The Process of Making a Decision

1
The Process of Making a Decision
2
Continuum of Decision Structures
3
Typology of Decisions
4
Keen and Scott Morton Classification of
Decision-Making Perspectives

• Rational Manager Perspective
• Classic conception of decision-making
• Assumes rational, completely informed, individual
  DM
• Favored perspective of proponents of cost/benefit
  analysis
• Requires analytic definition of decision
  variables
• Requires precise, objective criterion for choice
• Process-Oriented Perspective
• Focuses on how DM can effectively function with
  limited knowledge and skills
• Emphasizes heuristics and search for solutions
  that are good enough
• DSS design goal is to assist in improving
  existing solution not to seek the optimum

5
Keen and Scott Morton Classification of
Decision-Making Perspectives

• Organizational Procedures Perspective
• Seeks to understand decisions as output of
  standard operating procedures
• Design goal is to determine which of these
  procedures might be supported or improved
• Stresses identification of organizational roles
• Includes focus on communication channels and
  relationships
• Political Perspective
• DM is viewed as a personalized bargaining process
  between business units
• Assumes that power and influence determine the
  outcome of any decision
• Design goal focuses upon the DM process rather
  than the decision itself
• Individual Differences Perspective
• Focuses on individual problem-solving behaviors
• Design is contingent on DM style, background, and
  personality of intended user

6
Simons Model of Problem Solving
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Modeling and Analysis Strategies

• Satisficing Strategies
• Simulation
• Forecasting
• What if Analysis
• Markov Analysis
• Complex Queuing Models
• Environmental Impact Analysis

• Optimizing Strategies
• Linear Programming
• Goal Programming
• Simple Queuing Models
• Investment Models
• Inventory Models
• Transportation Models

8
Problem Space and Search Space
9
Common Characteristics of Models of Choice

• Unfamiliarity Degree to which decision task
  is foreign to DM
• Ambiguity. Degree to which decision task is
  unclear to DM
• Complexity. Number of different components to
  decision task
• Instability. Degree to which decision
  components change during or after choice
• Reversibility. Degree to which choice can be
  reversed if outcome appears undesirable
• Significance. Importance of choice to both DM and
  the organization
• Accountability. Degree to which DM is culpable
  for choice outcome
• Time/Money. Constraints on decision process
  and solution set
• Knowledge. Amount of relevant knowledge
  possessed by DM
• Ability. Degree of intelligence and
  competence of DM
• Motivation. Desire of DM to make a successful
  decision

10
Factors Contributing to Cognitive Limitations

• Humans can retain only a few bits of information
  in short-term memory
• Intelligence of the DM
• DMs that embrace closed belief systems tend to
  inordinately restrict information search
• DMs that employ a concrete thinking approach tend
  to be limited information processors
• Propensity for risk. Risk takers require less
  information than risk avoiders
• DM level of aspiration is positively correlated
  with desire for information
• In general, older DMs appear to be more limited
  than younger ones

11
Common Perceptual Blocks

• Difficulty in isolating the problem
• Delimiting the problem space too closely
• Inability to see the problem from various
  perspectives
• Stereotyping
• Saturation

12
Ways in Which Cognitive Limitations Can Affect
Judgment

• Judgment is more dependent on preconceptions and
  bias than relevant new information
• Intuitive judgments are often misleading
• Availability is intuitive judgment about the
  frequency of events or proportion of objects
• Representation attempts to classify concepts and
  is often illusive
• Judgmental fixation describes the anchoring of an
  individual regarding consequences

13
Advantages of Heuristics in Problem-Solving

• Simple to understand
• Easy to implement
• Require less conception time
• Require less cognitive effort (human) or less CPU
  time (computer)
• Can produce multiple solutions

14
Appropriate Uses of Heuristics in Problem-Solving

• Where the input data are inexact or limited
• The computation time for an optimal solution is
  excessive
• Problems are being solved frequently and
  repeatedly and consume unnecessary time
• Wherever symbolic rather than numerical
  processing is involved
• Simulation models are oversimplified when
  compared to problem complexity
• A reliable, exact method is not readily available
• Where the efficiency of an optimization process
  can be improved by good starting solutions
• Where optimization is economically infeasible

15
Common Biases of Individual Decision-Makers

• They tend to overestimate low probabilities and
  underestimate high probabilities
• They appear to be insensitive to the true sample
  size of their observations
• They adjust their first estimate incrementally
  based on the basis of additional evidence
• They tend toward over confidence in their ability
  to estimate probabilities
• They tend to overestimate the ability of others
  to estimate probabilities
• They tend to compare pairs of alternatives rather
  than a whole list
• They tend to minimize reliance on explicit
  tradeoffs or other numerical computations
• They often exhibit choices that are inconsistent
  and intransitive
• They tend toward viewing alternatives as a set of
  aspects

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Contributions to Effectiveness and Efficiency
From DSS Use

• Effectiveness
• Easier access to relevant information
• Faster and more efficient problem recognition and
  identification
• Easier access to computing tools and proven
  models to compute choice criteria
• Greater ability to generate and evaluate large
  choice sets
• Efficiency
• Reduction in decision costs
• Reduction in decision time for same level of
  detail in the analysis
• Better quality in feedback supplied back to the
  DM.