有69个方案参加评选。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

国家大剧院方案选择 经过专家们的反复筛选、论证，并广泛征求全国和北京市人大代表、政协委员的意见，最终选定了法国巴黎机场公司(ADP)设计、清华大学配合的法国方案。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

该方案引来了激烈的争论： 支持者认为：该方案造型新颖、前卫，构思独特，整体上体现了二十一世纪世界标志性建筑的特点，堪称传统与现代、浪漫与现实的完美结合。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

反对者认为：该剧院位于中国的政治中心，红墙林立；方案与周边环境不符，建筑结构不合理…… Copyright © 2004 Prentice Hall, Inc. All rights reserved.

北京长安街上的标志性建筑,国家大剧院已经开放并投入使用. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

国家大剧院方案选择 　历史有惊人的相似——当年，尽管反对声不断，但是一位名叫贝聿铭的华裔美国建筑师还是将一个玻璃金字塔放在了法国卢浮宫广场，而如今，这个金字塔成了备受赞誉的惊世之作。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Types of Problems, Types of Decisions, and Level in the Organization The four organizational levels are top, middle, and first-line managers and operative employees. At which of these levels should decisions be made? Recurring or routine decisions, programmed decisions, should be made by lower levels of management: middle-level managers make coordinating decisions with short-term implications and first-line managers make localized decisions about what needs to be done. Nonrecurring or unique decisions, nonprogrammed decisions, are made by top management. Operative employees make job-related decisions to determine how a job should be done. Decisions are seldom fully programmed or fully nonprogrammed. Few programmed decisions can eliminate individual judgment completely; unusual decision-making situations can be helped by considering programmed routines. If possible, management decisions should be programmed. At the top of the organization, the programmed approach is not realistic. Most problems that top management confront are nonrecurring. There are strong economic incentives for top management to create policies, standard operating procedures, and rules to cut costs by minimizing the need for managers to exercise discretion guide other managers, The more nonprogrammed the decision, the greater the judgment required to make it. Copyright © 2004 Prentice Hall, Inc. All rights reserved. EXHIBIT 4.8

讨论 管理者遇到的困境1 你所在的部门上个月销售报告显示销售量有大幅度降低。你的老板远在2000公里以外的另一个城市工作，他不太可能知道上个月的销售数字。你对这个月和下个月的销售回升很乐观，这样，整个季度的销售还将会比较满意。你又知道老板是那种讨厌听到坏消息的人。今天，当你与老板通电话时，他恰巧随便询问了一下上个月的销售状况。请问： 你会告诉他实情吗？ Copyright © 2004 Prentice Hall, Inc. All rights reserved.

讨论 管理中的困境 2 明尼苏达采矿制造公司一位心怀不满的员工，拿到公司新开发出的新式绷带样品后，将他寄给了竞争对手强生公司，并提出只收取2万美元的费用将帮助他们揭开这项新技术的奥秘。 假设你是强生公司接到该包裹的一位管理者，你知道这一技术将使你在2亿美元容量的绷带市场上所向无敌。 此时你打算怎么做？ Copyright © 2004 Prentice Hall, Inc. All rights reserved.

讨论 管理中的困境 1）将该样品扔到一边？ 2）送交你公司的研究部门作分析？ 3）将该员工的行为告知明尼苏达公司？ 4）通知联邦调查委员会？ 5）其他更为妥善的办法？ Copyright © 2004 Prentice Hall, Inc. All rights reserved.

中美撞机事件背景 二○○一年四月一日，美国一架军用侦察机在海南岛水域撞毁我国军机，并未经我允许进入中国领空，降落在海南岛陵水机场。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

美称中国获得美军声音识别技术 美国《华盛顿时报》十五日报导，美国间谍飞机自四月一日以来一直停留在海南岛，中国政府派出一百多名技术人员到海南岛研究美国的声音识别技术。ＥＰ－３是美国最近装修过的飞机，具有电子支持措施，特殊信号处理和应用系统。尽管在飞机著陆之前，美国机组人员已经销毁大部份秘密。但中国仍然获得大批秘密技术。 中国获得这些技术之后，美国搜集中国政治和军事目标的信息将更加困难。中国可能将他们的电台和电话设备上安装过滤装置。 Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Group Decision Making Advantages Make more accurate decisions Provides more complete information Offers a greater diversity of experiences and perspectives Generates more alternatives Increases acceptance of a solution Increases the legitimacy of a decision. There are several advantages to group decision making. Group decisions provide more complete information than do individual ones. A group will bring a diversity of experience and perspectives to the decision process that an individual, acting alone, cannot. Groups also generate more alternatives, because of a greater quantity and diversity of information. Group decision making increases acceptance of a solution. If those who will be affected by a solution and who must implement it can participate in making it, they will be more likely to accept the solution. Since group decision-making is consistent with democratic ideals, decisions made by groups are perceived as being more legitimate than decisions made by a single person. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Group Decision Making Disadvantages Is more time-consuming and less efficient Minority domination can influence decision process Increased pressures to conform to the group’s mindset (groupthink) Ambiguous responsibility for the outcomes of decisions There are several disadvantages to group decision making. Group decisions are time consuming, and groups almost always take more time to make a decision than an individual would take. There may also be minority group domination, because group members will differ in many ways: for example, status in the organization, experience, verbal skills, or assertiveness. A minority group that dominates the group decision-making process will have an undue influence on the final decision. Another problem focuses on the pressures to conform in groups. This pressure can result in groupthink—group members withhold deviant, minority, or unpopular views in order to give the appearance of agreement . Finally, there is ambiguous responsibility. Since group members share responsibility, who is actually responsible for the final outcome? Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Improving Group Decision Making Brainstorming 头脑风暴法 An idea-generating process that encourages alternatives while withholding criticism（保留批评） Nominal group technique 名义群体法 group members are physically present but operate independently Electronic meeting 电子会议 A type of nominal group technique participants are linked by computer Group decision making can be improved by using the following techniques: brainstorming, nominal groups, and electronic meetings. To overcome conformity pressures that can stifle creative problem solving, managers can use brainstorming: an idea-generating process that specifically encourages all alternatives by withholding any criticism of those alternatives. The nominal group technique requires that group members must be present during the meeting, but they must operate independently. This technique obtains input from all group members but it does not restrict independent thinking. An electronic meeting is a type of nominal group technique in which participants are linked by computer. Electronic meetings have several advantages: anonymity, honesty, and speed. But, several drawbacks also exist: those who type well outshine those who are eloquent but lack keyboarding skills; those with the best ideas do not get credit for them; and the process lacks the informational richness of face-to-face communication. But, this technology is in its infancy. For example, real-time video conferencing is reinventing electronic meetings. Copyright © 2004 Prentice Hall, Inc. All rights reserved.