DECISION

MAKING
DEFINITION OF DECISION
The word decision has been derived from the latin word decidere which means cutting away or
cutting off
A decision involve a cut of alternative between those that are desirable and those are undesirable
Two definition of decision making according to Robert Harris:
1. ecision !aking is the study of identifying and choosing alternatives based on the values
and "references of decision maker.
#. ecision !aking is "rocess of sufficiently reducing uncertainty and doubt about
alternatives to allow a reasonable choice to be made from among them.
PHASES OF DECISION MAKING
Intelligence searching for conditions in the environment that call for decisions
Design inventing$ develo"ing$ and analy%ing "ossible courses of action
Choice selecting a course of action from those available
Implementation im"lementing the selected course of action
Monitoring checking the conse&uences of the decision made after im"lementation
A HISTOR OF CHOICE
' The history of decision making is long$ rich and diverse
' The following timeline re"resents only a small sam"le of the "eo"le$ events$ research and
thinking that contributed to the sub(ect
' !any dates are a""ro)imate
Prehistor! "
th
Cent#r! $C %
th
Cent#r! $C
*or millennia$ human
decisions guided by
inter"retations of entrails$
smoke$ dreams and the
like+ hundreds of
generations of ,hinese
rely on the "oetic wisdom
and divinations
instructions com"lied in
the I Ching
The -reeks consult the
.racle of el"hi. /ro"hets
and seers of kinds "eer
into the future
0ao T%u teaches the
"rinci"le of nonwillful
action: letting events
take their natural course
,onfucius says decisions
should be informed by
benevolence$ ritual$
reci"rocity$ and filial "iety
!ale citi%ens in Athens$ in
the early form of
democratic selfgovernment$
make
decisions by voting
&th Cent#r! $C '(( $C ''' $C
/lato asserts that all
"erceivable things are
derived from eternal
archety"es and are
better discovered
through the soul than
through senses
Aristotle takes an
em"irical view of
knowledge that values
information gained
through the senses and
deductive reasoning
1n an early (ury2trial
decisions$ 344 Athenian
citi%ens agree to send
5ocrates to his death
Ale)ander the -reat
slices through the
-ordian knot with his
sword$ demonstrating
how difficult "roblems
can be solved with both
strokes
&( $C (th Cent#r! ))th Cent#r!
6ulius ,aesar makes
the irreversible decision
to cross the Rubicon$
and a "otent
meta"hor in decision
making is born
The Hindu2Arabic
number including the
%ero$ circulates
throughout the Arab
em"ire$ stimulating the
growth of mathematics
.mar 7hayyam uses
the Hindu2Arabic
number system to
create a language of
calculation$ "aving the
way for the
develo"ment of
agenda
)&th Cent#r! )*th Cent#r! )"+,
An 8nglish friar "ro"oses
what
became known as
.ccam9s ra%or$ a rule of
thumb for scientists and
others trying to analy%e data:
the best theory is the sim"lest
one that accounts for all
evidence
5table kee"er Thomas
Hobson "resents his
customers with an
e"onymous choice:
the horse nearest the
door or none
Hamlet facing arguably
the most famous
dilemma in :estern
literature$ debates
whether to be, or not to
be
)",+ )"&) )"%&
*rancis ;acon asserts the
su"eriority of inductive
reasoning in scientific
in&uiry
Rene escartes
"ro"oses that reason is
su"erior to e)"erience as
a way of gaining
knowledge and
establishes the
framework for the
scientific method
/rom"ted by a
gamblers9 &uestion
about the "roblem of
"oints$ ;laise /ascal
and /ierre de *ermat
develo" the conce"t of
calculating "robabilities
for chance events
)""+ )*'- )(th Cent#r!
/ascal9s wager on the
e)istence of -od shows
that for a decision maker
the conse&uences$ rather
than the likelihood$ of being
wrong can be "aramount
aniel ;ernoulli lays the
foundation of risk
science by e)amining
random events from the
stand"oint of how much
an individual desires or
fears each "ossible
outcome
,arl *riedrich -auss
studies the bell curve$
described earlier by
Abraham de !oivre$ and
develo"s a structure for
understanding the
occurrence of random
events
)(+* )(,) )('-
8conomist 1rving *isher
introduces the net "resent
value as a decision
making tool$ "ro"osing
that e)"ected cash flow
be discounted at the rate
that reflects an
investment9s risk
*rank 7night
distinguishes between
risk$ in which an
outcome9s "robability
can be known <and
conse&uently insured
against=$ and
uncertainty$ in which an
outcome9s "robability is
unknowable
,hester ;arnard se"arates
"ersonal from
organi%ational decision
making to e)"lain why
some em"loyees act in the
firm9s interest rather than
their own
)(&& )(&" )(&*
6ohn von >eumann and
.skar !orgenstern in
-ame Theory describe a
mathematical basis for
economic decision
making
0ike most theorists before
them$ they take the view
that decision makers are
rational and consistent
The Alabe ,rafts ,om"any
of ,incinnati markets the
!agic ? ;all
Herbert 5imon argues
that because of the
costs of ac&uiring
information$ e)ecutives
make decisions with only
bounded rationality @
they make do with good
enough decisions
Re(ects the notion that
decision makers behave
with "erfect rationality
)(&- )(%+.s )(%)
/ro(ect RA> se"arates from
ouglas Aircraft and became
a non2"rofit think tank
ecision makers uses its
analyses to form "olicy on
education$ "overty$ crime$
the environment$ sand
national security
Research at the
,arnegie 1nstitute of
Technology and !1T
led to the
develo"ment of early
com"uter2based
decision su""ort tools
7enneth Arrow
introduced the
1m"ossibility Theorem
which holds that there
can be no set of rules for
social decision making
that fulfils all the
re&uirements of society
)(%, )("+s )(")
Harry !arkowit%
demonstrates
mathematically how to
choose diversified stock
"ortfolios so that the
returns are consistent
8dmund 0earned$ ,. Roland
,hristensen$7enneth
Andrews and others
develo" the 5:.T
<strengths$ weaknesses$
o""ortunities and threats=
model of analysis$ useful for
decision when time is short
and circumstances com"le)
6ose"h Heller9s term
catch2## becomes a
"o"ular shorthand for
circular$ bureaucratic
illogic that thwarts good
decision making
)("% )("" )("-
,or"orations use 1;!9s
5ystemABC4 com"uters in
stat im"lementing
management
information systems
Roger :olcott 5"erry
begins "ublishing
research on the
functional s"eciali%ation
of the brain9s two
hemis"heres
>uclear o"tion coined
with res"ect to
develo"ing atomic
wea"ons and used to
designate a decision to
take the most drastic
course of action
Howard Raiffa9s Decision
Analysis explains many
fundamental decision
making techni&ues$
including decision trees
and the e)"ected value of
sam"le <as o""osed to
"erfect= information
)(*+ )(*, )(*'
6ohn .,. 0ittle
develo"s the underlying
theory and advances
the ca"ability of
decision2su""ort systems
1rving 6anis coins the term
grou"think for flawed
decision making that values
consensus over the best
result
!ichael ,ohen$ 6ames
!arch and 6ohan .lsen
"ublish A -arbage ,an
!odel of .rgani%ational
,hoice which advices
organi%ations to search for
their information trash bins
for solutions thrown out
earlier for lack of a "roblem
*ischer ;lack$ !yron
5choles and Robert
!erton show how to
accurately value stock
o"tions$ beginning a
revolution in risk
management
Henry !int%berg describes
several kinds of decision
makers and "ositions
decision making within
the conte)t of managerial
work
)(*' )(*( )(-+s
Dictor Droom and /hili"
Eetton develo" the Droom2
Eetton model which
e)"lains how different
leadershi" styles can be
harnessed to solve different
ty"es of "roblems
Amos Tversky and aniel
7aheman "ublish their
/ros"ect Theory that
demonstrates that the
rational model of
economics fail to
describe how "eo"le
arrive at decisions when
facing the uncertainties
of real life
>obody gets fired for
buying 1;! comes to
stand for decisions whose
chief rationale is safety
)((% )((" ,++%
Anthony -reewald
develo"s the Association
Test$ meant to reveal
unconscious attitudes to
beliefs that can influence
(udgement
:eb users start making
buying decisions based
on the buying decisions
of "eo"le like themselves
1n Blink Malcolm Gladwell
e)"lores the notion that
our instantaneous
decisions are sometimes
better than those based
on lengthy rational
analysis