CHAPTER 7

INDIVIDUAL & GROUP

DECISION MAKING
How Managers Make Things
Happen

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 LEARNING OBJECTIVES
7.1 Compare rational and nonrational decision making.
7.2 Explain how managers can make decision that are
both legal and ethical.
7.3 Describe how evidence-based management and
business analytics contribute to decision making.
7.4 Compare four decision-making styles.
7.5 Outline the basics of group decision making.
7.6 Describe how to develop the career readiness
competencies of critical thinking/problem solving
and decision making.

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 TWO KINDS of DECISION MAKING:
RATIONAL AND NONRATIONAL
Decision
• Choice made from among available alternatives.
Decision making
• Process of identifying and choosing alternative courses of
action.
• Can be made rationally, but often it is nonrational.
• System 1: intuitive and largely unconscious.
• System 2: analytical and conscious.

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 RATIONAL DECISION MAKING
Rational model of decision making
• Explains how managers should make decisions.
• Assumes managers will make logical decisions that will be
optimal in furthering the organization’s best interests.
• Also called the classical model.

Figure 7.1: The Four Steps in Rational Decision Making

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 SOME HINDRANCES to PERFECTLY
RATIONAL DECISION MAKING
• Complexity.
• Time and money constraints.
• Different cognitive capacity, values, skills, habits,
and unconscious reflexes.
• Imperfect information.
• Information overload.
• Different priorities.
• Conflicting goals

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 NONRATIONAL DECISION MAKING
Nonrational models of decision making
• Assumes that decision making is nearly always uncertain
and risky, making it difficult for managers to make
optimal decisions.
• Two types are discussed: satisficing and intuition.

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 BOUNDED RATIONALITY
Bounded rationality
• Developed in the 1950s by economist Herbert Simon.
• Suggests that the ability of decision makers to be rational
is limited by numerous constraints.
• Complexity, time and money, cognitive capacity.
Satisficing model
• Because of constraints, managers don’t make an
exhaustive search for the best alternative.
• Instead, managers seek alternatives until they find one
that is satisfactory, not optimal.

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 INTUITION MODEL
Intuition is making a choice without the use of
conscious thought or logical inference.
Stems from both:
• Expertise: A person’s explicit and tacit knowledge about a
person, a situation, an object, or a decision opportunity
—is known as a holistic hunch.
• Automated experience: The involuntary emotional
response to those same matters.

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 TIPS for IMPROVING YOUR INTUITION

1. Trust your intuitive judgments.

2. Seek feedback.
3. Test your intuitive success rate.
4. Try visualizing solutions.
5. Challenge your intuition.

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 QUESTION #1
Bill has been a manager for 14 years. He has seen many
different situations with his employees. He often makes
decisions without really thinking about them. This is
called
A. intuition.
B. satisficing.
C. bounded rationality.
D. unbounded rationality.

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 MAKING ETHICAL DECISIONS
Ethics (from Chapter 3)
• Standards of right and wrong that influence behavior.
Ethics officer
• Someone trained about matters of ethics in the
workplace, particularly about resolving ethical dilemmas.

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 ROAD MAP to ETHICAL DECISION MAKING: A
DECISION TREE
Decision tree
• A graph of decisions and their possible
consequences.
• Used to create a plan to reach a goal.

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 The ETHICAL DECISION TREE
Figure 7.3
Source: Data from “The Ethical Leader’s Decision Tree,” by C.E. Bagley, February 2003, Harvard Business School Publishing Corporation.

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 EVIDENCE-BASED DECISION MAKING

Evidence-based management
• The translation of principles based on best evidence into
organizational practice.
• Brings rationality to the decision-making process.

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 GENERAL DECISION-MAKING STYLES
Decision-making style
• Reflects the combination of how an individual perceives
and responds to information.
Value orientation
• Reflects the extent to which a person focuses on either
task and technical concerns or on people and social
concerns when making decisions.
Tolerance for ambiguity
• Indicates the extent to which a person has a high need
for structure or control in his or her life.

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 WHICH STYLE DO YOU HAVE?

Knowledge of your decision-making style:

• Helps you to understand yourself and facilitates
self-improvement.
• Can increase your ability to influence others by
being aware of your—and their—style.
• Gives you an awareness of how people can take
the same information yet arrive at different
decisions.

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 QUESTION #3
Bill is supportive of his employees and prefers to have
verbal conversations rather than written memos. His
style is
A. analytical.
B. behavioral.
C. conceptual.
D. directive.

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 THREE EFFECTIVE REACTIONS: DECIDING TO
DECIDE

Importance
• “How high priority is this situation?”
Credibility
• “How believable is the information about the situation?”
Urgency
• “How quickly must I act on the information about the
situation?”

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 NINE COMMON DECISION-MAKING BIASES
1. The availability bias.
2. The representativeness bias.
3. The confirmation bias.
4. The sunk-cost bias.
5. The anchoring and adjustment bias.
6. The overconfidence bias.
7. The hindsight bias.
8. The framing bias.
9. The escalation of commitment bias.

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 GROUP DECISION MAKING: HOW to WORK
with OTHERS
Advantages of group decision making:
• Greater pool of knowledge.
• Different perspectives.
• Intellectual stimulation.
• Better understanding of decision rationale.
• Deeper commitment to the decision

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 DISADVANTAGES of GROUP
DECISION MAKING

Disadvantages of group decision making:

• Few people dominate or intimidate.
• Satisficing: The “good enough” decision.
• Goal displacement: Other issues may arise.
• Groupthink: Agreeing for the sake of unanimity
and thus avoid accurately assessing the decision
situation.

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 SYMPTOMS of GROUPTHINK
1. Sense of invulnerability.
2. Rationalization.
3. Illusion of unanimity and peer pressure.
4. “The wisdom of crowds.”

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 CHARACTERISTICS of GROUP DECISION
MAKING

They are less efficient.

Their size affects decision quality.
• Optimal group size may be 5 or 7 people.
• Odd group numbers are best.
They may be too confident.
Knowledge counts.

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 WHEN a GROUP CAN HELP in DECISION
MAKING: THREE PRACTICAL GUIDELINES

1. When it can increase quality.

2. When it can increase acceptance.
3. When it can increase development.

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 GROUP PROBLEM-SOLVING TECHNIQUES
Consensus
• Occurs when members are able to express their opinions
and reach agreement to support the final decision.
Brainstorming
• Technique used to help groups generate multiple ideas
and alternatives for solving problems

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 RULES for BRAINSTORMING
Rules

1. Defer judgment.

2. Build on the ideas of others.

3. Encourage wild ideas.
4. Go for quantity over quality.

5. Be visual.
6. One conversation at a time.
Table 7.4
Source: These recommendations and descriptions were derived from B. Nussbaum, “The Power of Design,” BusinessWeek, Ma 17,
2004, pp. 86-94.
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 DEVIL’S ADVOCACY

Devil’s Advocacy
• Assigns someone the role of critic.
• Uncovers and airs all possible objections.

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 PROJECT POST-MORTEMS
Review of recent decisions to identify possible future
improvements
• Evaluate after the fact.
• What could have been done better? Differently?
• Record insights for future decision making.

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 CAREER
CORNER MODEL of CAREER READINESS

Figure 7.7
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 CAREER
CORNER
MANAGING YOUR CAREER
READINESS
Improve your critical thinking/problem solving skills.
• Reflect on past decisions and use what you learned as
lessons to take away from the experiences to use in future
situations.
• Establish a decision methodology or process that works for
you.
• Demonstrate these competencies during a job interview.
• Describe your decision-making process with specific examples that
resulted in a positive outcome.
• Tell about a time when you had to make a quick decision. How did
you approach it without all the necessary information?
• Describe a time in which you had to use intuition rather than data or
hard facts to make a decision.

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