Professional Documents
Culture Documents
MANAGEMENT ASSIGNMENT
50 IMPORTANT CONCEPTS OF CHAPTER 7 – DECISION MAKING
Example: When your company went bankrupt, you have to choose between
closing the company or take a loan in a bank to help run the business.
Example: How would you decide which college to attend, which house to buy,
or whether to change careers? These are the types of decisions that engage
System 2. They require attention and slow, effortful, considered responses.
You would naturally have gut feelings about each college, house or career
path, but would likely try to supplement them with a much more thoughtful
and rational approach: collecting as much information about each option as
possible, asking your friends, family or colleagues for advice, or making a list
of pros and cons for each option.
5. The rational model of decision making, explain how managers should make
decisions. It assumes managers will make logical decisions that will be the
optimum in furthering the organization’s best interest.
Example: If your family is growing, and you have a small house which doesn’t
meet your needs. On this case, the cause of the problem is the space
Example: After you identify the problem, you decided that you are going to
buy a bigger house to overcome that issue.
Example: But after you evaluate the solution that you thought of, (which is
buying a bigger house) you realize that your solution is not ultimately
effective. So you think of other alternatives. Which is by removing unneeded
stuff in your house to free up space or having a space to build a new room in
the house.
Example: After evaluating the pros and cons of the alternative solution, you
decided to free up the space by removing the unneeded stuff in your house.
And you do the action straightforward.
10. The nonrational model of decision making, explain how managers make
decision and they assume that decision making is nearly always uncertain and
risky, making it difficult for managers to make optimal decisions.
Example: Many cigarette smokers are capable of quitting, but they still
continue doing it – especially since they know it’s expensive and bad for their
health. It’s not that they are especially tolerant of risk. Perhaps, some scientist
suggest, it’s because they have poor self-control and can’t resist the short-term
pleasure despite the prospected of long-term disaster.
11. Bounded rationality, is the concept that suggests that the ability of decision
makers to be rational is limited by numerous constraints, such as complexity,
time and money, and their cognitive capacity, values, skills, habits, and
unconscious reflex
Example: When the precept being violated is to “buy footwear that fits one’s
feet” (an admonition that will no doubt find wide acceptance), the consumer’s
action might be to purchase a pair of shoes that is instead one-half size too
large. This behaviour would be considered boundedly rational if the shoes
being purchased were needed for a wedding this afternoon and if a perfectly
fitting pair could be obtained for certain only by visiting each of 10
geographically dispersed shoe shops. In this instance, thinking of the decision
maker simply as an optimizer of comfort would lead to puzzlement at his
selection, but the purchase of poorly fitting shoes looks reasonable enough
when the consumer’s limited knowledge of the retail environment is
considered.
Example: A task is to sew a patch onto a pair of jeans. The best needle to do
the threading is a 4 inch long needle with a 3 millimeter eye. This needle is
hidden in a haystack along with 1,000 other needles varying in size from 1
inch to 6 inches. Satisficing claims that the first needle that can sew on the
patch is the one that should be used. Spending time searching for that one
specific needle in the haystack is a waste of energy and resources.
13. Intuition model, is making a choice without the use of conscious thought or
logical inference.
Example: Ben Hugh, 32, decided to buy I Can Has Cheezburger?, a blog
devoted to silly cat pictures paired with viewer-submitted quirky captions,
when it linked to his own pet blog and caused it to crash from a wave of new
visitors. Putting up $10,000 of his own money and acquiring additional
investor financing, he bought the site for $2 million from the Hawaiian
bloggers who started it. “It was a white-knuckle decision,” he said later. But
he expanded the Cheezburger blog into an empire that now includes 53 sites.
14. Decision tree, is a graph of decisions and their possible consequences. It is
used to create a plan to reach a goal.
Example:
Example: Google used evidence based analysis to find out what makes a better
boss. They found that what employees value most are even-keeled bosses who
take an interest in employees’ lives and careers, who make time for one-on-
one meetings, and who help people work through problems by asking
questions instead of dictating answers.
Example: Google used evidence-based analysis to find out what makes a better
boss. They found that what employeesvalue most are evenkeeled bosses who
take an interest in employees’ lives and careers, who make time for one-on-
one meetings, and who help people work through problems by asking
questions instead of dictating answers
Example: Intel’s Andy Grove called it “the revolving door” when discussing
strategy with then CEO Gordon Moore. Pretend we are outsiders coming new
to the job, ask ourselves what they would do, and then do it ourselves. It led
Intel to withdraw from the business of memory chips, and focus on
microprocessors. This resulted in more than a decade of 30 percent annual
growth in revenue and 40 percent increase in net income.
20. Implementation Principles – Like everything else, you still need to sell it
To sell an evidence-based approach, you may have to identify a preferred
practice based on solid if unexciting evidence, then use vivid stories to grab
management attention.
Example: The Old Spice campaign "The Man Your Man Could Smell Like"
that ran a few years ago. To keep the excitement going, Wieden+Kennedy
filmed more than 180 video responses to questions from fans and celebrities
and posted them on YouTube. The company's Twitter and Facebook
followings soared, and sales jumped 125 percent. By the end of 2010, Old
Spice had become the No. 1 selling brand of body wash for men in the U.S.
The power of social media and advertising has the bigger portion of The Old
Spice’s success, consumers look to you for thoughtful and entertaining content
down the road.
21. Implementation Principles – If all else fails, slow the spread of bad
practice
Because many managers and employees face pressure to do things that are
known to be ineffective, it may be necessary for you to practice “evidence-
based misbehavior” – that is, ignore orders you know to be wrong or delay
their implementation.
Example: From the U.S. civil aviation system, which rigorously examines
airplane accidents, near misses, and equipment problems, to Home Depot
deciding to close 400 of its U.S. stores after declining sales, evidence-based
management makes the point that failure is a great teacher.
Example: Companies such as Capital One look well beyond basic statistics,
using data mining and predictive modeling to identify potential and most
profitable customers. Thus, Capital One conducts more than 30,000
experiments a year, with different interest rates, incentives, direct-mail
packaging, and other variables to evaluate which customers are most apt to
sign up for credit cards and will pay back their debt.
Example: UPS (formerly United Parcel Service) applies analytics not only to
tracking the movement of packages but also to examining usage patterns to try
to identify potential customer defections so that salespeople can make contact
and solve problems. More recently, it began testing whether UPS could be in
the business of delivering direct mail, to serve as an alternative to marketing
mail delivered by the U.S. Post Service
27. Big Data analytics, is the process of examining large amounts od data of a
variety of types to uncover hidden patterns, unknown correlations, and other
useful information.
Example: While Big Data analytics can be used to tackle large-scale problems
such as how to make electricity grids and traffic flow more effective, it also
has specific, practical uses in business. HP Labs researchers, for instance, used
Twitter data to accurately predict box-office revenues of Hollywood
movies.90 Business is also interested in analyzing online behavior “to create
ads, products, or experiences that are most appealing to consumers—and thus
most lucrative to companies,” says one technology journalist. “There’s also
great potential to more accurately predict market fluctuations or react faster to
shifts in consumer sentiment or supply chain issues.”
Example: Susie Steel prefers to use the conceptual style of decision making in
her job. Susie gathered her team together and presented the issue of the
undeveloped land scenario. She gave the team all of the key information she
had acquired during her research. Susie and her team spent the day
brainstorming different alternatives for the plot of land and evaluated each
one. No idea was eliminated, and the team decided to choose a higher-risk
plan, which could result in a financial windfall for the company. On of Susie’s
coworker felt her idea was ridiculous, as there was not any data to support her
risky decision
Example: Perhaps people really don’t like a lot of choices. In one experiment,
40% of customers stopped by a large assortment of jam jars (24) and only 30%
by a small assortment (6) – but only 3% made a purchase in the first case
versus 30% in the second.
Example: Shoppers at a New Jersey Mall were asked to make decisions about
how the would spend money when facing emergencies expenses. When the
expenses were large, the cognitive performance of low-income shoppers fell
by 13 IQ points (equivalent to a lost night’s sleep), whereas the IQ levels of
middle-income shoppers remained the same. “When you don’t have enough
money, it occupies your mind to takes away bandwidth that you could use for
other things.”
Example: Imagine that a person holds a belief that left-handed people are more
creative than right-handed people. Whenever this person encounters a person
that is both left-handed and creative, they place greater importance on this
"evidence" that supports what they already believe. This individual might even
seek "proof" that further backs up this belief while discounting examples that
don't support the idea.
Example: In the basketball game ticket example, the point is that the money is
already gone, so now you are better off doing what pleases you best. So,
unless you can sell the ticket, just forget about what you paid for it. You are
better off using it to help fuel the fireplace while you comfortably enjoy the
game on TV.
40. Nine Common Decision Making Biases – The Anchoring & Adjustment
Bias
The anchoring and adjustment bias is the tendency to make decisions based on
an initial figure
Example: Before the 2008 crash in real estate markets, many homeowners
might have been inclined a first to list their houses at an extremely high selling
price. These seller were then unwilling later to come down substantially to
match the kind of buying offers that reflected what the marketplace thought
the house was really worth.
Example: A person who thinks his sense of direction is much better than it
actually is. The person could show his overconfidence by going on a long trip
without a map and refusing to ask for directions if he gets lost along the way.
42. Nine Common Decision Making Biases – The Hindsight Bias
The hindsight bias is the tendency of people to view events as being more
predictable than they really are.
Example: When at the end of watching a game we decide the outcome was
obvious and predictable, even though in fact it was not.
Example: People who are familiar with one another tend to make better
decisions when members have a lot of unique information. However, people
who aren’t familiar with one another tend to make better decisions when the
members have common knowledge.
46. Consensus
Occurs when members are able to express their opinions and reach agreement
to support the final decisions.
Example: Which of the following CLINICAL areas do you think are HIGH
PRIORITY for development of an improved evidence base relating to
minority ethnic groups and their health needs?
Thus questionnaire provides space for respondents to raise any other issues
relating to the topic. The first round of the questionnaire aims to categorize
opinions under common headings.