Chapter 8 Learning and Decision Making McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill...

Chapter 8Learning andDecision Making

Learning Goals• What is decision making?• What types of knowledge correspond to what

types of decision making?• What methods can employees use to make

decisions?• What decision-making problems can prevent

employees from translating their learning into accurate decisions?

• How does learning affect job performance and organizational commitment?

Learning and Decision Making• Learning reflects relatively permanent changes in an

employee’s knowledge or skill that result from experience.– We learn through reinforcement (rewards and

punishment), observation, experience, logic and cognition.• Decision making refers to the process of generating

and choosing from a set of alternatives to solve a problem. – The more knowledge and skills employees possess, the

more likely they are to make accurate and sound decisions and provide the organization with a sustaining resource.

• Expertise refers to the knowledge and skills that distinguish experts from novices and less experienced people.

Discussion Questions

• What does the term “expert” mean to you?

• What exactly do experts do that novices don’t?

Types of Knowledge

• Explicit knowledge is the kind of information you are likely to think about when you picture someone sitting down at a desk to learn.– Relatively easily communicated.

• Tacit knowledge is what employees can typically learn only through experience.– Up to 90 percent of the knowledge contained in

organizations occurs in tacit form.

Characteristics of Explicit and Tacit Knowledge

The Decision-Making Process

Programmed Decision – a simple, routine matter for which a manager has an established decision rule

Nonprogrammed Decision – a new, complex decision that requires a creative solution

Models of Decision Making

Effective Decision

a timely decision that meets a desired objective and is acceptable to those individuals affected by it Intuitive

Bounded Rationality

Rational

1. The outcome will be completely rational2. The decision maker uses a consistent system of

preferences to choose the best alternative3. The decision maker is aware of all alternatives4. The decision maker can calculate the probability of success

for each alternative

Rationality – a logical, step-by-step approach to decision making, with a thorough analysis of alternatives and theirconsequences

Rational Model

Single Attribute Rational Process

• Exact like options that are compared. (Commodities)

• Decision usually based on best price.

Multi-Attribute Choice in Rational Decision Making

• Outcomes can not be scaled along a single metric (e.g. $, style, utility, etc.)

• Compensatory Strategies (e.g. Linear Model)

• Non-Compensatory Strategies (e.g. Lexicographic)

Example of Linear Model

Step 1: Identify and Diagnose the Problem: Which Truck to Buy? What

are the decision criteria?

•Styling

•Color

•Bed

•Wheels

•Engine/Economy

•Crash Rating

•Resale Value

Linear Model Continued

Weigh the Criteria

(Scale of 1-5)

Styling 5

Color 3

Wheels 3

Engine/Economy 2

Crash Rating 1

Resale Value 2

Linear Model ContinuedStep 2: Generate Alternatives: Ford

or Chevy

Step 3: Evaluate the Alternatives on Each Criterion

1-10 ScaleFord PickupStyling 6

Color 10

Wheels 10

Engine/Economy 5

Crash Rating 7

Resale Value 5

Chevy PickupStyling 10

Color 5

Bed 10

Wheels 3

Engine/Economy 8

Crash Rating 5

Resale Value 7

Step 4: Chose the Optimal Decision:

Ford PickupRating X Weight

Styling 6 X 5 = 30

Color 10 X 3 = 30

Bed 5 X 4 = 20

Wheels 10 X 3 = 30

Engine/Economy 5 X 2 = 10

Crash Rating 7 X 1 = 7

Resale Value 5 X 2 = 10

TOTAL 137

Chevy PickupRating X Weight

Styling 10 X 5 = 50

Color 5 X 3 = 15

Bed 10 X 4 = 40

Wheels 3 X 3 = 9

Engine/Economy 8 X 2 = 16

Crash Rating 5 X 1 = 5

Resale Value 7 X 2 = 14

TOTAL 149

Lexicographic Decision Model

• Identify the most important dimension for comparison.– Color of Car

• Chose the most desirable alternative for this comparison.\– Red!

• Eliminate alternatives that don’t meet the criteria.– Only cars A, D and E qualify.

• Identify the next most important dimension and begin process again.

Assumptions of the Rational Decision Making Process

• The problem is clear and unambiguous.

• There is a single, well-defined goal that all parties agree to.

• Full information is available about criteria.

• All the alternatives and their consequences

are known.

Assumptions of the Rational Decision Making Process (continued)

• The decision preferences are clear.

• The decision preferences are constant and stable over time.

• There are no time and cost constraints affecting the decision.

• The decision solution will maximize the economic payoff.

Limitations of Rational Model•May take too much time to chose alternatives and evaluate, thus losing opportunity window.

•Poor information may cause the wrong alternatives to be evaluated, or viable alternatives may not be considered.

•Complexity of problem may preclude evaluation with rational model.

•Most decisions are made with:

Incomplete information (uncertainly)

Unforeseen outcome results (risk)

Factors That Limit the Validity of Rational Decision Making

Bounded Rationality: Simplification of complex decisions that extract essential features of the problem, gravitating the decision maker to the first acceptable alternative (Satisficing).

Problem Identification: Some managers may be willing to live with a situation that others might consider to be a problem.

Heuristics: Human tendency to trust general rules of thumb that reduce mental work-loads, works most of the time but can lead to systematic biases.

Emotions: Depression, anxiety, anger, frustration.

Political Influences: Group dynamic, organizational influence.

Individual Differences: Tolerance for Ambiguity, Intuitive Level, Tolerance for Risk and Illusion of Control.

Heuristics Test #1

• Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations. What is the most likely alternative?Linda is a bank teller.Linda is a bank teller and is active in the feminist

movement.

Heuristics Test #2

• If you were faced with the following choice, which alternative would you chose?A 100% chance of losing $500A 25% chance of losing $2000 and a

75% chance of losing nothing

Heuristics Test #3

• Which is a more likely cause of death in the United States—being killed by beach sand holes or by a shark?Beach Sand HolesShark Attack

Heuristics Test #4

• The mean IQ of the population of eighth graders in a city is known to be 100. You have selected a random sample of 50 children for a study of educational achievements. The first child test has an IQ of 150. What do you expect the mean IQ to be for the whole sample?

Decision-Making BiasesName of Bias Description

Anchoring The tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions.

Availability bias A biased prediction, due to the tendency to focus on the most salient and emotionally charged outcome.

Bandwagon effect The tendency to do (or believe) things because many other people do (or believe) the same.

Choice-supportive bias The tendency to remember one’s choices as better than they actually were.

Confirmation bias The tendency to search for or interpret information in a way that confirms one’s preconceptions.

Contrast effect The enhancement or diminishment of a weight or other measurement when compared with recently observed contrasting object.

False consensus effect The tendency for people to overestimate the degree to which others agree with them.

Decision-Making Biases, Cont’dName of Bias Description

Gambler’s fallacy The tendency to assume that individual random events are influenced by previous random events.

Halo effect The tendency for a person’s positive or negative traits to “spill over” from one area of their personality to another in others’ perceptions of them.

Hindsight bias Sometimes called the “I-knew-it-all-along” effect, the inclination to see past events as being predictable.

Illusion of control The tendency for human beings to believe they can control or at least influence outcomes that they clearly cannot.

Primacy effect The tendency to weigh initial events more than subsequent events.

Projection bias The tendency to unconsciously assume that others share the same or similar thoughts, beliefs, values, or positions.

Recency effect The tendency to weigh recent events more than earlier events.

Self-fulfilling prophecy

The tendency to engage in behaviors that elicit results that will (consciously or subconsciously) confirm our beliefs.

How Can We Overcome Heuristic Limitations?

Don’t be misled by highly detailed scenarios. The very specificity that makes detailed scenarios seem representative also decreases their likelihood.

Pay attention to base rates. A base rate is the relative frequency with which an event occurs. Base rates are particularly important when an event is very rare or very common.

Except for extreme probabilities people naturally are risk taking to avoid losses, risk averse toward possible gains. Temper your risk instinct by realistically evaluating the probabilities involved in an event and use risk valuation calculations to help you assess.

Remember that chance is not self-correcting. A run of bad luck does not mean that an equalizing run of good luck is about to occur.

Compare the frequency of uncommon events with more well known events to gain event frequency perspective.

Be aware of any suggested values that seem unusually high or low. These are anchor values that most likely produce biases in judgment.

Non-Rational Decision Models Allow Good Decisions to be Made Quickly

Intuition involves the recognition of patterns and outcomes that would not be clear otherwise.

•Gained through experience.

•Employs acquired expertise.

Satisficing is the selection of the first available alternative that appears to be satisfactory.

1. Managers suggest the first satisfactory alternative

Bounded Rationality – a theory that suggests that there are limits upon how rational a decision maker can actually be

Satisfice – to select the first alternative that is “goodenough,” because the costs in time and effort are too great to optimize

Bounded Rationality Model

1. Managers suggest the first satisfactory alternative

2. Managers recognize that their conception of the world is simple

Bounded Rationality – a theory that suggests that there are limits upon how rational a decision maker can actually be

Bounded Rationality Model

3. Managers are comfortable making decisions without determining all the alternatives

4. Managers make decisions by rules of thumb or heuristics—CAUTION!!!!

Heuristics – shortcuts in decisionmaking that save mental activity BUT MAY CREATE BIASES

Intellective & Judgmental Decision Types

• Intellective decisions are those in which you can logically demonstrate a correct answer.

Example: Solution to a puzzle.

• Judgmental decisions are those in which an absolutely correct answer can not be demonstrated.

Example: Prediction of style trends.

Rationality or Intuition?

Use BOTH, but ….• Rely on rationality primarily in an intellective

decision.

• Rely on intuition primarily in a judgmental decision.

Z Problem-Solving Model

Look at the facts

and details

Can it beanalyzed

objectively?

What alternativesdo the facts

suggest?

What impactwill it have on

those involved?

Sensing Intuition

Thinking Feeling

Risk and the Manager

Risk Aversion – the tendency to choose options that entail fewer risks and less uncertainty

Risk takers– accept greater potential for loss– tolerate greater uncertainty– more likely to make risky decisions

Evidence: Successful Managers Take Risks

Framing and the Perception of Risk

How would you respond to the following decision?

• 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 2/3 probability that no people will be saved.

Framing and the Perception of Risk (con’t)

How would you respond to this decision?

• If program X is adopted, 400 people will die.• If program Y is adopted, there is a 1/3

probability that no people will die and 2/3 probability that 600 people will die.

Escalation of Commitment

• Why it occurs– humans dislike inconsistency– optimism– control– sunk costs

• How to deal with it– split responsibility for decisions– provide individuals with a graceful exit– have groups make the initial decision

The tendency to continue to commit resources to a failing course of action

Cognitive Style

Cognitive Style – an individual’s preference for gathering information and evaluating alternatives

Jungian theory offers a way of understanding and appreciating differences among individuals.

Jung’s Cognitive Style

Sensing/thinking

Sensing/feeling

Intuiting/thinking

Intuiting/feeling

Favored Process

Facts/ Impersonal Analysis

Facts & Org. Relationships

Broad Issues/ Impersonal & Ideal

Serve Humankind/General Values

Two Brains, Two Cognitive Styles

Left Hemisphere Right Hemisphere

VerbalSequential, temporal,

digitalLogical, analytic

RationalWestern thought

Nonverbal, visuospatialSimultaneous, spatial,

analogicalGestalt, synthetic

IntuitiveEastern thought

Ideal = “brain-lateralized” making use ofeither or both sides, depending on situation

Influences on Decision Making

Intuition – fast, positive force in decision making utilized at a level below consciousness, involves learned patterns of information

Creativity – a process influenced by individual and organizational factors that results in the production of novel and useful ideas, products, or both

Participative Decision Making

• Organizational Foundations– Participative, supportive organizational culture– Team-oriented work design

• Individual Prerequisites – Capability to become psychologically involved in

participative activities– Motivation to act autonomously– Capacity to see the relevance of participation for

one’s own well-being

Individuals who are affected by decisions influence the making of those decisions

Group Decision Making

• Role of synergy – a positive force that occurs in groups when group members stimulate new solutions to problems through the process of mutual influence and encouragement in the group

• Role of social decision schemes – simple rules used to determine final group decisions

Majority Wins Truth Wins Two-thirds Majority

Group Decision Making DynamicsComplex,

Ambiguous Problem

Judgmental Decision

•May require compromise, but too much compromise may dilute an effective decision.

•Hard to satisfy all parties.

•Majority rules.

Clear Cut Logical Problem

Intellective Decision

•Shoot for high consensus.

•“Truth Wins” eventually.

•2/3rds plurality or unanimous decisions.

Group Phenomenon

Groupthink – a deterioration of mental efficiency, reality testing, and moral judgment resulting from in-group pressures

Group Polarization – the tendency for group discussion to produce shifts toward more extreme attitudes among members

Preventing Groupthink

• Ask each group member to act as critical evaluator

• Have the leader avoid stating his opinion prior to the group decision

• Create several groups to work simultaneously

• Appoint a devil’s advocate• Evaluate the competition carefully• After consensus, encourage rethinking the

position

Ethics Check

• Is it legal? – Does it violate law– Does it violate company policy

• Is it balanced?– Is it fair to all– Does it promote win–win relationships

• How will it make me feel about myself

Chapter 8 Learning and Decision Making McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill...

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