Decision making.pptx

Detailed notes on Decision making process

1. Decision making V M Salima Habeeb MSc. Clinical Psychology, 1 st year

2. Decision making : Classical Theory and its critique Satisficing, Elimination by aspect, Naturalistic decision making; Biases and heuristics, Process of group thinking

3. Decision making is a process that chooses a preferred option or a course of actions from among a set of alternatives on the basis of given criteria or strategies. As a person grows up, he/she is frequently confronted with serious choices that require his/her attention. One must prioritize and make choices, but at the same time be fully aware of the possible consequences of those choices. One must learn to understand the consequences before making a decision. (It is the ability to weigh the pros and cons of alternative and accepting responsibility for the consequences of the decision)

4. Classical Decision Theory The earliest models of how people make decisions are referred to as classical decision theory. Most of these models were devised by economists, statisticians, and philosophers, not by psychologists. Hence, they reflect the strengths of an economic perspective. It is applied in certainty condition which the decision maker has full information relating to the problem and also knows all the alternative solutions. It is an ideal way in making decision. It is rational in the sense that it is scientific, systematic and step-by-step process.

5. T h e M o d e l o f E c o n o m i c m a n a n d w o m a n This e a r l y model o f d e c i s i o n m a k i n g assumed three things: 1. Decision makers are fully informed regarding all possible options for their decisions and of all possible outcomes of their decision options. 2. They are infinitely sensitive to the subtle distinctions among decision options. 3. They are fully rational in regard to their choice of options. The assumption of infinite sensitivity means that people can evaluate the difference between two outcomes, no matter how subtle the distinctions among options may be. The assumption of rationality means that people make their choices to maximize something of value, whatever that something may be.

6. Subjective Expected Utility theory According to subjective expected utility theory the goal of human action is to seek pleasure and avoid pain. In making decisions people will seek to maximize pleasure (positive utility) and to minimize pain ( negative utility). To do so,we calculate two things: the subjective utility which is based on the individual's judged weightings of utility (value) rather than on objective criteria and the subjective probability which is based on individual's estimates of likehood rather than objective statistical computations.

7. Classical decision theory assumes that decisions should be completely rational and optimal; thus, the theory employs an optimizing strategy that seeks the best possible alternative to maximize the achievement of goals. 1. A problem is identified and framed. 2. Goals and objectives are established. 3. All the possible alternatives are generated. 4. The consequences of each alternative are evaluated in terms of goals. 5. The best alternative is selected—that is, the one that maximizes goal achievement. 6. Finally, the decision is implemented and evaluated.

8. The classical model is an ideal (a normative model), rather than a description of how administrators really make decisions. The drawbacks of the classical decision-making model include: Since decision making includes a choice between alternatives, with the increase in the number of alternatives available the probability/chance of alternatives being wrong also increases ―― leading to the increase of risk/uncertainty in choice. Insufficient information: In the classical model, making the best decision involves coming up with many well-researched alternatives. Insufficient information will affect the effectiveness of the process. CRITIQUE

9. Difficulty in evaluation: When making decisions, people have a limited chance to evaluate the consequences of the implemented decisions due to its structural approach. Due to the drawbacks of this model, it is vital to understand when to use it. For example, management can consider using it when they are not in a hurry.

10. SATISFICING As early as the 1950s some researchers began to challenge the notion of unlimited rationality. These researchers recognized that humans do not always make ideal decisions and that we usually include subjective considerations in our decisions. We show bounded rationality—we are rational, but within limits. Classical decision theory suggested that people optimize their decisions, but researchers began to realize that we have only limited resources and time to make a decision, so we often try to get as close as possible to optimizing, without actually optimizing.

11. Herbert Simon (1947) , the U.S. Nobel Prize-winning economist was the first to introduce an administrative model of decision making to provide a more accurate description of the way administrators both do and should make organizational decisions. The basic approach is satisficing—that is, finding a satisfactory and sufficient solution rather than the best one. The satisficing decision m a k i n g includes the following steps. The administrator must: 1. Recognize a problem and then frame it and define it clearly and concisely. 2. Analyze the problem by examining relevant data. 3. Before proceeding: Establish criteria for success—outcomes that are satisfactory and sufficient.

12. 4. Develop a plan of action by identifying a set of alternatives, considering the likely consequences of each option. 5. Initiate the action plan 6. Evaluate the implemented plan in terms of the criteria you have established for a satisfactory solution. The major difference between the classic model (optimizing) and the administration model (satisficing) is that the administrative model calls for a decision that is satisfactory rather than the ultimate best solution.

13. With respect to decision making, people generally fall into two groups: Satisficers consider options until they have found one that is good enough for them. Maximizers try to consider every single option before choosing the best one. Think about buying a car: Depending on which strategy you employ, you can either search for a potential car until you have found one that satisfies your criteria, or you can try out every single car that is an option for you and only then make a purchase decision. Maximizers also tend to be more overconfident in their decisions than satisficers .

14. When choosing which car to purchase, for instance, Jacob the satisficer will consider the use of the vehicle (for his long commute to work) and decide that he would like his new car be fuel efficient. He may also decide that he would like the seats to be heated. He thens looks at three cars for sale: Car 1: A new car with heated seats, but low fuel efficiency. Car 2: An older car that is fuel efficient and has heated seats. Car 3: A new car which is fuel efficient and boasts heated seats and a spacious interior, at little more than the cost of car 2. Jacob will discount Car 1 as the fuel costs will be too high for his long commute to work. With a choice between cars 2 and 3, he might will reject the benefit of the additional space in the third car as being unnecessary and a lavish additional expense, instead opting to buy Car 2, as it meets his initial decision-making criteria.

15. Like satisficers , maximisers refine their options to those that will fulfill their essential needs when making a decision. But they will subsequently pursue the option that will provide them with the maximum benefit or highest utility. Had Jacob, from our previous example, been a maximizer, he would likely have wanted to pay a little extra money to buy Car 3 for its extra space, regardless of whether he really needed the additional room for his commute. Maximizing tendency is the effort to select the best option, and satisficing tendency is the willingness to settle for a sufficient or “fairly good” option. Despite maximizers being able to objectively make better decisions than satisficers , satisficers feel subjectively better.

16. The Elimination by Aspects Model The elimination by aspects model was first proposed by psychologist Amos Tversky in 1972. Elimination by aspects is a decision-making strategy in psychology that involves evaluating options based on a set of criteria or attributes and eliminating options that do not meet the criteria one-by-one.

17. If you are trying to decide which college to attend, the process of elimination by aspects might look like this: • focus on one aspect (attribute) of the various options ( c o l l e g e s o f f e r i n g c l i n i c a l p s y c h o l o g y p r o g r a m ) • form a s e c o n d criterion for e l i m i n a t i n g r e m a i n i n g o n e s (semester fee must be under Rs. 20,000) • eliminate all options that do not meet that criterion (e.g., Christ College a n d S a h r a d a y a c o l l e g e , more than RS. 2 0,000 and would be eliminated); • continue using a sequential process of elimination of options by considering aseries of aspects until a single option remains.

18. N A T U R A L I S T I C D E C I S I O N M A K I N G The naturalistic decision making (NDM) framework emerged as a means of studying how people make decisions and perform cognitively complex functions in demanding, real-world situations. NDM is the research tradition begun in the 1980s to study how people actually make decisions — people such as firefighters, military commanders, nurses, design engineers, pilots, and petrochemical unit managers. The first proponent of the naturalistic decision making approach was Gary Klein , who has continued to have an enduring and inspiring influence on the field.

19. His background was in cognitive psychology but as he embarked on real world investigations of decision making by practitioners in high risk domains, he recognised the limitations of the methods and theories derived from conventional laboratory research . Prior to the development of the NDM theory, most decision-making research was performed in a research lab setting. However, Klein and colleagues realized that the artificial setting of the lab may not accurately represent how people make decisions in their everyday lives. NDM examines the kinds of decisions they make in the course of their work, and how they use their experience to cope with challenging conditions such as time pressure, uncertainty, vague goals, high stakes, organizational constraints, and team coordination requirements.

20. How NDM got started? In the late 1980s, Judith Orasanu , working in the Basic Research group at the Army Research Institute, assembled a cadre of researchers who were investigating decision making in natural settings. Orasanu and Gary Klein convened a small workshop in 1989 to bring this community together to share ideas. Since that time, a dozen NDM conferences have been held, at roughly two-year intervals, alternating between the U.S. and Europe. In addition, the Cognitive Engineering and Decision Making Technical Group was established in 1995 to provide an annual opportunity for NDM researchers to exchange ideas; it quickly grew to become the largest Technical Group within the Human Factors and Ergonomics Society.

21. What has the NDM movement achieved? We used to believe that the only way to make good decisions was to generate several options and pick the best one. NDM studies found that experienced decision makers recognize patterns and don’t compare options. They evaluate an option by imagining how it would play out.

22. We used to believe that we could reduce uncertainty by gathering more information. NDM researchers found that performance seems to suffer when too much information is gathered, and that uncertainty can result from inadequate framing of data, not just the absence of data. We used to believe that we could improve performance by fostering critical thinking practices such as listing assumptions. NDM researchers noted that the flawed assumptions are often unconscious, and thus could never get listed.

23. In addition to trying to understand more aspects of thinking in complex settings, NDM researchers are also seeking ways to improve performance: better decision making, better sensemaking, quicker and more accurate problem detection. In contrast to the o t h e r decision making community which focuses on human limitations and tries to reduce biases, NDM researchers try to understand human capabilities. While it is important to cut down on mistakes, good performance is not just the absence of mistakes — it consists of discoveries and achievements. It depends on the strengths of decision makers.

24. Biases Biases that frequently occur when people make decisions: illusory correlation, overconfidence, and hindsight bias. Illusory Correlation : Illusory correlation is defined as a cognitive bias in which an individual’s perception of the relationship between two variables is distorted, creating a false connection. Examples of illusory correlation in everyday life include the belief that certain groups of individuals are more prone to violence, or that a certain lifestyle causes certain diseases.

25. Cognitive biases that contribute to illusory correlation include confirmation bias and the availability heuristic. Confirmation bias is when we pay more attention to evidence that confirms our pre-existing beliefs while ignoring or downplaying evidence that contradicts them. The availability heuristic occurs when people overestimate the probability of an event occurring simply because it is easier to remember. Illusory correlation can impact decision-making processes, as it can lead to biases in various domains, including healthcare, criminal justice, and personal relationships. People may make decisions based on erroneous assumptions and false connections, which can lead to inaccurate judgments and poor outcomes.

26. Illusory correlation even may influence psychiatric diagnoses based on projective tests such as the Rorschach and the Draw-a-Person. Researchers suggested a false correlation in which particular diagnoses would be associated with particular responses. For example, they suggested that people diagnosed with paranoia tend to draw people with large eyes more than do people with other diagnoses (which is not true). So, what happened when individuals expected to observe a correlation between a drawing with large eyes and the associated diagnosis of paranoia? They tended to see the illusory correlation, although no actual correlation existed.

27. b) Overconfidence : Another common error is overconfidence—an individual’s overvaluation of her or his own skills, knowledge, or judgment. If we were appropriately humble about psychological vulnerabilities, we would be better able to protect ourselves from the errors to which human nature makes us prone. Instead, an excessive faith in ourselves and our judgment means that we too often ignore our vulnerability to bias and error. People also tend to be biased in favor of their own attitudes and beliefs. For example, if someone believes that people who have business degrees are particularly well versed in business matters, they may pay particular attention to news articles and facts that confirm their belief. They also generate evidence and test their ideas in a way to conform to their beliefs. This is called myside bias

28. c) Hindsight bias is a type of cognitive bias that causes people to convince themselves that a past event was predictable or inevitable. After an event, people often believe they knew the outcome of the event before it actually happened. This is why it is often referred to as the "I knew it all along" phenomenon. For example, after a person's favorite team loses the ISL, they might feel convinced that they knew the team was going to lose (even though they didn't feel that way before the game); when a movie reaches its end and the viewer discovers who the killer really was.

29. Researchers suggest that three key variables interact to contribute to this tendency to see things as more predictable than they really are.3 Cognitive : People tend to distort or even misremember their earlier predictions about an event. It may be easier to recall information that is consistent with their current knowledge. Metacognitive : When people can easily understand how or why an event happened, that event can seem like it was easily foreseeable. Motivational : People like to think of the world as a predictable place. Believing an outcome was inevitable can be comforting for some people. When all three of these factors occur readily in a situation, the hindsight bias is more likely to occur. Hindsight bias can lead to overconfidence in your ability to predict what is going to happen. This can lead to poor decision-making and can affect how you assign blame for events.

30. Heuristics Heuristics are mental shortcuts that allow people to solve problems and make judgments quickly and efficiently. These rule-of-thumb strategies shorten decision-making time. However, there are both benefits and drawbacks of heuristics. While heuristics are helpful in many situations, they can also lead to cognitive biases. Nobel-prize winning economist and cognitive psychologist Herbert Simon originally introduced the concept of heuristics in psychology in the 1950s. He suggested that while people strive to make rational choices, human judgment is subject to cognitive limitations. As a result of these limitations, we are forced to rely on mental shortcuts to help us make sense of the world.

31. Types of Heuristics There are many different kinds of heuristics . Availability: The availability heuristic involves making decisions based upon how easy it is to bring something to mind. For example, if you are thinking of flying and suddenly think of a number of recent airline accidents, you might feel like air travel is too dangerous and decide to travel by car instead. Because those examples of air disasters came to mind so easily, the availability heuristic leads you to think that plane crashes are more common than they really are. b) Familiarity: The familiarity heuristic refers to how people tend to have more favorable opinions of things, people, or places they've experienced before as opposed to new ones. In fact, given two options, people may choose something they're more familiar with even if the new option provides more benefits.

32. c) Representativeness: The representativeness heuristic involves making a decision by comparing the present situation to the most representative mental prototype. For example, A soft-spoken older woman might remind you of your grandmother, so you might immediately assume that she is kind, gentle, and trustworthy. d) Affect: The affect heuristic involves making choices that are influenced by the emotions that an individual is experiencing at that moment. For example, research has shown that people are more likely to see decisions as having benefits and lower risks when they are in a positive mood. Negative emotions, on the other hand, lead people to focus on the potential downsides of a decision rather than the possible benefits.

33. e) Anchoring: The anchoring bias involves the tendency to be overly influenced by the first bit of information we hear or learn. Our first impression sets the anchor for future interactions. For example, if you set a great first impression, you can cause a ‘ halo effect ’ where someone has a long-term positive impression of you, all based on that first interaction. f) Scarcity: Scarcity is a principle in heuristics in which we view things that are scarce or less available to us as inherently more valuable. The scarcity heuristic is one often used by marketers to influence people to buy certain products. This is why you'll often see signs that advertise "limited time only" or that tell you to "get yours while supplies last.

34. Group Decision Making Groups form decisions differently than individuals. Often, there are benefits to making decisions in groups. Working as a group can enhance the effectiveness of decision making, just as it can enhance the effectiveness of problem solving. Many companies combine individuals into teams to improve decision making. By forming decision-making teams, the group benefits from the expertise of each of the members. There is also an increase in resources and ideas. Another benefit of group decision making is improved group memory over individual memory.

35. Groups that are successful in decision making exhibit a number of similar characteristics, including the following: • the group is small • it has open communication • members share a common mind-set • members identify with the group • members agree on acceptable group behavior

36. Groupthink There can be disadvantages associated with group decision making, however. Of these disadvantages, one of the most explored is groupthink. Groupthink is a phenomenon characterized by premature decision making that is generally the result of group members attempting to avoid conflict The term was first used in 1972 by social psychologist Irving L. Janis. What conditions lead to groupthink? Janis (1971) cited three kinds: 1. an isolated, cohesive, and homogeneous group is empowered to make decisions; 2. objective and impartial leadership is absent, within the group or outside it; and 3. high levels of stress impinge on the group decision making process.

37. Janis (1971) delineated six symptoms of groupthink: 1. Closed mindedness —the group is not open to alternative ideas. 2. Rationalization —the group goes to great lengths to justify both the process and the product of its decision making, distorting reality where necessary in order to be persuasive. 3. Squelching of dissent —those who disagree with the group are ignored, criticized, or even ostracized. 4. Formation of a “mind-guard” for the group —one person appoints himself or herself the keeper of the group norm and ensures that people stay in line. 5. Feeling invulnerable —the group believes that it must be right, given the intelligence of its members and the information available to them. 6. Feeling unanimous —members believe that everyone unanimously shares the opinions expressed by the group.

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