Critical Examination Of Discrete Concepts In Decision Making

Bounded Awareness in Decision Making

Discuss About The Critical Examination Of Discrete Concepts In Decision Making.

The term “Bounded awareness” can be defined as a cognitive bias that bounds the ability of an individual to access information and translate it into reasoned decisions. According to researchers, bounded awareness happens to an individual when he or she gets overly focused on a particular issue and as a result misses out or fails to recognize environmental information and changes that are highly crucial and obviously visible and audible (Payne et al., 2013). As a result of this, individuals tends make decision overlooking the information which is most crucial for the decision making process. Bounded awareness is considered to be a crucial issue since people who are the victims of this issue tends to take inappropriate decisions which are taken without considering inappropriate decision. Individuals suffering from bounded awareness tends to make decision based on a limited set of data that are present in front of them and avoid seeking out other information that are clearly needed for the decision making process. For instance, a ringing phone can distract a driver while he is driving. The decision taken by the driver to receive the phone without considering the negative consequences of talking over phone while driving can be considered as a decision made due to ‘bounded awareness’. It can be clearly understood that bounded awareness during decision making process has the potential to give rise to a variety of negative consequences and hence needs to be countered.

Figure 1: Bounded Awareness decision making

Source: (Pettigrew, 2014)

According to Pettigrew, (2014), bonded awareness can be classified into three distinct types of blindness, namely, Management, probability blindness and change blindness. The term visual blindness can be defined as a situation when an individual misses out attention seeking events and information due to over focusing on a certain set of information. Intentional blindness is not just a laboratory curiosity but can also be defined as an explanation for failures that seems like ‘difficult to believe’ but actually is obvious. Powell & Greenhaus, (2012) stated that change blindness and visual blindness is a similar concept. While intentional blindness results in missing out the most obvious information by an individual during the decision making process, change blindness refers to failure of noticing a major difference between the previous stage and the current stage. N order to find out the degree of change blindness an experiment was conducted by a researcher where pedestrians were asked to give direction by viewing a map to an individual. It has been seen that 50 percent of the pedestrians got so engaged in giving the direction, they were unable to notice that the person who was initial asking for direction got replaced by another individual.

Types of Bounded Awareness: Visual, Intentional, and Change Blindness

Yu, (2013) stated that change blindness can be also called choice blindness since the concept of both the issues are similar. Choice blindness is defined as the situation when an individual fails to understand that a single option with two different outlooks has been provided to the for decision making purpose. Probability blindness is defined as the situation when a individual fails to make decision with uncertainty according to the rules of probability theory (Tsetsos, Chater & Usher, 2012). Survey states that individual tends to avoid shifting from their choices of decision when they have the option to change their decision. However according to Lerner et al., (2015), individual should always change their decision when options are available since it enhance their chances of making the right decision.

The framing effect can be defined as a cognitive bias in which individual reacts to a particular choice in different ways depending on how the information is presented. Framing of an issue in different ways impose impact on the decision making process of an individual. Reversal of preference can be defined as a process of making decision based on the monetary outcomes, both real as well as hypothetical. According to researchers, individual tends to avoid risks while the information is presented in a positive frame and seek risks when the same information is presented in a negative frame (Roy & Ng, 2012). According to prospect theory, loss is considered to be more significant than the equivalent gain, which means a sure gain is referred during decision making over a procedural achievement or Probabilistic gain. However, a ‘probabilistic loss’ is favoured over a specific loss. Framing an incident can highly affect the decision making process of an individual. For instance, political opinion polls are framed by politicians in such a way that it encourage a response beneficial to the organization that has bespoken the poll persuade a reaction helpful to the organisation that has bespoken the poll. The effect of framing can only be eliminated if a huge amount of information related to the issue on which an individual is supposed to take decision is provided.

Preference reversal can be defined as behaviour where an individual tends to change to shift his or her preference after the options are juxtaposed. According to researchers, decision made on a bundle is often found to be different compared to the decision taken when they are valued separately. This phenomenon occurred due to relativity (Cassotti et al., 2012). Individuals are habituated on not only comparing things with one another but also focusing on things that are easily comparable. People use to avoid information that are not easily comparable. Comparisons become easier once juxtaposed and more important attributes can be easily compared. Preference Reversal theory can be defined as a theory that contradicts with the theory of riskless choice, According to the riskless choice theory, decision makers reach utility maximizing choices through consistent and stable choices (Pettigrew, 2014). On the contrary, Preference reversal theory states that event with the most simple decision making process, optimal choices may not be present when  preferences are contingent on circumstance and whims. The theory of stable and consistent preference contradicts when uncertainty is introducing during the decision making process. According to researchers, economics does not follow the preference reversal theory since the concept of the theory is wiped out of the market place setting (Powell & Greenhaus, 2012). Along with that, Preference Reversals also violate the theory of the weak axiom of revealed preference. 

Choice Blindness in Decision Making

Heuristic strategy of decision making opens the way of reducing the operational burden to make a vital decision while involving a large number of valuable stakeholders within it (Gigerenzer & Gaissmaier, 2011). Generally, decision making process needs long term communication procedure that requires considerable amount of money and time to spend. However, a more simplified and tactical alternative process can be more helpful where an organization has very short time period to make any crucial managerial decision. In this Heuristic decision making strategy the administration uses very stipulated amount of data which are very essential and valuable. Heuristic decision making strategy is mental short cuts that reduce the cognitive burden associated with decision making. Heuristics reduce work in decision making in numerous ways. The Heuristic strategy allows the user to assess only few signals while having specific and précised alternative choices for decision making. Apart from that, heuristics reduce the work of retrieving and storing information in conceptual model that can make the storage bulky (Zhang et al., 2014). The Heuristic strategy can streamline the decision making process by decreasing the amount of integrated information which are necessary for making the choice or developing the judgment.

Figure 2: Heuristic decision-making process

Source: (Fischhoff, 2013)

As per the psychological theories, a host of heuristics ideas can use this strategy in various ways without altering the core aim or goal in a particular environment where dynamic and innovative decision making process is needed. In various optional ways this heuristics strategy of decision making can be executed to serve the specific underling functions including, price heuristic, cost heuristic, complexity heuristic, cardinality heuristic and others. Each of these strategic approach has their unique implementation procedure as per the required technical choice of the operational environment. However, in some cases hybridisation of those subparts can be more useful than following a rigid way of handling the situation. Most of these strategies are applicable for price and people handling of a business organisation. With this regards another essential Heuristic decision making strategy is representative heuristic.  Representative heuristic or HR is a most appropriate strategy where an organisation needs to decide their optimum way of economical execution. Another perspective of the Heuristic strategy is Availability Heuristic or AH.   In this approach the host usually collect the information as per their availability to reduce the operational time (Fischhoff, 2013). The anchoring and adjustment heuristic is the foundational decision making heuristic in situations where some estimate of value is needed. In this particular heuristic, individuals first use an anchor, or some ball park estimate that surfaces initially, and adjusts their estimates until a satisfactory answer is reached. This heuristic approach needs most informative operation and execution of heuristics thoughts and decision making process. Often the management of an organisation tend to make estimates which tend to descend towards the anchor side, where genuine principles tend to be farther away from the phase where the anchor strategy was initially planted. All of these strategic approaches have their unique implementation procedure as per the required technical choice of the operational environment that requires significant effort for avoiding bias.

The Framing Effect and Reversal of Preference

Part 2: Case study

Case study 1: Toyota beyond the Bounded awareness

In 1961, Toyota exported new car model to the American car market. Their first car the Toyopet Sedan, they imported to the U.S. was both costly and of inferior quality. The flop of the Toyopet Crown made Toyota realize how different driving conditions were in Japan and the United States. In Japan then, people drove 35 to 40 mph. But at that time in the U.S., they had 55-mile-per-hour freeways, and they drove for a long time at high speed (Pahud & Hoste, 2013). Toyota was much more cautious about getting the right car the next time. There was no margin for error. Toyota was determined to learn how to make the product fit the market. When the Corona finally arrived in 1965 with a 90-hp engine and three-speed manual transmission, it wasn’t perfect. But it was so much better than what had come before that, by itself, it lifted Toyota in the United States. The Corona was a giant step for Toyota in the U.S. It went on sale in 1965. That year Toyota’s U.S. car sales were 2,847. The next year sales shot up to 16,411.

Table 1: Model comparison

Source: (Created by author)

In this case initially the Bounded awareness happens to the management of Toyota motors. Initially the management got overly focused on a particular issue which is introducing the most stylish car in USA. Therefore the result missed out and fails to recognize environmental information of American Industry and market needs which is highly crucial and obviously visible and audible. Bounded awareness was became the crucial issue in this case. Toyota was intended to take inappropriate decisions repeatedly without considering the market needs and industry demand (Fiedler & Glöckner, 2012). The Unintentional blindness results in missing out the most obvious information by an individual during the decision making process, change blindness refers to failure of noticing a major difference between the previous stage and the current stage. The suffering of the financial declination of Toyota because bounded awareness made the CEO to redevelop their production strategy for new model which they could publish in USA successfully.

The market information of USA Automotives clearly influenced the decision making process and helped to find correct path of development. The manufacturing cycle in Japan focused more on engine performance and steed instead of stylish look. This strategic implementation of production had changed the entire scenario. When the Corona finally arrived in 1965 with a 90-hp engine and three-speed manual transmission that can deliver better speed and engine performance even more than the average American company, the sales grew unexpectedly higher. Sales of 16,411 cars made the benchmark in the business operation history of Toyota while making an ideal example of avoiding biased perspective to see beyond bounded awareness (Murata & Nakamura, 2014). This case analysis also shows that individual should always change their decision when options are available since it enhances their chances of making the right decision.

Preference Reversal Theory

Case study 2: Wal-Mart, framing and Preference reversal  

Wal-Mart Inc is an American multinational retail company that regulates international chain of super markets, hypermarkets, grocery stores and others. Currently Wal-Mart is the largest private employer while having 11,718 stores and clubs in 28 countries. However, before becoming one of the prevalent companies in the world, CEO and Founder of Wal-Mart, Sam Walton started a idea called ‘Saturday morning meetings’ (Wright et al., 2013). In this meeting, employees from all departments could gather at their headquarters. The purpose of the meetings of early Saturday mornings is to discuss the market operation and selling, while identifying any operational problems. It was like an employee forum where all of the employees can discuss about their viewpoint while learning some working strategies and knowing good for motivation. As a result, Sam Walton had become successful to monitor and control the day-to-day activities and business operation at the stores while making the employees laser focused on their duties and responsibilities. Today, Wal-Mart has 10,000+ stores and $447 billion dollars of revenue annually.

Initially the management of Wal-Mart failed to identifies their core issues of underperformed sales and operational anomalies that impacted the potential return on investment at significant level. In this case framing of this issue in different ways imposed different individual impact on the decision making prospects of the management of Wal-Mart. Wal-Mart was always trying to avoid operational risks due to prioritising their ground level employees in their regulatory system. The lack information was presented in a negative frame repeatedly and the management tried to avoid the risks (Reyna et al., 2014). Lack of Preference reversal declined the successful behaviour of the organisation where the management intended to change to shift the preference of resource allocation in decision making system. According to the riskless choice theory, the decision made by the management was reducing the choices through consistent and stable choices among some stipulated opinions and perspectives. The implementation of unstable and constant preference was generating the operational uncertainty decision making process within the managerial system of Wall-Mart.

Reversal of preference allowed the Wal-Mart to process their decision making based on the monetary outcomes, both real as well as hypothetical. Framing of an issue in different ways impose collected from the every level of workforce impacted on the decision making process of the organisation in a positive way. Individual risks had been successfully avoided by the management of Wal-Mart while the information was presented in a positive frame. Loss was considered to be more significant than the equivalent gain. This revolutionary philosophy allowed Wal-Mart to sustain their gain during decision making process while prioritising all the probabilistic gain for reversal of their previous preferences. Employee opinions within during the Saturday gatherings were framed by the management in such a way that it could encourage a response to be beneficial for the organisational decision making while making the success factors attainable. 

Heuristic Strategy in Decision Making

Case study 3: Ford and the Heuristic decision making

In 1930 Henry Ford found that the ultra recurring and monotonous work along with assembly manufacture caused the yearly turnover of 370%. As a result, Ford had to hire 52,000 supplementary workers a year to make up the continuous loss and workforce discrepancies. Additionally, union strikes and absentee workers made a disputed situation where even 10% of the workforce would not present on any given day (Arena, Azzone & Conte, 2013). A particular low inspired workforce was causing expensive operation along with several quality control problems. To avoid this condition Mr. Ford decided to make the daily wages of their worker double. This strategy made the business revolution of Fort Automotives. In an effort to enhance the employee ethics and the financial system, Henry Ford decided to increase his worker’s salary from $2.50 to $5.00 a day. As a result, the employee turnover decreased from 370% to 16% while making the production efficiency increase by 40% to 70% in next year (Arena, Azzone & Conte, 2013). Apart from that, the number of substitute employees hired reduced from 52,000 to 2,000 in one year.

In that particular situation of Ford company, the decision making process was causing long term communication procedure that requires considerable amount of money and time to spend. The founder of Ford Motor Company found the production cycle and other operation is declining continuously due to lack of employee competence consistent strike, performance withdrawal and other issues. This operational burden required a vital decision while involving a large number of valuable stakeholders within it. Ford had to pursue a specific decision making strategy that could allow mental short cuts to reduce the cognitive burden associated with decision making. .  In that particular situation Representative heuristic or HR could be the most appropriate strategy for Ford to decide their optimum way of economical execution (Besedeš et al., 2012). The estimate of value was needed to adjusts their estimates until a satisfactory condition is reached that could be beneficial for employee retention and motivation.

The Heuristic strategy allowed Ford to assess only few signals while having specific and précised alternative choices for decision making. With this regards, wage increment strategy made the business revolution of Fort Automotives with less amount of time an energy investment. This decision helped Ford to streamline the decision making process by decreasing the amount of integrated information within the workforce and their operational anomalies that were necessary for making the choice or developing the judgment. In this case Mr. Ford was host of heuristics ideas who used this strategy in a particular way without altering the core aim or goal in a particular environment where other dynamic and innovative decision making process could be implemented (Grant & Quiggin, 2013). This Representative heuristic or HR was a most appropriate strategy where Ford had to decide their optimum way of economical execution. Moreover, this strategy has made the business revolution and operational benchmark of Fort Automotives.

Reference List

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Fiedler, S., & Glöckner, A. (2012). The dynamics of decision making in risky choice: An eye-tracking analysis. Frontiers in psychology, 3, 335.

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