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Decision Making
Preview
When considering how to make a decision, what principles
should guide your thinking?
Organizational decision making is both rational and psychological
Rational problem solving is more complicated than it looks
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Decision making is a core organizational activity. In organizational life you will be heavily
involved in making decisions, and, of course, you want to be an effective decision maker.
This chapter describes the decision-making process and helps you develop sound strategies
for making effective decisions.
rationaleconomic model
A model of behavior which
assumes that a person making a
decision has complete and perfect
information and is able to process
this information accurately and
without bias.
bounded rationality
The idea that rationality is
constrained, orbounded,by
numerous individual and
environmental factors.
administrative model
A model of decision-making
which emphasizes that decision
makers 1) process only limited,
manageable amounts of information 2) use shortcuts and rules of
thumb, and 3) choose solutions
that seem adequate but are
actually less than optimal.
satisficing
Choosing solutions that seem
adequate but are actually less than
optimal.
behavior economics
The study of a variety of
psychological and situational
influences on decision.
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Adapted from W. C. Wedley and R. H. G. Field, A Predecision Support System, Academy of Management
Review 11, 1984:407466.
escalation of commitment
The tendency to continue on a
course of action once money has
been spent or effort has been
invested, despite signals that a
project is failing.
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because the individuals responsible for the bad decision need to save face with their colleagues, or simply because they want to hide their mistakes.13 The phenomenon is also
called the sunk cost effect and the Concorde fallacy.14 British Airways provides an
example: In the 1970s, the company launched its fleet of fast and expensive Concorde airplanes despite projections that the project would never be profitable. It was such a risky
venture that as the prototype for the jet approached its completion, even the British minister for aerospace dismissed its prospects as hopeless.15 Sure enough, in 2003, the fleet
was finally decommissioned. Today escalation of commitment is a problem well known to
major organizations. To prevent it they use a variety of means, including internal audits and
oversight by their boards of directors.16 Certainly managers should closely question anyone who justifies future costs by pointing to past ones.
HOW EXECUTIVES USE THE RATIONAL PROBLEM-SOLVING PROCESS Executives spend
much of their time involved in the rational problem-solving process.17 They spend time surveying their companys economic, technical, political, and social environment for threats and opportunities, and even more time thinking about and discussing with others how to invent, design, and
develop alternative sources of action. Actually choosing a course of action from the available
possibilities takes somewhat less time, because the problem and its likely consequences have
already been identified. Executives typically spend the least amount of time implementing decisions because it is usually their subordinates who are responsible for this task.
convergent thinking
The ability to apply logic and
knowledge to narrow down the
number of possible solutions to a
problem.
divergent thinking
The ability to think along many
paths to generate many solutions
to a problem.
Convergent thinking is the ability to apply logic and knowledge to narrow down the
number of possible solutions to a problem.18 Convergent thinking helps companies
develop a clear direction that focuses the organization. As an employee, you would be
using convergent thinking if you were deciding which supplier to choose or which advertising campaign would do well with your target market. A persons ability to use convergent thinking is measured by standard intelligence tests.
An example of a problem emphasizing convergent thinking is deciding which of several individuals to promote. This problem requires choosing between options and determining a course of action. You would apply reason and logic to solve it, applying a logical
process such as that illustrated in Table 3.1.
In contrast, figuring out which business trends might affect your companys strategy
over the next decade is a problem that demands divergent thinking, the ability to think
along many paths to generate many solutions to a problem.19 Divergent thinking helps
companies be flexible and responsive in the face of market, technological, and other
changes. As an employee, you would be using divergent thinking if you were trying to
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imagine all the different tactics your competitors might use to defeat you in the market.
Divergent thinking ability is measured by tests of creativity.
An example of a problem involving divergent thinking is creating a new product. To
approach this problem, you would rely on creative problem-solving tools, such as intuition, inspiration, and brainstorming. You would encourage innovative thinking to help
your team discover new ideas and novel approaches that challenge the status quo.
Of course, business problems are often complex, requiring both kinds of thinking.
Here is an example:
As president of a multinational, you are worried about slumping profits in Sweden, a
problem that was first identified by the quarterly financial analysis of all your Scandinavian subsidiaries (a convergent process). So, you direct your people to search
broadly in your Swedish subsidiary and the Swedish market for an explanation (a
divergent process). In meetings with key company managers, you settle on one or
two key factors that need to be improved (a convergent process), and you, yourself,
vow to avoid these problems in the future by being in better touch with trends in the
Swedish subsidiary and its markets (a divergent process). To help you do this, you
hire a Scandinavian consultant (a convergent process).
Researchers advise us that, unfortunately, relatively few individuals are experts at both
convergent thinking (as measured by an IQ test) and divergent thinking (as measured by
tests of creativity). Although creativity does require a certain level of intelligence,20 the
correlation between individuals scores on intelligence tests and tests of creativity is rather
low.21 The ability to combine both intelligence and creativity in making decisions is one
definition of wisdom.22 However, because wisdom is in short supply, managers often try to
improve organizational problem solving by creating teams of people that have a mix of
convergent and divergent decision-making strengths.
DOES A READY-MADE (PROGRAMMED) SOLUTION FOR THE PROBLEM ALREADY
EXIST? Another way of characterizing decisions is that some are programmed and
routine, while others are nonprogrammed and nonroutine.23 When individuals make programmed decisions, they follow explicit decision rules.24 Often the decision rules are written down, and anyone who can understand and follow the established procedure can make
the decision. Programmed decisions are common in organizational life. For example, managing inventories, estimating costs, and setting production schedules generally involve
making programmed decisions. In companies, lower level employees typically make more
of the programmed decisions.25
Nonprogrammed decisions have no identifiable rules for developing solutions. The
criteria ultimately used to make such decisions may not have been known at the beginning
of the decision-making process. The solution ultimately selected may not have been envisioned at the outset. Making nonprogrammed decisions requires judgment. In companies,
upper level managers typically make more of the nonprogrammed decisions.
When a problem is structured, even though it is also complicated it can be solved
using a whole menu of programming techniques developed by a companys operations
research experts.26 When a problem is not structured, it is sometimes delegated to a group,
because a group can use a variety of interactional methods to explore it further. (Chapters
9 and 10 on groups and teams will explore team decision making in greater detail.)
WILL THE DECISION BE MADE UNDER CONDITIONS OF UNCERTAINTY? As the poet
Robert Burns once said, The best laid plans of mice and men often go awry.27 In other
words, even decisions made thoughtfully and thoroughly sometimes lead to undesirable
outcomes. Such decisions are said to be made under conditions of uncertainty and are
therefore termed risky decisions. For example, despite extensive marketing research, a
company can never be certain that its new product will sell.
When making decisions under conditions of uncertainty, decision makers are often
forced to make choices among complex alternatives.28 For example, where should the
programmed decisions
Decisions that are made by
following explicit (often written)
rules.
nonprogrammed decisions
Decisions that are made by using
judgment, rather than by following
explicit rules.
risky decisions
Decisions made under conditions
of uncertainty.
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loss aversion
The tendency to choose not losing
as the preferred outcome, when
faced with an equal probability of
gaining or losing.
gamblers fallacy
The tendency to believe that
random events will correct
themselves.
company invest its limited resources? in entering a new market? paying down its debt?
developing new products? Unfortunately, under circumstances in which the choices have
many attributes, people tend to focus on the one attribute that is important to them.29 As
human beings, our short-term memory is simply not large enough to keep a large number
of issues in mind at the same time long enough to evaluate them.30 One way companies
cope with this human weakness is by creating written reports to ensure that the many
attributes of various problemsolution scenarios are kept in front of their decision makers.
Under conditions of uncertainty, decision makers are also forced to estimate the probabilities and risks of outcomes, and to anticipate that some outcomes simply cannot be
known. Under these circumstances, individual decision makers are, again, prone to a variety
of human weaknesses. One is the tendency toward loss aversion; that is, when faced with an
equal probability of gaining or losing, a person will often choose not losing as the preferred
outcome.31 Another is the gamblers fallacy, peoples tendency to believe that random
events will correct themselves. For example, after losing on one flip of the coin, an individual will believe that he or she has a higher probability of winning on the next flip.32 Based
on the gamblers fallacy, a person might reason, The stock market has been depressed for a
long time, so it has to go up. A third weakness is that, when estimating the probabilities of
extremely likely or extremely unlikely events, people tend to overestimate the likelihood of
the unlikely events occurring and underestimate the likelihood of the likely events occurring.33 For example, you are unlikely to win the lottery, and you are likely to lose your
money by playing it, but you play it anyway. Or, given the low success rate of small businesses, you know that your small business is likely to fail, but you start it anyhow.
Organizations attempt to overcome these individual decision-making weaknesses by
training people to be aware of them, having savvy leaders, and using well-trained teams to
make decisions.
risk propensity
The tendency to take risks.
makers is an important factor in making an effective decision.34 For example, the Big Five personality variables of conscientiousness and openness are clearly related to decision making and
fact-finding abilities.35 Based on your knowledge of the Big Five (see Chapter 2), can you
imagine what the relationship might be? The answer is that people who are characterized as
having a high degree of conscientiousness and openness display fast and clear thinking, provide
sound insights, and are, of course, well-organized. People who have a lower degree of conscientiousness and openness to new ideas are slower, less insightful, and less well organized.
Risk propensity, the tendency to take risks, is another personality trait to weigh. For
instance, there is an ongoing debate as to whether entrepreneurs have a higher tendency to
take risks than managers do. It has long been thought that entrepreneurs are risk takers, and
some research suggests that entrepreneurs whose goal it is to grow their companies (as
opposed to just wanting a family income) are the highest risk takers of all.36 However,
other research contradicts this view, showing, for instance, that many small ventures are
started while the owner holds onto another job and is making only a small capital investment in the company.37 Most likely, a persons tendency to take a risk when making a decision is a complicated matter involving both personality and circumstances.38
RECOGNIZE INDIVIDUAL PROBLEM-SOLVING STYLES Individuals also have preferred
decision-making styles, suggesting that they are better able to solve some problems than
others. These styles are related to their personalities. What is your preferred decision-making style? The Decision Style Inventory in Table 3.2 will help you to find out. It differentiates people based on the degree to which they need structure (based on the personality trait
intolerance for ambiguity) and the degree to which they are interested in human and
social concerns versus task and technical concerns.39 The Decision Style Inventory is a
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Analytical Style
Conceptual Style
Behavioral Style
1. My prime objective
is to:
3. I expect people
productive and fast.
working for me to be:
highly capable.
committed and
responsive.
receptive to suggestions.
5. I communicate best
with others:
on a direct one-to-one
basis.
in writing.
by having a group
discussion.
in a formal meeting.
6. In my planning
I emphasize:
current problems.
meeting objectives.
future goals.
developing peoples
careers.
rely on my feelings.
8. When using
specific facts.
information, I prefer:
broad coverage of
many options.
rely on intuition.
long debates.
incomplete work.
using numbers or
formulas.
11. I am especially
good at:
remembering dates
and facts.
solving difficult
problems.
seeing many
possibilities.
refuse to be
pressured.
observe what is
going on.
14. I am good at
remembering:
peoples names.
peoples faces.
peoples personalities.
challenging
assignments.
achieving my
personal goals.
self-confident.
open-minded.
concentrate on
the problem.
become frustrated.
am forgetful.
aggressive.
disciplined.
imaginative.
supportive.
19. My decisions
typically are:
systematic or abstract.
20. I dislike:
losing control.
boring work.
following rules.
being rejected.
Total points:
___________
___________
___________
___________
Source: A. J. Rowe and R. O. Mason, Managing with Style: A Guide to Understanding, Assessing, and Improving Decision Making (San Francisco:
Jossey-Bass, 1987):4041.
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Analytical
Directive
Conceptual
Behavioral
forced-choice test
A test which requires one to make
subtle choices about ones
preferences.
forced-choice testone that requires you to make sometimes subtle choices about your
preferences.
Your highest score indicates your preferred decision-making style.
Now take a look at Table 3.3, which compares the four decision-making styles identified by the Decision Style Inventory. The designers of this test report that typical scores are
directive, 75; analytical, 90; conceptual, 80; and behavioral, 55.40 How do you compare
with these norms? Do your scores make sense to you in terms of the kinds of decisionmaking roles you have enjoyed in the past? Would you be able to get along with a boss or
subordinate whose decision-making style is the opposite of yours?
If the contents of this test are familiar to you, it may be because it correlates well
with the MBTI (Jungian) personality inventory and is also related to the Big Five personality inventory. Analytical and conceptual decision makers tend to be extroverts and
intuitives, whereas directive and behavioral decision makers tend to be sensors and
thinkers.41 The analytic and conceptual decision makers would prefer, and might be better at, solving problems that require seeing possibilities, applying creativity or analysis,
and dealing with complexity and ambiguity. In contrast, the directive and behavioral
decision makers would prefer, and might do better at, solving problems that require
keeping track of details, remembering things from the past (including peoples names),
providing a realistic context to the problems, carrying out orders, and being supportive
of others.42
ASSESS CREATIVE PROBLEM-SOLVING ABILITIES Creativity is another way in which
individual decision-making styles differ. Individual creativity requires three characteristics: expertise, creative-thinking skill, and a sense that a task is something one enjoys
doing.43 The characteristics of expertise and enjoyment are self-explanatory, but what is
creative-thinking skill? It includes two basic capabilities: divergent-thinking ability and
insight.44
To illustrate, to create a painting that is a masterpiece, you must have the ability to
draw and paint, the insight to imagine your subject in a new light, the self-confidence to
show your unconventional treatment to the world, and the ability to enjoy the work so that
you will persevere when others would have given up. In the same way, to design a marketable new toothbrush, you (or your team) must know a great deal about how people use
toothbrushes and how manufacturers make them, be able to imagine a new design and the
market for it, and be confident enough to sell your project to corporate higher-ups.
Mike Lazaridis invented the Blackberry late one night in 1997, while sitting in his
basement.45 He suddenly had the insight that a tiny keyboard could be more efficient than
a large one, if people use their thumbs. Before this, people had ridiculed the idea of such a
tiny keyboard. But Lazaridis was an expert. He had been an inventor and scientist since
childhood, and he had in mind that combining computers with wireless technology should
be useful. Also, he had a way to persevere: He had already founded a company called
Research in Motion to develop new ideas.
Creative problem solving helps companies produce useful and novel ideas ranging from
new products to innovative business strategies. Keep in mind that in business, creativity emerges
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from groups as well as individuals. As a manager, you can enhance creativity in teams by hiring
creative individuals for decisions that require creativity, by assigning people to tasks they are
interested in, by training your team to make more effective decisions, and by creating a culture
that supports innovation. You will reduce creativity if you: 1) closely supervise the decision-making process, 2) set constraints on how the work will be done, 3) foster competition among the
creators, 4) focus on how the product will be evaluated, and 5) emphasize extrinsic rewards.46
To get some idea about how creative you are personally, take the short self-profile in Table 3.4.
TABLE 3.4 Are You Down-to-Earth, or Not?
In each pair, circle the description that fits you best:
1. a. I prefer to approach routine tasks in short bursts.
b. I am known for being able to pursue routine tasks over long periods of time.
2. a. I enjoy doing tasks that require a high level of accuracy.
b. If a task requires a high level of accuracy, I prefer to delegate it to someone else.
3. a. I am quite sensitive to people.
b. I am not particularly sensitive to people.
4. a. People who know me well see me as undisciplined.
b. People who know me well see me as methodical.
5. a. I often challenge rules.
b. I seldom challenge rules.
6. a. I approach tasks from unsuspected angles.
b. I approach tasks methodically.
7. a. I am interested in careers such as accounting, electrical engineering, logistics management,
police work, pharmacy, and dentistry.
b. I am interested in careers such as sales, journalism, public relations, human resources management, and advertising account management.
8. a. I get passionately involved in tasks that interest me.
b. I seldom get passionately involved in tasks.
9. a. When working in groups, I am seen as a nonconformist.
b. When working in groups, I am seen as a team player.
10. a. When solving problems, I doubt myself a lot.
b. When solving problems, I seldom doubt myself.
11. a. I am a traditional person.
b. I am an untraditional person.
12. a. I enjoy doing many different activities during the day.
b. I enjoy working on one activity for a significant part of the day.
13. a. I enjoy working under time pressure.
b. I do not enjoy working under time pressure.
14. a. I enjoy collaborating with others on projects.
b. I enjoy working by myself on projects.
Scoring:
Indicators of creativity are:
1-a, 2-b, 3-b, 4-a, 5-a, 6-a, 7-b, 8-a, 9-a,10-b,11-b, 12-b, 13-b, 14-b.
For each of these answers, give yourself one point. Add up the points. The higher your score, the
more likely you are to use creativity in decision making. An average score is 6.1 (based on a sample
of 53 undergraduate business students enrolled in organizational behavior classes).
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Although no one can look inside your brain to see just how creative you really are, you
can make some educated guesses based on your habits and preferences and the feedback
you get from others. This self-test gives you a sense of whether you enjoy using creativethinking skills; whether, like the proverbial starving artist, you sometimes get passionate
about your work; and whether your style includes a lot of divergent thinking and insight.
The test is based upon a variety of sources that describe creative people.47
You also might want to take a look at your score for the Big Five Factor traditional
versus adventurous in Chapter 2. Most likely, if you are a traditionalist, you are probably
not highly creative, while if you are an adventurer, you probably are creative.
intuition
An unconscious or relatively
automatic decision-making process
that integrates experience, goals,
and values without using direct
reasoning.
image theory
A theory which says that how a
decision-maker manages and
coordinates images is the essence
of the intuitive decision-making
process.
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capabilities. Using these technologies avoids the human tendency to see patterns where patterns do not exist. It also prevents decision makers from categorizing problems based on their
past experience, a practice that prevents them from recognizing totally new phenomena.
To find how intuitive you are, take the third and last self-test of the chapter, in Table 3.5.
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_______
Total b responses =
_______
Intuitive Score (a + b) =
_______
imperfect. The pitfalls to look out for include relying too heavily on your intuition (as we
just discussed), reasoning illogically, and allowing your emotions to influence your decision. In this section we will examine why humans often fail to reason logically.
formal reasoning
Deductive reasoning, which uses
rules of logic to make a decision.
informal reasoning
Inductive reasoning, which is
guided to some extent by rules of
formal reasoning, but has no
deterministic methods (i.e., its
methods are debatable).
The limits of formal reasoning. Formal reasoning, also known as deductive reasoning, uses
rules of logic to make a decision.57 Any problem that can be solved using an algorithm (a formula) utilizes this kind of reasoning. Unfortunately, individuals dont always use logic effectively. For example, consider this reasoning: All CEOs are conservative. Richard Branson is
a CEO. Therefore Richard Branson is conservative. Of course, this is illogical because our
premise is incorrect. It is not true that all CEOs are conservative. Our conclusion is also not
true: Branson, the founder of Britains Virgin Group, has an unusually wide range of business
ventures and is still hoping to make it around the world in a balloon. He is clearly not conservative, and the starting premise is clearly wrong. Yet individuals may not think to challenge the incorrect premise of a decision, and so will adopt the illogical conclusion.
Certainly you can imagine many circumstances in which the premises of a decision are
incorrect, especially in the uncertain world of business. Furthermore, it turns out that when decision makers know in advance that the premises for a decision are uncertain, they are mainly
interested in determining how believable, rather than how logical, the decisions outcomes are.
For example, cutting production costs may not actually improve a companys bottom line, given
that it might reduce product quality, but it is still an idea that most managers can get behind.
The limits of informal reasoning. When a conclusion, though supported by a premise,
does not necessarily follow from the premise, we have an instance of informal reasoning, or inductive reasoning. Informal reasoning, although guided to some extent by the
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rules of formal reasoning, has no deterministic methods. In other words, its methods are
debatable. For example, how many teenagers would you have to survey before you conclude that most teenagers need skin care products? You cannot possibly survey most
teenagers, so you survey some number of teenagers that you perceive to be enough.
But how many really is enough? Reasonable individuals might reasonably disagree on
this point.
The influence of heuristics. Sometimes, rather than follow the principles of formal reasoning, decision makers use heuristics. A heuristic is a mental decision-making shortcut.58 Although heuristics do help us to simplify decisions, our tendency to use these
rules of thumb can also inhibit decision-making effectiveness.59 Researchers have had
a lot of fun pointing out just how bad our human heuristics really are.60
For example, decision makers often select the first alternative they think of that meets
their minimum requirements, instead of taking the time to weigh and choose the best
alternative among a large array of options. This is called the satisficing heuristic.61 (As
we will see in Chapter 9, on group decision making, groups have the same tendency.) For
example, a college student may register for a class because it fills a block in her or his
schedule, only to discover later that the class is uninteresting, way over her or his head,
and likely to pull down her or his grade-point average. In this case, the student has fallen
prey to a persons tendency to stop searching for better options once an acceptable option
has been found. Because she or he is satisficing, the student is not optimizing, or maximizing, her or his decision-making effectiveness.
Another common weakness is that decision makers look for familiar patterns without
assessing why certain patterns exist or whether they are likely to continue. This is called
the representativeness heuristic. For example, when investors see that stocks are moving in a certain direction, they gradually begin to assume that the trend is a representation
of other trends they have perceived in the economic data, while in reality it is not likely to
be. Relying on the representativeness heuristic suggests one reason why investors can be
overconfident in predicting when a stock market move will take place.62
Yet another problematic rule of thumb is the availability heuristic, by which people
make judgments based on the information that is mentally available to them at any
given moment rather than conducting a thorough, realistic appraisal. What makes an
event mentally available? Variables that can affect an events mental availability and your
judgment include how recent or emotionally charged the event is. For example, a television story of a train wreck is likely to turn you off to train travel even though train travel
is much safer than driving.63
Confirmation bias is the tendency to seek out and favor evidence that supports
ones beliefs. This common bias prevents individuals from discovering evidence that
disconfirms their beliefs, and leads them to make decision errors.64 Suppose an auditor
examining a companys finances develops a particular hypothesis about an irregularity
that is discovered. Thereafter, the auditor will more readily perceive information that
confirms the hypothesis and less readily perceive information that disconfirms the
hypothesis.65 Corporate boards often find it hard to exit from underperforming businesses because they fail to seek data that would refute their belief that the business will
eventually pull out of its slump.66
Decision making is also subject to unconscious bias. Individuals suffer from the
illusion that they are objective observers and actors, although they are not.67 To illustrate, it turns out that examining a fingerprint for the purposes of a criminal investigation is not the rational science many suppose it to be. Why? Because examiners themselves are subject to unconscious bias. They look at a variety of data points to assess a
match, and although their judgment tends to be good, it is not infallible. In one telling
case, a suspected assailant left his fingerprint on a glass, but an examiner failed to find
a match between the print and other fingerprints in the police database, a database that
also happened to include the prints of a man not involved in the crime.68 Later, when
the innocent man was named as a suspect, a fingerprint examiner who knew the print
he was examining came from this suspect examined the glass again. This time he discovered a match between the print on the glass and the innocent mans print in the
heuristic
A mental decision-making shortcut.
satisficing heuristic
Selecting the first alternative one
thinks of that meets ones
minimum requirements, instead of
taking the time to weigh and
choose the best alternative among
a large array of options.
optimizing
Maximizing ones decision-making
effectiveness.
representativeness heuristic
Looking for familiar patterns
without assessing why certain
patterns exist or whether they are
likely to continue.
availability heuristic
Making judgments based on the
information that is mentally
available at any given moment
rather than conducting a
thorough, realistic appraisal.
confirmation bias
The tendency to seek out and
favor evidence that supports one's
beliefs.
unconscious bias
The illusion that one is an objective
observer and actor; reliance on
preconceived opinions about
someone or something.
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overconfidence
Over-reliance on ones ability to
make accurate predictions.
implicit egotism
The tendency to prefer things
which are connected with ones
positive associations about oneself.
database. The innocent man served six years in jail before being exonerated by DNA
evidence.
Decisions are also vulnerable to the effects of overconfidence. Research shows
that peoples confidence in their predictions routinely outstrips their accuracy.69 One
reason may be that at the moment when they evaluate the soundness of their conclusions, people forget how many elements of their reasoning could be wrong.70 Overconfidence is in part culturally determined. For example, Chinese students are more
likely than American students to show this bias. It has been hypothesized that because
students in China are not encouraged to challenge their teachers, they do not challenge
what they tell themselves either. Thus, they appear more confident than self-challenging
Americans.71
Pushing the analysis of human decision-making foibles yet further, several researchers
have identified a phenomenon called implicit egotism.72 Because most people possess
positive associations about themselves, they prefer things that are connected with those
positive associations. These preferences extend even to simple things, such as the letters in
a persons name. To illustrate, ten studies assessed the role of implicit egotism as it relates
to two familiar decisions: where people choose to live and what people choose to do for a
living. The results indicated that people are disproportionately likely to live in places
whose names resemble their own first or last names (people named Louis are disproportionately likely to live in St. Louis). People also disproportionately choose careers whose
labels resemble their names (for instance, people named Dennis or Denise are overrepresented among dentists). The authors conclude that implicit egotism may influence even our
major life decisions.
Example
Remedy
Representativeness heuristic
basing decisions on familiar patterns
Availability heuristicmaking
judgments based on easily
available information
Unconscious biasrelying on
preconceived opinions about someone
or something.
Overconfidenceoverreliance on ones
ability to make accurate predictions
Implicit egotisma preference for things Harry is attracted to Sally in part because
connected with oneself
their names are so similar.
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demonstrated that under some circumstances individuals will literally deny their own perceptions in order to agree with the other members of their group, even when the group
consists of strangers.84 Asch placed his individual subjects in seven- to nine-person
groups. In each of the groups, all of the other members were Aschs confederates. Then
Asch asked each group member to describe the length of a particular line segment. The
lengths were all obvious. (See Figure 3.1.) But in 7 of 12 trials, the confederates deliberately lied about what they thought the length of the segment was, saying comparison line
C matched the standard line A. Interestingly, more than 70 percent of the time the subjects
agreed with them.
Certainly this research shows that peoples decisions are influenced by others. Yet
what is the explanation for the subjects behavior?
Asch himself suggested that social pressure put on the individuals led them to conform. People went along with the others to avoid being social outcasts. While this is in part
true, subsequent research showed that additional explanations are also needed. In a variation on Aschs experiment, subjects were placed anonymously into groups of people that
they would not meet face-to-face and whose answers they could only observe indirectly
through an electrical signal.85 Unobserved by and unconnected to the others, the subjects
pushed a button to give their answers. Interestingly, they gave nearly as many wrong
responses as Aschs original subjects did. The explanation? The subjects thought that all
the other people could not be wrong. A large group of people had reached a decision different from their own, and, based on their own experience with the validity of unanimous
decisions, figured the group must be right.
77
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FIGURE 3.1
Aschs Line Judgment
Under what circumstances would
you assert that the match to Standard
Line A is Comparison Line C?
A
Standard line
Comparison lines
you must decide whether to involve your subordinates in a decision or make it yourself.
Although encouraging participation is often useful, it is no panacea. There is no single
approach to decision making, whether autocratic, consultative, or totally participative, that
can be used effectively for all types of decisions.89 When it comes to deciding whether to
involve your employees in a decision, time-tested research by Victor Vroom and Phillip
Yetton suggests you have a choice among these basic methods90:
Autocratic Alternatives
1. You solve the problem or make the decision yourself using information available to you
at the present time.
2. You obtain the necessary information from your subordinates and then decide on a solution to the problem yourself. You may or may not tell your subordinates what the problem
is, but you do not expect them to help you to generate or evaluate alternative solutions.
Consultative Solutions
3. You share the problem with the appropriate subordinates individually, eliciting their
ideas and suggestions about how to solve the problem without bringing them together as a
group, but you make the decision.
4. You share the problem with your subordinates in a group meeting, eliciting their collective ideas about how to solve the problem, but you make the decision.
Group Alternatives
5. You share the problem with your subordinates as a group. Together you generate and
evaluate alternatives and try to reach a consensus about what to do. Your role is to coordinate the discussion and make sure that the critical issues are discussed. You do not try to
get the group to accept your preferred solution, and you accept any solution that has the
support of the entire group.
How do you decide which of these five alternatives to select? Here are some issues to consider91:
1. Does the problem require a high-quality decision?
2. Do you have enough information to make a high-quality decision?
3. Is the problem structured?
4. Is acceptance of the decision by your subordinates important for effective implementation?
5. If you were to make the decision by yourself, is it reasonably certain that it would be
accepted by your subordinates?
6. Do your subordinates share the organizational goals to be attained in solving this
problem?
7. Is conflict over the preferred solutions likely to occur among your subordinates?
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MAKE A FAIR DECISION Everyone wants to believe that the decisions that involve
them are just.92 They expect procedural justice (also called procedural fairness),93
which is using formal decision-making procedures that are fair.94 For example, people
want procedures to be trustworthy, which means that they are consistently applied over
time. They also want procedures to be free of personal bias, accurate, correctable, participative, and ethical.
Why do fair procedures matter so much? One key explanation is that procedural
justice communicates two important messages about a persons membership in his or
her work group. The first message is whether the person is respected by members of
the group, and the second is whether the person should feel pride in the group as a
whole. 95
In the United States, procedurally fair treatment results in increased job satisfaction,
organizational commitment, and organizational citizenship behaviors, whereas unfair
treatment results in a variety of retaliatory behaviors.96 However, judgments of procedural
justice vary by culture. People in individualistic cultures, such as the United States, prefer
more formal procedures, whereas those in collectivist cultures, such as China, show no
preference between formal and informal procedures.97
Organizational scientists generally study peoples perceptions of justicetheir subjective evaluations of the appropriateness of a given outcome or process.98 However, one
problem with relying on perceptions is that the process that is perceived to be fair may not
be the process that is actually fair. For example, some tools that human resources departments use for personnel selection are perceived by job candidates as unfair, even though
the tools are more valid than other tools commonly used.99 Consider, for instance, how
pre-employment interviews are structured: Job applicants believe that unstructured interviews, in which they have an open-ended, flexible talk with the interviewer, are fairer than
structured interviews, in which the interview is based primarily on predetermined questions. Research tells us the opposite: that structured interviews are more accurate in assessing candidates.100 Another misperception is created by a persons success: People evaluate
a selection process somewhat more favorably when it leads to a positive outcome for them
than when it leads to a negative outcome for them.101
In addition to procedural justice, people want interactional justice,102 which is
being treated respectfully when formal organizational procedures are carried out.103
Interactional justice is morally appropriate conduct that suggests that managers have
other peoples well-being in mind.104 Employees want to be treated with honesty, consideration, and courtesy. They also want decision-making processes to be explained to
them.105 For example, if you need to lay people off, you should tell them the truth and
listen to their responses respectfully, and you should explain to them how management
made the decision.
MONITOR BIASES IN YOURSELF AND OTHERS When we are making a decision, it sometimes takes a conscious effort to overcome our unconscious biases that unfavorably stereotype others but favor ourselves, our group, and those that can benefit us. Here are some
conscious strategies to help you eliminate your own biases.106
1. Collect data that reveal your own and others prejudice. One way to do this is to examine decisions systematically. For example, ask people to analyze the contributions of
all group members before accepting the assertion that one group member has made
the biggest contribution.
2. Ask yourself whether your environment is reinforcing harmful stereotypes. For example, does your company value a particular group of high achievers, all of whom are
cast in the same mold? Are they perhaps from the same demographic group? Cues in
your environment shape your own implicit attitudes. Be aware of these influences on
your own perceptions and self-image. If you are in the minority in your company, and
you discover that you have been negatively stereotyped, move on to a company in
which people like you lead. Or, if this is impractical, go out of your way to observe
companies in which people like you do actually lead.
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procedural justice
Using formal decision-making
procedures that are fair; also called
procedural fairness.
interactional justice
Treating people respectfully when
formal organizational procedures
are carried out.
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3. Before relying on your intuition to make a decision, try to put yourself into the shoes
of the people who will be affected. What do they believe about the problem? How will
each of them be affected? What will be their reactions to proposed decisions? Putting
yourself in their shoes may help you to double-check your own biases.
4. When choosing people to consider for any special opportunity or benefit, start with a
list of names of all employees who have relevant qualifications. Then, after you make
a preliminary choice, think about the people who did not make it to your short list. Are
they different from you in some way? Do they fail to meet prevailing stereotypes of
the best person for the opportunity? Consider carefully what would happen if you
gave them the proposed opportunity or benefit.
FOSTER INDIVIDUAL AND ORGANIZATIONAL ETHICS It is clear that, faced with making
ethical dilemma
Any situation or decision that
requires moral judgment.
business decisions totally on their own, individuals are likely to act reasonably according to
their own values and beliefs. However, when making that same decision in an organizational
setting, surrounded by others, individuals are subjected to a variety of social pressures that are
likely to cloud their judgment. In an organization it is relatively easy to pass the buck because
you think, This decision should be made by my boss. And it becomes relatively easy to
rationalize a harmful behavior because others are doing the same thing, taking the view that
thats business. Today it is widely accepted that such moral blindness characterizes many
business decisions,107 and companies realize they must establish not just ethics codes and
ethics offices, but also organization-wide cultures that foster ethical decision making.
Companies that want to establish an ethical decision-making process first teach their
employees to recognize ethical dilemmas as they arise.108 An ethical dilemma is any situation or decision that requires moral judgment. Sometimes the moral choice is between
right and wrong behaviors; other times it is between two seemingly right behaviors. In
addition, companies empower individuals to communicate their issues to others without
fear of reprisal, and they set up specific processes to deal with those issues.
To make sure that the importance of ethical decision making is highlighted throughout their
organizations, some businesses also employ corporate ethics officers. These individuals act as
counselors with whom employees can talk confidentially about ethical dilemmas. They may also
conduct training programs on how to improve ethical aspects of business decision making.109
The perceived importance of ethics and social responsibility to the success of a company is influenced by the individuals own ethical perspective as well as by the culture of
the organization. (Organizational culture will be covered in greater detail in Chapter 17.)
Furthermore, a study of the decision-making processes of managers in Spain, Turkey,
Great Britain, and the United States suggests that both individual ethics and the organizational culture are important regardless of ones country.110
In the end, both individual and sociocultural processes influence whether a decision will be
ethical. Each individual in an organization is accountable to both him- or herself and others.
The Bentley College Center for Business Ethics suggests that in organizational life, each individual should become a practical philosopheran ethical decision makerby asking himself or herself the following questions when facing a decision requiring moral judgment.111
1.
2.
3.
4.
5.
Is it right?
Is it fair?
How does it smell? (What is your instinctive reaction to it?)
Who gets hurt?
Would you be comfortable if the details of your decision were reported on the front
page of your local newspaper?
6. What would you tell your child to do?
ACCOUNT FOR CULTURAL INFLUENCES Much of the research on individual and group decision making has been conducted with American and other English-speaking groups. As more
cross-cultural studies are conducted, differences in decision-making styles and influences will
undoubtedly be discovered. For instance, it has been suggested that how employees view participative decision making depends on forces outside of the decision-making process, including
sociopolitical, legal, historical, and sociocultural factors.112 The impact of culture on decision
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making is likely to be related to whether a culture is individualistic or more group oriented, and
whether it has a high or low emphasis on hierarchical relationships.
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expert systems
Computer programs that mirror
some aspects of human decisionmaking processes.
In Conclusion
Clearly, whether your personal goals include climbing the ladder to the executive suite, or
simply succeeding in organizational life, you must 1) appreciate both the rational and the
nonrational sides of decision making, 2) enhance youror your teamsabilities for convergent and divergent thinking, and 3) develop your implementation skills.
Consider this advice on decision implementation from the late management expert
Peter Drucker.125 Always practical, Drucker pointed out that you have not really made a
decision until people know:
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the names of the people who will be affected by the decision and who therefore must
know about, understand, and approve the decisionor at least not be strongly
opposed to it;
the names of the people who have to be informed of the decision, even if they are not
directly affected by it.
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least when it employed fewer than 4,000 people, the companys decision-making style continued to be unusual.
Schmidt says that whenever high-level decisions were
made, two people would have to agree. This typically
meant two of the top threePage, Brin, and Schmidt
himself. Much of the time, the three ran the company as a
triumvirate, collaborating on both product and business
decisions. The way it really works is that if its really
important [one of us] drives the three of us to agree. . . .
We, in fact, drive to consensus. Now, if two people agree,
then the third person is yelled at for a while and viceversa. And by the way, it rotates around, says
Schmidt.131
In general, the people at Google like to make decisions
as much in the open as possible. Schmidt says, We dont
like people to go off and make a decision. We try to make
decisions in as large a group as possible by as few people as
possible.132 Teams make decisions by consensus, leaving
room for individuals to bring their unique insights.
In an interview, Marissa Mayer, Googles 31-year-old
vice-president in charge of product launches, describes how
the company maintains creativity among its product managers. We bring together a team of people who are really
passionate about [a] subject. . . . We still dont do very highdefinition product specs. If you write a 70-page document
that says this is the product youre supposed to build, you
actually push the creativity out with process. [We dont want
to discourage] the engineer who says, you know what, theres
a feature here that you forgot that I would really like to add.
You dont want to push that creativity out of the product.133
Discuss
1. Describe decision making at Google.
2. In general, how does decision making in small companies differ from decision making in large companies?
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of how producers use their experience and intuition to evaluate a writers creativity.
Producers listening to a pitch use a two-part mental
process to evaluate a candidates creativity.
Part 1. Producers Categorize the Person
First, the producer intuitively categorizes the writer in
terms of a) cues that suggest the level of his or her creativity, and b) cues that suggest the level of his or her lack
of creativity. Here are some of the resulting categories,
along with the behavioral cues that producers use to make
their judgments and related comments by the producerinterviewers themselves:
The Artist: High Creative Potential
Cues: quirky, unconventional, unpredictable, passionate, extreme, obscure, unpolished/anxious
Producers comment: Theres this one guy, a real
artist. But hes one of those . . . guys whose social
graces are not so intact. . . . Hes a bit of a nonconformist, certainly, and his hair might be wild, . . . Hes
incredibly shy. . . .
The Journeyman: Moderate Creative Potential
Cues: Writerly, uses drama, natural, writes to a formula
Producers comment: A journeyman whos creative,
can take what is a formulaic story . . . but it still works
because, within that formula, he spun it so uniquely.
The Nonwriter: Low Creative Potential
Cues: Slick, writes to a formula, jaded, desperate
Producers comment: You know, you dont want to
come off as a used car salesman; you dont want it to
be a laundry list. . . .
Interestingly, while assessing creativity, the producer is
also assessing lack of creativity. The cues for noncreativity
include being too slick, appearing desperate, having a memorized pitch, and presenting a long list of ideas. Says one
producer, You should never pitch more than one, maybe
two projects at a time. Never, never, never. Theres not a
buyer in the world that you can convince that you have the
same passion for five different projects. What youre selling
is your passion. Youre rarely selling the idea. You are selling
you. You are selling your commitment, your point of view.
Part 2. Producers Categorize the Relationship
During the pitch the producers also categorize the relationship between themselves and the interviewee. This categorization has only two outcomes: Either they perceive a
85
Discuss
1. How effective is the producers method for choosing creative writers?
2. To what extent does the producers method for
choosing writers illustrate the theory presented in
this chapter on how intuitive decisions are made? on
how naturalistic decisions are made?
3. Suggest some additional decision-making methods
for choosing writers.
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Gain Experience
I. Fit the Process to the Decision
Do decision-making processes differ depending on the type of
decision being made? In this exercise, you will find out. In groups
of 4 or 5, solve the first problem below in Table 3.8. Before going
on to the next problem, report to the class on the following:
1) your decision; 2) how much time it took; 3) who was
involved in the decision, and how they decided; 4) how satisfied your group members are with the process they used to
make the decision; and 5) how satisfied your group members are with the quality of your decision.
At the end of the exercise, consult Table 3.8 below for
a description of the process that is typical of each type of
decision.
John
1st Test
2nd Test
3rd Test
Participation
80
90
95
Average
Carol
80
85
90
Excellent
Tom
95
90
90
Average
Bob
90
95
80
Poor
2. The player
A university (not yours) has admitted illiterate football players. Bo, a senior, is one of these.
Injured, Bo can no longer play. Should Bo be allowed to graduate with his B.S. in business, which
is his major subject? When you have arrived at a solution, raise a hand to let the professor know
you are ready for the discussion.
3. The evil moneylender
An old moneylender offers to cancel a merchants debt in order to keep him from going to prison if
the merchant will give the moneylender his lovely daughter. Horrified yet desperate, the merchant
and his daughter agree to let Fate decide. The moneylender said he would put a black pebble and a
white pebble in a bag, and the girl will draw one pebble. The white pebble will cancel the debt and
set the girl free; the black one will cancel the debt but make the girl the moneylenders. If she
refuses to pick, her father will go to prison. From the pebble-strewn path they are standing on, the
moneylender picks two pebbles and quickly puts them in the bag, but the girl sees he has picked up
two black pebbles. What would you do if you were the girl? When your group has answered this
question, have a member whisper it to your professor to find out if it is correct.
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TABLE 3.9 Under Which Circumstances Should You Use Each Decision-Making Method?
Will making the decision
What is the best size of the involve weighing
What decision-making skills
decision-making unit?
conflicting personal values? are needed?
1. A programmed decision
based on computation
Ex. Grading
2. An unprogrammed decision
based on weighing different
values
Ex. Pass or fail Bo?
An intermediate-sized
decision unit
Some conflicts
Group process
No
Creativity; intuition
One day things will get back to normal in your company, you hope, but in the meantime you want to make sure
that HP does everything it can to regain its previously stellar reputation. A crucial aspect of your investigation is
answering the question How did the HP board make the
series of bad decisions that got them into this mess?
You pick up an article by The Financial Times that
begins, Of the worlds top financial institutions none has
done more than Citigroup under Chuck Princes leadership to
address ethical problems and attempt to instill an ethical culture. Citigroup has nonetheless been plagued by high-profile
ethical lapses, underlining how difficult it can be to embed
sound values in a diverse and complex international organization.139 Here, you think, you might learn something useful. Citigroup had been a prominent provider of financial services to such corporate trouble-makers as Enron, WorldCom,
and Parmalat, and had since made a major effort to make sure
its employees followed ethical standards. Its new goals for its
people include being a company with the highest standards
of ethical conduct, an organization people can trust, and a
company dedicated to community service.
However, the article points out that since Citigroups
new emphasis on ethics, its London operations had become
embroiled in a scandal in which bond traders exploited a
weakness in a particular bond market, and by making a
mass order, had stung each of their competitors for millions
of dollars. As stated in the article, From an ethical point of
view, some outside Citigroup as well as within argued that
this was a market for professional traders who knew how to
look after themselves. In this view, exploiting a structural
weakness in the [bond] market was fair game. Others felt
Citigroup had cynically breached a gentlemans agreement
central to the workings of the market. Either way, Citigroups traders were undoubtedly flouting the banks stated
ethical values which declared that we treat our customers,
suppliers, and competitors fairly.140 The article goes on to
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note that one company leader had admitted, in a leaked email, that the company had made a bad decision in this
instance, having failed to fully consider the transactions
impact on its clients and competitors. Chuck Prince called
the trade knuckleheaded. The traders were suspended, but
later were allowed to return to work.
As you ponder the Citigroup dilemma, you wonder
what you should do next at HP.
Discuss
1. In what ways did the HP decision-making process
go wrong?
2. What is the difference between legal decisions and
ethical decisions?
3. In both the Citigroup case and the HP case, key values conflicted. What were those values?
4. How can Mark Hurd make sure that in the future,
HP decisions will be both legal and ethical?
The VP for Business Lines has held her position for one
year, having been promoted to the job after 10 years in
administrative model 64
satisficing 64
behavioral economics 64
rational problem solving 65
escalation of commitment 65
When you are designing a decision-making process,
what three major factors should you weigh?
Recognize that different types of problems generally
require different types of decision making. When deciding
how to decide, consider 1) the type of problem you are
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Explorations
1. Tools for improving logical decision making
At www.mindtools.com141 you will find a section on decision making that offers a variety of tools for organizing
decisions, including pareto analysis (logical steps to take
in choosing what to change), force field analysis (analyzing the pressures for and against a choice), and grid analysis (making a choice by taking into account a large number of factors).
2. Creativity in business decision making
Do a Web search for business creativity. How often is creativity required in business, do you think?
3. Explore your own unconscious biases
To examine your own unconscious attitudes, visit
implicit.harvard.edu or www.tolerance.org/hidden%5fbias.
Here you will find Implicit Association Tests that reveal
unconscious beliefs by asking you to make split-second
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