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The Six-Step Rational Decision-Making Model
The Six-Step Rational Decision-Making Model
This step brings the decision makers interests, values, and personal
preferences into the process.
Also keep in mind that any factors not identified in this step are
considered as irrelevant to the decision maker.
Generate alternatives
The decision maker generates possible alternatives that could succeed in
resolving the problem. No attempt is made in this step to appraise these
alternatives, only to list them.
Assumptions of Model
1. Problem clarity. (The decision maker is assumed to have
complete information regarding the decision situation.)
2. Known options (Identify all the relevant criteria and can list all the
viable alternatives. The decision maker is aware of all the possible
consequences of each alternative.)
3. Clear preference (The criteria and alternatives can be ranked and
weight to reflect their importance)
4. Constant preferences (The specific decision criteria are constant and
that weights assigned to them are stable over time)
5. No time or cost constraints
6. Maximum payoff
Bounded Rationality
when a staff considered which college to attend, they will not look every
viable alternative nor identify all the criteria that were important in decision.
When faced with a complex problem, most people respond by reducing the
problem to a level at which it can readily understand. The limited information-
processing capability of human beings makes it impossible to assimilate and
understand all the information necessary to optimize. So people satisfied; that
is, they seek solutions that are satisfactory and sufficient.
Because the capacity of the human mind for formulating and solving complex
problems is far too small to meet the requirements for full rationality,
individuals operate within the confines of bounded
rationality. They construct simplified models that extract the essential
features from problems without capturing all of their complexity. Individuals
can then behave rationally within the limits of the simple model.
Once a problem is identified, the search for criteria and alternatives begins.
But the list of criteria is likely to be far from exhaustive. The decision maker
will identify a limited list made up of the more conspicuous choices.
These are the choices that are easy to find and that tend to be highly visible.
In most cases, they will represent familiar criteria and previously tried-and-
true solutions.
Once this limited set of alternatives is identified, the decision maker will begin
reviewing them. But the review will not be comprehensive
not all of the alternatives will be carefully evaluated. Instead, the decision
maker will begin with alternatives that differ only in a relatively small degree
from the choice currently in effect.
Following along familiar and will-worn paths, the decision maker proceeds
to review alternatives only until he or she identifies an alternative that is
good enough one that meets an acceptable level of performance.
The first alternative that meets the good enough criterion ends the search.
So the final solution represents a satisfying choice rather than an optimal one.
Solutions that depart least from the status quo and meet the decision criteria
are most likely to be selected. A unique and creative alternative may present
an optimizing solution to the problem, but its unlikely to be chosen because
an acceptable solution will be identified well before the decision maker is
required to search very far beyond the status quo.
Intuition
Sometimes youre just got to go with your gut feeling,
Identifying Problems
Problems that are visible tend to have a higher probability of being selected
than ones that are important.
1. Easily to catch a decision makers attention.
2. Decision maker want to appear competent and on top of problems.
This desire motivates DM to focus on problems that are visible to
others
Developing Alternatives
since decision makers rarely seek an optimal solution, but rather a
satisfying one, we should expect to find a minimal use of creativity in the
search for alternatives. And that expectation is generally on target.
Efforts will be made to try to keep the search process simple. It will tend to
be confined to the neighborhood of the current alternative. More complex
search behavior, which includes the development of creative alternatives,
will be resorted to only when a simple search fails to uncover a satisfactory
alternative.
Decision maker avoid the difficult task of considering all the important factors,
weighing their relative merits and drawbacks, and calculating the value for
each alternative.
Making Choices
In order to avoid information overload, decision makers rely on
heuristics, or judgmental shortcuts, in decision making.
1. Availability Heuristic
The tendency for people to base their judgments on information that is
readily available to them. Events that evoke emotions, that are
particularly vivid, or that have occurred recently tend to
be most available in our memory.
[When doing annual performance appraisals, tend to give more weight
to recent behaviors of an employee than to those of 6 months ago]
2. Representative Heuristic
decision makers tend to assess the likelihood of an occurrence by trying to
match it with a pre-existing category.
[Frequently predict the performance of a new product by relating it to a
previous products success]
3. Escalation of Commitment
tendency to escalate commitment when a decision stream represents a
series of decisions. Escalation of commitment is an increased
commitment to a previous decision in spite of negative information.
They throw good money after bad to demonstrate that their initial
decision wasnt wrong and to avoid having to admit they made a mistake.
People try to appear consistent in what they say and do. Increasing
commitment to previous actions conveys consistency.
Individual Difference
1. Decision-Making Styles
The foundation of the model is the recognition that people differ along two
dimensions. The first is their way of thinking (intuitive and creative). The
other dimension addresses a persons tolerance for ambiguity. Some
people have a high need to structure information in ways that minimize
ambiguity; Others are able to process many thoughts at the same time.
Analytical Conceptual
Directive Behavioral
Tolerance for Ambiguity
- People using the directive style have low tolerance for ambiguity
and seek rationality. They are efficient and logical. But their concern
for efficiency results in their making decisions with minimal
information and assessing few alternatives. Directive types make
decision fast, and they focus on the short run.
- The analytical type has a much greater tolerance for ambiguity than
do directive decision makers. They desire more information and
consider more alternatives than do directives. Analytical managers
would be best characterized as careful decision makers with the
ability to adapt or cope with new situations.
- A behavioral style decision maker who work well with others. Theyre
concerned with the achievements of peers and subordinates. Theyre
receptive to suggestions from others and rely heavily on meetings for
communicating. This type of manager tried to avoid conflict and seeks
acceptance.
Performance Evaluation
Decision maker are strongly influenced in their decision making by the
criteria by which they are evaluated.
[If a division manager believes that the manufacturing plants under his
responsibility are operating best when he hears nothing negative, we
shouldnt be surprised to find that his plant managers spend a good part of
their time ensuring that negative information doesnt reach the division boss.]
[If a college dean believes that an instructor should never fail more than 10
percent of her students to fail more reflects on the instructors ability to
teach we should expect that new instructor, who want to receive favorable
evaluations, will decide not to fail too many students.]
Reward System
What choices are preferable in terms of personal payoff?
If the organization rewards risk aversion, managers are likely to make
conservative decisions.
[General Motors consistently gave out promotions and bonuses to manager
who kept a low profile, avoided controversy, and were good team players.
The result was that GM managers became very adept at dodging tough
issues and passing controversial decisions on to committees]
Historical Precedents
Rational decision making takes an unrealistic and insulated perspective. It
views decision as independent and discrete events. But that isnt they way
it I in the real world! Decisions arent made in a vacuum. They have a
context. In fact, individual decisions are more accurately characterized as
points in a stream of decisions.
Decisions made in the past are ghost that continually haunt current choices.
Its common knowledge that the largest determining factor of the size of
any given years budget is last years budget.
Choices made today, therefore, are largely a result of choices made over the
years.
Cultural Differences
The rational model does not acknowledge cultural differences. But, we need
to recognize that the cultural background of the decision maker can have
significant influence on his or her selection of problems, depth of analysis, the
importance placed on logic and rationality, or whether organizational decisions
should be made autocratically by an individual manger or collectively in
groups. (Like Japan Manager is more group-oriented. Before making an
important decision, they collect a large amount of information, which is then
used in consensus-forming group decisions.)
Right criterion
This call on individuals to make decisions consistent with fundamental
liberties and privileges as set forth in documents such as the Bill of Right.
[
+ Protects individuals from injury and is consistent with freedom and
privacy
- Create an overly legalistic workplace that hinders productivity and
efficiency.
]
Justice criterion
This requires individual to impose and enforce rules fairly and impartially so
there is an equitable distribution of benefits and costs.
[
+ The interests of the underrepresented and less powerful -
Encourage a sense of entitlement that reduces risk taking,
innovation, and productivity.
]