Decision Making |  |
Chapter SummaryThis chapter has been devoted to the process and techniques of decision making. Decision making is defined as choosing between two or more alternatives. However, viewed as a process, the actual choice activity is preceded by gathering information and developing alternatives. The models of behavioral decision making include the completely economic rationality model on one extreme, Herbert Simon’s bounded rationality model and the judgmental heuristics and biases model in the middle range, and the irrationally
based social model on the other extreme. Each of these models gives insights into decision-making rationality. For example, even the traditional accounting and finance techniques under the economic rationality model of decision making have recently
given way in some companies to more effective activity-based costing (ABC), economic value added (EVA), and market value added (MVA) techniques. The same is true of the social models at the other extreme. Understanding human dynamics, such as irra-tional conformity or escalation of commitment, gives more credibility to the social model of decision making. However, Simon’s bounded rationality, the judgmental heuristics and biases model from cognitive psychology, and the various management
decision styles have emerged as having the biggest impact on behavioral decision-making theory and practice.
The techniques for decision making are currently being dominated by information technology. The behavioral techniques do not begin to approach the sophistication of
these techniques. Yet it is the creative, problem-solving management decisions that are crucial for organizational success. Understanding the strengths and weaknesses of participative
techniques and the creative individual and group decision-making process and techniques (Delphi and nominal grouping) can lead to more effective decision making for the future. |
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2002 McGraw-Hill Higher Education