The Nature of Decision Making
Types of Decisions
Models of Behavioral Decision Making
Economic Rationality Model
Simon's Bounded Rationality Model
The Judgmental Heuristics and Biases Model
The Social Model
Behaviorally Oriented Decision-Making Techniques
Traditional Participative Techniques
Modern Participative Techniques
Creativity and Decision Making
Group Decision Making
Groupthink and Group Problem Solving
Decision making is an integral function of management. Decision making
involves selecting or choosing a particular course of action from among the
various alternatives available in the decision making situation. The process
of decision making, as described by Herbert A.Simon, involves 3 phases,
namely intelligence activity phase, design activity phase and choice activity
phase. The intelligence activity phase relates to identification of the
problem. The design activity phase includes developing and analyzing various
courses of action and the choice activity phase involves choosing the best
course of action.
Rationality in decision making refers to the appropriateness of the chosen
means towards accomplishment of the end objectives. Decisions made by
managers may be programmed or non-programmed in nature depending upon the
frequency of occurrence of the decision making situation. A programmed
decision is the decision that is made when the decision maker has adequate
information pertaining to the decision making situation. These decisions are
routinely made decisions. Non-programmed decisions, on the other hand, are
the decisions made in situations which occur rarely or are unfamiliar. In
this case, the process of decision making involves identification and
evaluation of alternatives without the aid of a decision rule.
The role and importance of human behavior is emphasized by the behavioral
model of decision making. Four variations of behavioral models are discussed
in the chapter. The economic rationality model assumes that the decision
maker is perfectly rational while deciding over a particular course of action
and follows a logical and systematic sequence of actions. Simon's bounded
rationality model proposes that decision makers operate with a 'bounded'
rationality. Bounded rationality is said to occur when decision makers get
satisfied with a 'less-than-ideal' solution to a particular problem. The
judgmental heuristics and biases model takes the bounded rationality model a
step ahead by clearly identifying the cognitive biases of the decision maker
that influence his decisions. This model identifies three biases - the
availability, representative and the anchoring and adjustment heuristics.
Finally the social model, in contrast to the economic rationality model,
states that human feelings and emotions, by and large, affect the decisions
made by the decision maker.
Behaviorally oriented decision making techniques emphasize the importance of
employee participation in the process of decision making. Increased employee
participation leads not only to better understanding of the decision making
situation but also helps identify a wider range of alternatives for the
problem on hand. Besides, increased employee participation in decision making
results in increasing employee productivity and job satisfaction, apart from
reducing employee turnover.
The Scanlon Plan is one of the most important traditional participative
techniques of decision making. It involves creation of formal committees to
encourage labor participation in the decision making process. Introduction of
suggestion boxes is another technique of problem solving. On the other hand,
quality circles and self-managed teams are examples of modern participative
techniques of decision making.
Organizations, of late, have realized the importance of creativity in the
process of decision making. Individuals or organizations are said to be
creative when they not only identify the problem accurately but also possess
the ability of generating innovative alternatives to the given problem
solving situation. Two major dimensions of creativity are divergent thinking
and cognitive complexity. Divergent thinking refers to 'out-of-box' or
innovative thinking. Cognitive complexity describes the extent to which an
individual uses elaborate, intricate and complex stimuli towards solving
philosophical or abstract problems. These two dimensions affect the degree of
creativity among different individuals.
Decision making in a group involves two phenomena - group polarization and
groupthink. Group polarization refers to the shift of employee attitude
towards a more extreme and reinforced state after a discussion within the
group, than was the state before the discussion. Groupthink, on the other
hand, happens when the group decides upon a course of action which is
accepted by a majority of its members, even before actually discovering all
the alternative solutions to the problem.
The most common forms of group problem solving are brainstorming, nominal
group technique and the Delphi technique. Brainstorming aims at generating
all possible alternatives to a given problem without actually attempting to
evaluate or assess these alternatives. The nominal group technique involves
employee participation in problem solving, without the need for any verbal or
physical interaction among the members. The nominal group technique nullifies
the dysfunctional effects of group decision making.
The Delphi technique is similar to the nominal group technique with a
difference that in Delphi technique, the participants do not actually meet at
a common place. Instead, these members are informed about the problem through
mails and are requested to post their opinions about the problem on hand.
Depending upon the decision making situation, managers employ any of the
problem solving techniques.