Griffin 9e IM CH 4 - Edited

CHAPTER 4
Managing Decision Making
0CHAPTER SUMMARY
This chapter deals with managerial decision making and problem solving. As noted in Chapter 1,
decision making relates to all management functions. However, it most closely relates to planning, so
we discuss it here in the planning section of the book.
0LEARNING OUTCOMES
After studying this chapter, students should be able to:
00. Define decision making and discuss types of decisions and decision-making conditions.
00. Discuss rational perspectives on decision making, including the steps involved.
00. Describe the behavioral aspects of decision making.
00. Discuss group and team decision making, including its advantages and disadvantages and how it
can be more effectively managed.
MANAGEMENT IN ACTION
Moneyball on Steroids
The chapter opening case profiles Jeff Luhnow and his rise to becoming the general manager of the
Houston Astros. Luhnow and former NASA engineer Sig Mejdal have designed an analytics-driven
system that synthesizes quantitative and qualitative information on players based on scouting reports.
Luhnow and his front-office team use the system to make better, more reliable decisions about each
player.
Management Update: In 2015, the Houston Astros advanced to the postseason for the first time in a
decade, making it to the American League Division Series versus the eventual World Series Champion
Kansas City Royals.
00LECTURE OUTLINE
0. The Nature of Decision Making
0. Decision Making Defined
Decision making is the act of choosing one alternative from among a set of alternatives. The
decision-making process includes recognizing and defining the nature of a decision
situation, identifying alternatives, choosing the “best” alternative, and putting it into
practice.
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 4: Managing Decision Making 53
Teaching Tip: Make sure students see the subtle distinctions between decision making and the
decision-making process.
0. Types of Decisions
Managers must make many different types of decisions. In general, however, most decisions
fall into one of two categories.
1. Programmed decisions are fairly structured or recur with some frequency (or both).
Teaching Tip: Provide students with an example of a school-related programmed decision that affects
them. For example, course offerings, enrollment limits, and exam schedules are often set using
programmed decision rules.
Extra Example: Walmart relies heavily on programmed decision making. Whenever inventory levels
of various products drop below a predetermined level, replacements are automatically ordered.
2. Nonprogrammed decisions are relatively unstructured and occur much less often than
programmed decisions.
Group Exercise: Ask student groups to identify three examples each of programmed and
nonprogrammed decisions that they have recently made or been affected by.
0. Decision-Making Conditions
00. Decision Making under Certainty
When the decision maker knows with reasonable certainty what the alternatives are
and what conditions are associated with each alternative, a state of certainty exists.
Teaching Tip: Stress the fact that few management decisions are actually made under a condition of
certainty. For example, it is impossible to know with certainty what competitors will do, what new
technology will be developed, and so forth.
00. Decision Making under Risk

Under a state of risk, the availability of each alternative and its potential payoffs and
costs are all associated with probability estimates.
00. Decision Making under Uncertainty
A state of uncertainty occurs when the decision maker does not know all the
alternatives, the risks associated with each, or the likely consequences of each
alternative.
Global Connection: Much of the foreign expansion that firms are doing today is characterized by
uncertainty. For example, point out to students how social, political, and economic risk in foreign
markets all contribute to uncertainty.
Group Exercise: Break students up into small groups. Have each group identify examples they have
recently faced that illustrate each decision-making condition.
0. Rational Perspectives on Decision Making

0. The Classical Model of Decision Making
54 Chapter 4: Managing Decision Making
The classical decision model is a prescriptive approach that tells managers how they should
make decisions. It assumes that managers are logical and rational and that their decisions
will be in the best interests of the organization.
Teaching Tip: Be sure to note the distinction between classical decision making, as discussed here, and
the classical management perspective covered in Chapter 1.
0. Steps in Rational Decision Making

The steps in rational decision making help keep the decision maker focused on facts and
logic and help guard against inappropriate assumptions and pitfalls.
Teaching Tip: Note the details in Table 4.1. The table shows the general steps involved in the rational
decision-making process and provides a running example to illustrate each step.
00. Recognizing and Defining the Decision Situation

The first step is to recognize that a decision is necessary. Inherent in problem
recognition is the need to define precisely what the problem is. The manager must
develop a complete understanding of the problem, its causes, and its relationship to
other factors.
Extra Example: After several years of poor financial performance, Kmart defined its decision situation
as a need to recover from its prolonged slump and regain lost sales and profits.
00. Identifying Alternatives

Once the decision situation has been recognized and defined, the next step is to
identify alternative courses of effective action. Both obvious, standard alternatives and
creative, innovative alternatives should be developed.
Extra Example: Kmart saw its primary options as (1) selling off its specialty store businesses to raise
cash, (2) selling off its discount operations and concentrating on specialty retailing, or (3) shutting
down the company.
00. Evaluating Alternatives

The next step is to evaluate each of the alternatives generated in step 2. Each
alternative should be evaluated in terms of its feasibility, satisfactoriness, and
consequences.
Extra Example: Kmart evaluated each of its three options using the criteria discussed in the text.
Option 1 was found to be feasible, satisfactory, and have affordable consequences. Option 2 was not
feasible because no buyer would be likely to pay what the firm needed. Option 3 was feasible, but
management knew that it was not satisfactory to shareholders.
00. Selecting the Best Alternative

Choosing the best of the alternatives generated is the real crux of decision making. One
can select the alternative with the highest combined level of feasibility,
satisfactoriness, and affordable consequences, or one can optimize on one criterion.
Extra Example: Based on its evaluation of the alternatives, Kmart made the decision to sell off its
specialty stores. The plan was to use the cash generated by those sales to upgrade the firm’s discount
stores and to try to become more competitive with Walmart and Target.
00. Implementing the Chosen Alternative

After an alternative has been selected, the manager must put it into effect. Managers
must consider people’s resistance to change when implementing decisions. Managers
must also recognize that even when all alternatives have been evaluated as precisely as
possible and the consequences of each alternative weighed, unanticipated
consequences are still likely.
Extra Example: The first things Kmart did to implement its chosen course of action were to spin off its
OfficeMax and Sports Authority businesses and to sell its 21.5 percent stake in Coles Myer, an
Australian retailer. The next step was to spin off Kmart’s other retailing operations—Borders,
Waldenbooks, and Builders Square. The firm was now free to focus its attention and energies on its
core business, discount retailing. However, even these strategic moves were not enough to help Kmart
turn around its declining market position. The company merged with Sears in 2005 and is today a part
of Sears Holding Corporation. In effect, two weakened companies (Kmart and Sears) decided that their
best bet was to combine their resources.
00. Following Up and Evaluating the Results

Managers must evaluate the effectiveness of their decision—that is, they should make
sure that the chosen alternative has served its original purpose. If it has not, corrective
measures must be taken.
Group Exercise: Have students research whether Kmart’s merger with Sears has improved its
competitive position.
C0. Evidence-Based Management

Stanford University professors Jeffrey Pfeffer and Bob Sutton define evidence-based
management (EBM) as a “commitment to finding and using the best theory and data
available at the time to make decisions.” They advocate that EBM is a five-step process.
1. Face the hard facts and build a culture in which people are encouraged to tell the truth,
even if it’s unpleasant.
2. Be committed to “fact-based” decision making—which means being committed to
getting the best evidence and using it to guide actions.
3. Treat your organization as an unfinished prototype—encourage experimentation and
learning by doing.
4. Look for the risks and drawbacks in what people recommend.
5. Avoid basing decisions on untested but strongly held beliefs, what you have done in
the past, or uncritical “benchmarking” of what winners do.
0. Behavioral Aspects of Decision Making
0. The Administrative Model
In contrast to the classical model, the administrative model argues that decision makers use
incomplete and imperfect information, are constrained by bounded rationality, and tend to
“satisfice” when making decisions.
Teaching Tip: Emphasize that the classical and administrative models of decision making are not
mutually exclusive. Indeed, most decisions are made using ingredients from both models.
00. Bounded rationality suggests that decision makers are limited by their values and
unconscious reflexes, skills, and habits. They are also limited by less-than-complete
information and knowledge.
00. Satisficing is the tendency to search for alternatives only until one is found that meets
some minimum standard of sufficiency. Decision makers satisfice when they do not
conduct an exhaustive search for the best possible alternative.
Discussion Starter: Ask students if they think that satisficing is always a bad thing. In fact, as long as
high-quality alternatives are being considered, satisficing is an efficient way to make decisions.
Group Exercise: Have students examine their own personal choices regarding college and major in
terms of bounded rationality and satisficing.
0. Political Forces in Decision Making
A coalition is an informal alliance of individuals or groups formed to achieve a common

goal, which is often a preferred decision alternative. Coalitions often play an important role
in decision making in organizations.
Discussion Starter: Ask students if they have ever been part of a coalition that determined the outcome
of a decision.
Cross-Reference: Note that political behavior is discussed more fully in Chapter 11.
0. Intuition and Escalation of Commitment

Intuition and escalation of commitment are processes that go beyond logic and rationality.
00. Intuition is an innate belief about something without conscious consideration.
Managers sometimes decide to do something because it “feels right” or they have a
“hunch.” The feeling usually is not arbitrary, but rather based on years of experience
and practice in making decisions in similar situations.
Interesting Quote: “Sometimes making a decision is hard not because it is unpopular, but because it
comes from the gut and defies a ‘technical’ rationale. Much has been written about the mystery of gut,
but it’s really just pattern recognition, isn’t it. You’ve seen something so many times you just know
what’s going on this time. The facts may be incomplete or the data limited, but the situation feels very,
very familiar to you.” (Jack Welch, former CEO of General Electric, Newsweek, April 4, 2005, p. 47)
Teaching Tip: Note that even though managers may sometimes seem to make decisions based purely
on intuition, in reality they are also relying on their experience, judgment, and other resources, even if
they are doing so unconsciously!
00. Escalation of commitment occurs when decision makers make a decision and become
so committed to it that they stay with it, even when it appears to have been wrong.
Extra Example: The military is frequently guilty of escalation of commitment. Decision makers will
commit funds for a new weapons project, for example, and will continue to fund the project even when
information suggests they should stop.
Discussion Starter: Ask students if they have ever gambled in a casino or a similar location. Note the
tendency among gamblers who lose money to keep playing in the hopes of winning back their losses.
This represents an escalation of commitment.
0. Risk Propensity and Decision Making

Risk propensity is the extent to which a decision maker is willing to gamble when making a
decision. The organization’s culture is a prime ingredient in fostering different levels of risk
propensity
Global Connection: The extent to which managers are comfortable with different degrees of risk
varies across cultures. For example, British managers tend to avoid risk, U.S. managers are more
comfortable with risk, and Italian managers are often quite risky in decision making.
0. Ethics and Decision Making
Just as decisions are influenced by politics and risk propensity, they are also influenced by
the decision makers’ personal ethics, or their own beliefs about right and wrong.
Discussion Starter: Ask students for examples of recent ethical dilemmas they have faced when
making a decision.
0. Group and Team Decision Making in Organizations

In more and more organizations today, important decisions are made by groups and teams rather
than by individuals.
Global Connection: Group decision making is common in Japan. Indeed, managers who make
decisions without involving their subordinates are likely to be perceived as bad managers.
0. Forms of Group and Team Decision Making

00. Interacting Groups or Teams
Interacting groups or teams are the most common form of group decision making.
They occur when an existing or a newly formed group is asked to make a decision.
00. Delphi Groups
A Delphi group is used to arrive at a consensus of expert opinion. The Delphi
procedure solicits input from a panel of experts who contribute individually. Their
opinions are combined and “averaged.” These results are fed back to the experts, and
the process continues until a solution is reached.
00. Nominal Groups
A nominal group is an informed group of participants used to generate creative and
innovative alternatives or ideas. The members individually write down as many
alternatives as they can think of. These ideas are listed on a board in round-robin
fashion. After the alternatives have been listed, there is open discussion. Then the
members vote on the alternatives and the highest-ranking alternative represents the
decision of the group.
Discussion Starter: Ask students for examples of when they have participated in group decision
making. Ask if they prefer to make decisions alone or as part of a group or team.
0. Advantages of Group and Team Decision Making

1. The main advantage of group and team decision making is that more alternatives are
generated, which should lead to a better solution.
2. Other advantages include more available knowledge and information, more acceptance
of the final decision, better communication of the decision, and the emergence of better
decisions.
Discussion Starter: Ask if any of your students have firsthand experience with any of the advantages
or disadvantages of group and team decision making as listed in Table 4.2.
0. Disadvantages of Group and Team Decision Making

1. Perhaps the biggest drawback of group decision making is that additional time and
resources are required to arrive at a group decision.
2. Other disadvantages include the possibility of undesirable compromises or domination
of the group by a single member.
3. Groupthink occurs when the group’s desire for consensus and cohesiveness
overwhelms its desire to reach the best possible decision.
0. Managing Group and Team Decision-Making Processes
There are several things that managers can do to promote the effectiveness of group and
team decision making.
1. Time and cost can be managed by setting a deadline by which the decision must be
made final.
2. Dominance can be at least partially avoided if a special group is formed just to make
the decision.
3. To avoid groupthink, the group should critically evaluate all alternatives, allow
divergent viewpoints to be presented, and assign at least one member to play the role
of devil’s advocate.
END-OF-CHAPTER
Questions for Review

00. Describe the difference between programmed and nonprogrammed decisions. What are the
implications of these differences for decision makers?
Programmed decisions are either structured or recur frequently (or both). Nonprogrammed
decisions are those that are relatively unstructured and occur with much less frequency.
Programmed decisions can be made with less time and other resources. In many cases,
programmed decisions can be made routine so that real decision making is unnecessary. On the
other hand, nonprogrammed decisions are typically complex, lengthy, and difficult to resolve.
00. What are the different conditions under which decisions are made?
Under certainty, the decision maker knows the alternatives and the conditions associated with
them with reasonable certainty. Under risk, the availability of each alternative and its potential
payoffs and costs are all associated with probability estimates. Under uncertainty, the alternatives,
the risks associated with each alternative, and the likely consequences of each alternative are
unknown.
00. Describe the behavioral nature of decision making. Be certain to provide some detail about
political forces, risk propensity, ethics, and commitment in your description.
Political forces in decision making are common. Coalitions, informal alliances of individuals or
groups formed to achieve a common goal, often attempt to influence the decision-making process
in organizations.
Some managers will be very conservative and try to adhere to the rational model of decision
making. Others will be more aggressive and willing to take bigger risks. The organization’s
culture will influence the manager’s attitude toward risk.
Each individual has his or her own beliefs about which behavior is right and wrong. These beliefs
factor into the decision-making process.
Intuition and the escalation of commitment may also have an impact on the decision. Intuition is
an innate belief about something without conscious consideration. Managers sometimes decide to
do something because it “feels right” or they have a “hunch.” This feeling usually is not arbitrary,
but rather based on experience and practice in making decisions in similar situations. Escalation
of commitment occurs when managers make decisions and then become so committed to the
courses of action suggested by those decisions that they stay with them, even when the decisions
appear to have been wrong.
00. What is meant by the term escalation of commitment? In your opinion, under what conditions is
escalation of commitment likely to occur?
Escalation of commitment occurs when a decision maker persists in supporting his or her original
decision, in spite of evidence that demonstrates that that decision is ineffective. Escalation of
commitment is likely to occur when decision makers must make a public show of support for their
decision. Once they have done that, it is much more difficult for them to admit they were wrong.
00. Explain the differences among three common methods of group decision making—interacting
groups, Delphi groups, and nominal groups.
Interacting groups are the most common of the three and consist of a group of individuals who
meet, openly discuss and argue about issues, and then reach a decision. Delphi groups are highly
structured panels of experts. The experts do not meet. Instead, their responses are collected and
reported to the group. This process continues until consensus is reached. Nominal groups meet
together, but do not freely interact. Instead, they individually generate ideas, share them with the
group, clarify and discuss the ideas, and then reach a final decision with a vote.
Questions for Analysis

01. 0Was your decision about what college or university to attend a rational decision? Did you go
through each step in rational decision making? If not, why not?
Two extreme possible answers are as follows: (1) My decision to come to this university was not
a rational one. My mother attended this school and most of my high school friends decided to
come here. (2) My decision to come to this university was quite rational. I wanted to major in
accounting, and I wanted to stay within a five-hour drive of home. With that in mind, I set out to
find all of the colleges within a five-hour drive that offered accounting. I then rated these colleges
based on cost and quality. I applied to 10 schools that were within my financial means. This was
my first choice, and I was pleased when I was accepted for admission.
20. Most business decisions are made under conditions of either risk or uncertainty. In your opinion,
is it easier to make a decision under a condition of risk or a condition of uncertainty? Why?
Answers will vary. Some students may prefer risk, in which the possible alternatives are known
and there is some probability associated with each alternative. Other students, who are more
comfortable in open-ended situations, may prefer uncertainty. In a condition of uncertainty, the
alternatives and probabilities are unknown, which some students might find gives them more
freedom in their decision.
03. Recall a decision that you recently made that had ethical implications. Did these implications
make the decision easier or harder?
Students should have no trouble thinking of recent decisions that contained ethical components.
Examples could include confronting a roommate over undesirable behavior, telling the truth,
plagiarism and other issues of scholastic honesty, and so on. In general, most people find that
decisions where the ethical component is strong are more emotional and can be more subjective.
Some students will find that moral judgments make decisions easier, while others may find it
makes them more difficult. Use this question as an opportunity to remind students that many
decisions have ethical implications.
04. In what ways are escalation of commitment and decision making under conditions of risk related
to one another?
Escalation of commitment occurs when outcomes are not certain, but managers have reason to
believe that a positive outcome may result. Under conditions of certainty, managers would not
continue to invest in projects with low probabilities of payoff. Under conditions of uncertainty,
most managers would readily admit that they don’t know the likely outcomes. However,
conditions of risk give managers reason to “hope for the best,” even if the chances of the “best”
occurring are low, and that can lead to escalation of commitment.
05. 0Consider the following list of business decisions. Which decisions would be handled most
effectively by group or team decision making? Which would be handled most effectively by
individual decision making? Explain your answers.
 A decision about switching pencil suppliers
 A decision about hiring a new CEO
 A decision about firing an employee for stealing
 A decision about calling 911 to report a fire in the warehouse
 A decision about introducing a brand-new product
Switching pencil suppliers is a fairly routine, programmed decision and could be made by an
individual. Hiring a new CEO will affect every stakeholder group and the future of the
organization, and so many different types of input are needed in the process. Firing an employee
for stealing will likely be a group decision-making process, in order to guard against charges of
discrimination or unfair termination. Also, human resources managers are likely to be involved in
any firing. Calling 911 should not be a group decision because speed is essential. There’s simply
no time to meet as a group and discuss the fire. Introducing a brand-new product must be a group
decision because it will require information from accounting, finance, marketing, logistics,
research and development (R&D), and other functions within the firm.
Experiential Exercise
Decision Making with Journaling and Affinity Diagrams 00

0. Purpose
This exercise is designed to help students understand the nature and use of journaling and
affinity diagrams as a way to improve their decision making.
0. Format
Students will make Students will individually come up with ideas and then arrange their
ideas into common themes.
0. Follow-Up Questions
0. Did the techniques of journaling and affinity diagramming help you generate more
ideas and better see the connections between ideas? If so, explain how. If not, what
technique(s) would have worked better?
While class experiences may vary, it is highly likely that not only are more ideas
generated, but also that students can identify common themes in these ideas.
0. Note that both of these techniques explicitly encourage the behavioral aspects of
decision making, especially intuition. Do you think this is appropriate when making
this type of decision? Or would a more rational approach be more effective?
Class experiences may vary, but it is important to keep in mind that the decision being
worked on is a person’s choice of where to live.
0. How might a manager use these techniques at work? What situations would not be
appropriate for the use of these techniques?
While this may take some amount of time to arrive at a decision, a manager can use the
ideas of journaling and affinity diagrams at work, particularly when it comes to
situations where creative decisions are required. Certain investment decisions,
however, may not be right for these techniques.
Building Effective Conceptual Skills 0

0. Exercise Overview
This exercise gives students a demonstration of the power of behavioral factors.
0. Format
The survey portion of this exercise takes about 10 minutes. Discussion time will vary.
0. Exercise Task
Duplicate the following pages and then cut along the dotted lines so that every student will
have one slip of paper. Distribute the slips and ask the students to answer without talking or
sharing answers. Alternate Forms P and N so students will not look at each other’s answers.
After students answer the question, ask for a show of hands and fill in each of the squares in
this matrix. Show the chart to the students.
Positive Negative
Certainty number who chose A number who chose C
Risk number who chose B number who chose D
Every one of the outcomes (A, B, C, and D) have exactly the same expected value—that is,
that 200 people will live and 400 people will die. There are two differences in the way that
the scenarios are presented. Form P (for positive) phrases all the outcomes in positive terms,
focusing on how many lives will be saved. Form N (for negative) phrases all the outcomes
in negative terms, focusing on how many deaths will occur. On both forms, students are
choosing between a known outcome and a probabilistic or risky outcome.
The main message of this survey is: “Humans are nonrational.” In a perfectly rational world,
students would be indifferent between the four cells of the matrix and they all would have
about the same number of responses. However, more people are likely to choose the A and
D cells because of the way individuals think about risk. When faced with a positive outcome
or gain, people tend to want to hold on to it. They imagine the regret they would feel if they
took the risk (chose B over A) and then got the bad outcome. But when faced with a
negative outcome or loss, people tend to want to avoid the loss and are willing to take big
risks to do so. They imagine how pleased they will feel if they manage to avoid the loss.
Students may reject this interpretation. Often, they don’t like being told that they are
nonrational. Reassure them that this is universal and doesn’t mean anything bad. It just
shows the prevalence of behavioral factors in decision making. If they continue to resist or
need further demonstration, use the following scenario.
Say to the students, “Imagine I offer you a (hypothetical) gift. I will pay anyone $10 right
now. Or, if you prefer to gamble, I will let you pick a number between 1 and 10. If you
choose one of the nine ‘wrong’ numbers, I will pay you nothing. But if you choose the one
‘right’ number, I will pay you $100. Assume the gamble is honest. What would you do?”
Point out to them that the expected value is the same in both cases: $10. The only difference
is the choice between a certainty and a risk. Ask for a show of hands, and record the number
who would prefer the certainty and the risk.
Then say to the students, “Now, imagine I lock the classroom door. I will permit anyone to
leave if they pay me $10. Or, if you prefer to gamble, I will let you pick a number between 1
and 10. If you choose the one ‘wrong’ number, you must pay me $100 to leave. But if you
choose one of the nine ‘right’ numbers, you may leave for free. Assume the gamble is
honest. What would you do?” Again, both scenarios give an expected value of $10. Again,
ask for a show of hands and record the responses. Most students will prefer the sure $10 than
the chance to gamble for the right to leave the room.
As a further demonstration, most of the students will change their vote if you increase or
decrease the amount of money. Students who are willing to give up a sure $10 to gamble for
$100 probably aren’t willing to give up a sure $10,000 to gamble for $100,000. The regret at
losing the larger amount would simply be too great.
If the students like these games (and most will), here are a couple of other related examples.
Scenario A: Imagine that you decided to see a play and paid the admission price of $10 per ticket. As
you enter the theater, you discover that you have lost the ticket. The seat was not marked and the ticket
cannot be recovered. Would you pay $10 for another ticket?
Scenario B: Imagine that you decided to see a play and planned to buy a $10 ticket at the door. But
when you arrived at the ticket booth, you discovered that you have lost a $10 bill from your wallet.
Would you pay $10 for a ticket?
Most students will not want to pay for another ticket in Scenario A but will in Scenario B. Although
these two events are exactly the same in their financial consequences, students irrationally “blame” the
theater for their problems in Scenario A, while Scenario B seems to be nobody’s fault.
Scenario A: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The
salesman informs you that the calculator you wish to buy is being given away for free at another branch
of the store, located 10 minutes’ drive away. Would you make the trip to the other store?
Scenario B: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The
salesman informs you that the jacket you wish to buy is on sale for $125 at another branch of the store,
located 10 minutes’ drive away. Would you make the trip to the other store?
This is an example of anchoring and adjustment. A $25 discount on a $25 item seems much larger than
a $25 discount on a $150 item. Thus, most students will make the drive in Scenario A, but not in
Scenario B, although financially, the two choices are equivalent.
Answer the question below.

Form P
Imagine that the United States is preparing for the outbreak of an unusual disease, which is expected to
kill 600 people. Two alternative programs to combat the disease have been proposed.
If Program A is adopted, 200 people will be saved.
If Program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability
that no people will be saved.
Which program do you favor?
-----------------------------------------------------------------------------------------------------------------------------
Form N
If Program C is adopted, 400 people will die.
If Program D is adopted, there is a 1/3 probability that nobody will die and a 2/3 probability that
600 people will die.
-----------------------------------------------------------------------------------------------------------------------------
Form P
If Program A is adopted, 200 people will be saved.
If Program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability
that no people will be saved.
-----------------------------------------------------------------------------------------------------------------------------
Form N
If Program C is adopted, 400 people will die.
If Program D is adopted, there is a 1/3 probability that nobody will die and a 2/3 probability that
600 people will die.
-----------------------------------------------------------------------------------------------------------------------------
1. Answer the list of brief questions that your professor provides to you. No answer is
correct or incorrect; simply choose your most likely response. Then, when the
professor asks, share your answers with the class.0
2. Discuss the answers given by the class. Why do students’ answers differ?
Students will likely find that there are more answers in cells A and D, for reasons
given above.
3. What have you learned about decision-making biases and risk propensity from these
experiments?
Students will learn about how risk propensity changes for one individual, depending on
whether the decision frame is negative or positive. However, more fundamentally,
students will learn that decision-making biases are present in everyone and that they
will impact many decisions. Being aware of and understanding one’s biases can
therefore lead to more effective decision making.
Skills Self-Assessment Instrument
Decision-Making Styles00
Note: This skills exercise is located in MindTap®.
0. Purpose
The purpose of this self-assessment is to help students understand their decision-making
styles.
0. Format
Students should respond individually and privately to the items in this self-assessment,
although class or small-group discussion should follow to expand upon the points illustrated
in the assessment.
0. Scoring and Interpretation
Generally there are three decision-making styles: reflexive, consistent, and reflective.
Students determine their styles by totaling the numbers assigned to each response and
comparing their totals to the following scale: 10–16, reflexive; 17–23, consistent; and
24–30, reflective.
Reflexive decision makers like to make quick decisions without taking the time to get all the
information that may be needed and without considering all the alternatives. They are
decisive, however, and do not procrastinate. Students who tend to be reflexive should be
cautioned to slow down a bit.
Consistent decision makers are more balanced with a mix of both reflexive and reflective
styles. Therefore, they tend to have the best record for making good decisions.
Reflective decision makers tend to take plenty of time to make decisions, gathering
considerable information and analyzing several alternatives. While they do not make hasty
decisions, they can procrastinate, waste resources searching for information, and be viewed
as wishy-washy and indecisive. Students who tend to be reflective should be cautioned to
speed up their decision processes.
On the Job Video
Mi Ola: Decision Making00

Note: This video case is located in MindTap®.
00. Which decisions at Mi Ola are programmed and which are nonprogrammed?
Programmed decisions are relatively structured or recur with some frequency. At Mi Ola, a
programmed decision is to manufacture swimwear in New York, not in Costa Rica. All fabric is
purchased from suppliers in New York, and all factories that produce the swimwear are located in
New York. The same product—a bikini—is produced repeatedly. For each of the three yearly
collections, these production decisions recur. Nonprogrammed decisions are relatively
unstructured and occur less often than programmed decisions. Helena Fogarty decides on color,
style, and fabric for the bikinis based on what she thinks will be popular among consumers. These
decisions change with each collection and are often based on the feedback she receives from
surfers.
20. Which model of decision making does Helena Fogarty use?
She uses the administrative model, which argues that decision makers use incomplete and
imperfect information, are constrained by bounded rationality, and tend to “satisfice” when
making decisions. Helena asks herself, “Is pink going to be hot?” She makes fashion decisions
with an imperfect amount of information; the concept of bounded rationality suggests that a
decision maker is limited by less-than-complete information and knowledge. While Helena seeks
outside opinions, she realizes that Mi Ola cannot be successful by postponing decisions until all
the data is available or as Helena puts it, “paralysis by analysis.”
30. How does Helena Fogarty use social media to assist in decision making?
Mi Ola relies on an advisory board and friends in the fashion industry for advice. However, social
media has provided an excellent means of receiving customer feedback. If many comments on
Facebook are either positive or negative about a bikini, Helena can take the information into
account when making critical decisions about Mi Ola’s product line, cost, and advertising as
compared to competitors.
How to Neutralize the Loudmouths

Note: This video case is located in MindTap®.
1. Would the nominal group technique work in this example? How was brainwriting similar, yet
different from the nominal group technique?
The nominal group technique would not have worked in this example as the CEO was trying to
disarm a particularly vocal member of the group. The nominal group technique, like brainwriting,
involves a time to write down your ideas but the nominal technique involves individuals sharing
their ideas with the group, rather than the anonymous nature of the brainwriting technique. This
would not solve the issue of the vocal group member or the appearance of a ‘popularity contest’
mentioned in the video.
2. Would the Delphi technique have worked in the example from the video? Would it have been
appropriate, or even the better choice?
The CEO could gather input from the group in anonymous fashion using the Delphi technique
questionnaire. This would take consider time and effort compared to the generation of ideas in a
single meeting through the brainwriting example in the video. Though it would quiet the one vocal
member of the group, regulating them to anonymity, it seems like more work than is required in
this instance. The members are not remote from each other, but the ideas generated would benefit
from anonymity and there is the trouble of communication due to the one vocal member. Even
though the circumstances meet two of three circumstances when the Delphi technique is useful, it
still seems as if the brainwriting solution is the better of the two, saving quite a bit of time.
3. Which stage of the rational decision-making process is Leigh Thompson (the consultant in this
video) trying to influence through the use of brainwriting? Why might brainwriting be a more
effective technique to use instead of brainstorming for this stage?"
Leigh Thompson is trying to influence steps 2 and 3 of the decision-making process: Identifying
and evaluating alternatives. Because brainwriting postpones the evaluation of alternatives, it allows
groups to develop more ideas without letting individuals suppress the ideas of another.
Brainstorming is a vocal process, and people may be afraid of speaking their ideas, or they may
feel that their ideas are not as good as the ideas of another person in the group. But if they are not
exposed to other ideas until after they have contributed their own ideas, this problem can go away.
That makes brainwriting more effective for idea generation (or identifying alternatives) than
brainwriting.
00000MANAGEMENT AT WORK
The Not-So-Smart Phone Company
The closing case highlights the rise of smartphones and how decision making can influence the success
of a company. At the very beginning of mobile devices, the BlackBerry was the go-to phone for any
businessperson wanting to keep track of work email while away from the office. The maker of
BlackBerrys dismissed smartphones as a nonissue, assuming it knew better than consumers what kind
of devices people wanted. Bad decision making led to financial losses and plunging market shares.
Case Questions
00. Once the iPhone and Androids had penetrated the market, RIM faced a serious challenge: It had
two distinct groups of customers to which it had to market its products. What were those two
groups, and why were their needs and wants incompatible? Explain how this situation put RIM in
a state of uncertainty. What risks did it face in making decisions to respond to this situation?
The two distinct consumer groups were business users and individual consumers. Businesses
wanted a secure network with limited features, while individual consumers wanted tons of
features and the ability to share information with others at all times. RIM was in a state of
uncertainty because it underestimated consumers’ responses to smartphones. The company
seemed to be aware of the alternatives but seemed to ignore the risks and consequences. RIM
chose business needs over consumer needs and felt its offerings were good enough for all
consumers. The risks involved in the alternatives would lead to a change in its product. Without
properly weighing the consequences of these risks, the company was moving forward blindly.
00. When RIM decided to incorporate personal apps into the BlackBerry, developers were required to
use the company’s Java-based operating system, which had been created in the 1990s. In addition,
they were required to submit apps for prior approval. Several apps—including Instagram and
Tumblr—went elsewhere. Explain this problem as a problem in bounded rationality. Judging
from what you know about RIM from the case, in what other ways would you say that RIM
decision makers were hampered by bounded rationality?
Bounded rationality suggests that decision makers are limited by their values and unconscious
reflexes, skills, and habits. They are limited by incomplete information and knowledge. While
RIM had made the decision to incorporate apps, the company seriously limited its developers by
requiring them to use a Java-based operating system created in the 1990s. Mike Lazaridis was an
engineer who founded RIM in 1984. It seems he is still committed to the technology of the ‘90s
and has not kept up on the newer technology so important to his company. His values tell him
what was good enough then is good enough now. The reflexes and skills he acquired as he built
his business are fine, but he needs to keep learning and change with demand. His habit of thinking
he knows better than the consumer may mean the death of his company.
00. Hersh Schefrin, a pioneer in the behavioral aspects of financial decision making, studies how a
specific set of psychological traps snare decision makers, causing them to make inferior decisions.
[Two] of the most common are excessive optimism [and] overconfidence. … People learn to be
excessively optimistic and overconfident. This means successful people over-estimate their past
successes, which feeds these biases.
Judging from the details of the case, show how these two forms of “bias” affected decision
making at RIM. How might RIM’s “inferior decisions” have been avoided if executives like
Lazaridis and Balsillie had applied the steps in rational decision making?
Decision makers were optimistic that consumers would “learn” what was good for them and what
features they wanted on a phone. They were overconfident in how correct their decisions were and
felt the consumer would “catch up with them.” If Lazaridis and Balsillie had applied the steps in
rational decision making, they may have avoided their mistake. The first step is recognizing and
defining the decision situation. They recognized the decision but failed to define it accurately. If
they had defined the situation instead of dismissing it as a “nonproblem,” they would not be trying
to catch up to the current market leaders. If they used the rational decision-making process, they
would have identified alternatives, evaluated those alternatives, then chosen and implemented the
best alternative. The mistakes happened at the very first step.
40. The workplace is clearly changing. The barrier between work and home has been eroded, and if
people are going to have to be constantly connected, they at least want to use their own phones.
Companies have quickly come to love consumerization too: A recent study … found that
executives like the way it keeps workers plugged in all day long. And since workers often end up
paying for their own devices, it can also help businesses cut costs. What about you? Do you ever
use your own phone for work-related activities? If so, what kinds of activities? Do you sometimes
feel that your employer is taking advantage of the fact that you’re “plugged in all day long”? Or
do you feel that the tradeoff—at least you’re allowed to use your own phone—is worth it? Do you
sometimes take advantage of your employer—do you use your phone for personal business when
you’re at work?
Students’ answers will vary widely here. Some students may feel employers are taking advantage
of the fact that they are “always available.” Some companies expect employees to read emails
even when not at work.
YOU MAKE THE CALL
Moneyball on Steroids0
00. As general manager of the Astros, Jeff Luhnow is responsible for player-related operations.
Owner Jim Crane is responsible for organizational strategy. Describe a few circumstances under
which nonprogrammed decisions made by Crane might affect Luhnow’s system of highly
programmed decision making.
Nonprogrammed decisions are good for solving nonrepetitive unique issues and involves
analyzing and evaluating every problem and decision separately, whereas programmed decisions
are repetitive, routine, and don’t require judgment. Luhnow is responsible for player-related
operations, whereas Crane is responsible for organizational strategy. Luhnow is good if
everything “appears the same,” but as soon as situations occur that he has never experienced, he
would have problems coming up with solutions. There are some problems that require a leader to
be adaptive and solve for nonprogrammed decisions as well. Adopting Crane’s system would lead
to more complex decisions, but the effect would be long term and involve more executive
judgment and deliberation. This would potentially lead to more valid decision making, which is
extremely important when dealing with employees.
00. What conditions contribute to the state of uncertainty under which Luhnow does his job? What
conditions contribute to the state of risk under which he does his job? What conditions might
contribute to the state of uncertainty under which he does his job? (Remember: Risk and
uncertainty are not the same thing.) Be as specific as you can in giving examples of each set of
conditions.
There are various conditions that contribute to the state of certainty under which Luhnow does his
job. Since the way he makes his decisions tend to be repetitive in nature, if the same situations
come up, Luhnow can handle them immediately because he has experience with those types of
situations.
00. According to Luhnow, “it’s our job in player development to turn the raw material that the scouts
provide into Major League players. The more efficient and effective we can be at doing this, the
bigger the edge we might have over other teams.” Recall the distinction that we make between
efficiency and effectiveness in Chapter 1. What must Luhnow do in order to make sure that his
system is as efficient as possible? What must he do in order to make sure that it’s as effective as
possible?
To ensure that his system is efficient as possible, Luhnow must use the knowledge that he
possesses from previous experiences and apply it to situations that are similar in nature. The
information on how to solve for these problems is readily available, and the decision-making
process is fast and takes very little effort to solve. To make his decisions more effectively,
Luhnow must utilize his knowledge of his previous decisions to create rules and guidelines so that
others in the organization can also follow his decision-making guidelines.
00. What about you? Is your decision making susceptible to any of the following tendencies—
bounded rationality, intuition, escalation of commitment? Do you prefer to gather information or
to accept recommendations? Have you ever made a decision that you’d like to undo and
reconsider? What steps might you take to improve your overall decision making?
Students’ answers will vary. Students will most likely find that they have made a decision(s) in
which bounded rationality, intuition, and/or escalation of commitment have come into play. They
will also most likely have made a decision at some point in their lives that they would like to
undo.
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CHAPTER 4

Managing Decision Making

00. Decision Making under Risk

0. Rational Perspectives on Decision Making

0. Steps in Rational Decision Making

00. Recognizing and Defining the Decision Situation

00. Identifying Alternatives

00. Evaluating Alternatives

00. Selecting the Best Alternative

00. Implementing the Chosen Alternative

00. Following Up and Evaluating the Results

C0. Evidence-Based Management

0. Political Forces in Decision Making

A coalition is an informal alliance of individuals or groups formed to achieve a common

0. Intuition and Escalation of Commitment

0. Risk Propensity and Decision Making

0. Ethics and Decision Making

0. Group and Team Decision Making in Organizations

0. Forms of Group and Team Decision Making

0. Advantages of Group and Team Decision Making

0. Disadvantages of Group and Team Decision Making

Questions for Review

Questions for Analysis

Decision Making with Journaling and Affinity Diagrams 00

Building Effective Conceptual Skills 0

Answer the question below.

Skills Self-Assessment Instrument

On the Job Video

Mi Ola: Decision Making00

How to Neutralize the Loudmouths

YOU MAKE THE CALL

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