Decision making as a basis for strategy
Discuss about the Decision-making application.
“The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solutions are required for objectively rational behavior in the real world or even for a reasonable approximation to such objective rationality”
This quote by Simon can be examined on the basis of several concepts that define the bias in decision making in the place of work. This principle is commonly known as the principle of bounded rationality, and it can be used to clarify bias and rationality in the decision-making process by basing explanation on several concepts. The concepts include the administrative behavior, physiological properties of the actor, rational components in the role behavior and the contemporary philosophies of human choice. These concepts are accountable for any bias in the decision making process in an organization (Smith 2014). These concepts define the impacts on the various aspects of the thought method of the individuals in the decision-making course.
Decision making is an important aspect of proper management in organizations. This is mainly carried out by managers. Good decision making involves sequences of steps that require input of info at different phases of the process and also it requires one to process the feedback.
The behavioral theory of strategic managing begins with a vital idea that decision making entails of finding a satisficing result, instead of looking for the best probable alternative. Socially speaking, strategic management involves dealing efficiently with trials of bounded rationality in altering and ambiguous atmosphere. The decision difficult as it faces the managers in tactical decision-making scenarios is one of defining a course of action which will satisfy the ambition of the organization. This may involve coming up with new alternatives among which managers can select from (Brennan 2012). Other times the managers must look for not only for the answers to the problems but for the problems themselves. This normally requires the capability to come up with ambitions and to use imaginations in creating innovative strategic possibilities.
The physiological properties of the actor in decision making allows actors to come up with a model of the real world. This model allows actors to have feelings of the real world for their own rational behavior and reference (Goldfarb et al 2012). The actor in the decision-making course come up with this simplified model to make sure that his or her behavior to the real world situation is rational. One can determine the behavior of the actor of the decision making the process by having a deeper insight into the factors in the course of coming up with this simple model along with its structure. The construction of this model is usually affected heavily by the physiological properties of the individual such as the family background, the cultural background, their behavior, and nature. The actors behaving rationally to this model of reality may not be behaving rationally in the actual world situation of the model. Hence, the decision-making process based on the behavior of the actor in this model may involve various biases based on a number of issues in the nature of the person.
Physiological properties of the actor
This theory is used to describe the course by which people work within an organization. It was developed by Herbert Simon and it sought to clarify the process by which goals are specified and formalized hence contributing to rational behavior in organizations. People in higher positions make decisions that are of high value while those in lower position make decisions with a factual component (Kalantari 2010). There are two concepts associated with this theory. The first one is bounded rationality which notes the cognitive restrictions of managers. The second notion is satisficing. This is a behavior that challenges to attain at least some minimum level of a specific variable, but it does not endeavor to achieve its optimum possible outcome.
The administrative theory or the bounded rationality model does not adopt individual rationality in the decision process. As an alternative, it adopts that individuals, while they search for the best possible answer, they normally settle for much less since the decisions they challenge typically requires greater time, information and processing competences than they possess. Hence, they settle for limited rationality in decisions (Nooraie 2012). This model views the decision makers as individuals with varying degree of inspiration and are overwhelmed by demands but have little period to make decisions and thus take shortcuts to find satisfactory resolutions.
The administrative theory is based on several basic concepts: the first concept is sequential attention to an alternative answer since it is the tendency of people to scrutinize probable solutions one at a time rather than coming up with all possible clarifications and stop looking once an suitable solution is found. The second concept is heuristics. This is the assumption that guides the exploration of alternatives into areas that have a high chance of creating success. The last concept is satisficing which simply involves picking the best course of action that is reasonable under the conditions (Barros 2010). This is the tendency of decision makers to take the first alternative that meets their minimally satisfactory requirements instead of pushing them further for an alternative that yields the best results. Satisficing is better for decisions of little significance where time is a major constraint.
Rational decision making has been vastly researched and many theories and opinions stated about it since decision making is one of the vital parts of human behavior as an individual or in a firm. The decision is said to be rational if it is taken under the circumstances of either faultless or bounded rationality. Rational behavior incorporates several fundamentals such as that the decision makers will analyze only a subsection of the many decision alternatives and out of this process, a conceivable choice of outcomes will ensue (Harstad & Selten 2013). According to the behavioral theory, the value is allocated to each possible outcome and the one with the highest value is chosen.
Administrative behavior
According to Simon, a decision is a matter of compromise since there are several alternatives and the decision makers will have to select one or a few alternatives from them. They will have to decide the most appropriate alternatives since their main goal is to make a practical and most suitable decision. The fact that the decision makers selected a particular alternative and not the other is simply is simply called compromise (Spiegler 2011). Any decision that is not rational is not expected to produce the desired results. The concept of rationality is usually associated with problems and to get rid of these we may suggest that the decisions be subjectively rational and objectively rational.
A decision is said to be objective if it maximizes the given standards in a given condition. It becomes subjectively rational if it capitalize on fulfillment comparative to the real knowledge of the matter (Bazerman, & Moore 2013). A decision is said to be organizationally rational it is concerned with the organization’s objectives.
There are several problems associated with rationality in decision making. One is that it limits the human capabilities as it makes their choices narrow and they usually sacrifice or be satisfied with suitable solutions when faced with difficulties (Grandori 2010). It also limits on info and knowledge as it accepts that one has enough knowledge of the root and effect that are crucial in the evaluation of alternative answers, particularly with respect to projecting impending consequences. This model also limits time as the search for the best solution will create a delay that could harmfully impact the benefits of the chosen alternative.
A heuristic technique is closely linked to descriptive theory and the behavioral theory of decision making. Heuristics have been accepted by individuals as a response to intricate and unclear decision making circumstances and are mental shortcuts, which are sometimes unconscious and helps them think in a continuous way (Gigerenzer & Gaissmaier 2011). It generally involves part of the human solving process that includes a very discerning search through problematic spaces that are regularly immense. When a satisfactory conclusion is reached, the examination finishes and this decision is engaged. One of the most corporate heuristic approaches is representativeness by which likelihoods of events are considered according to how resembling of an event another is. If the similarity is great then the chances that one of the events develops from the other is also great.
Rationality in decision making
Many biases occur and the most common ones are due to stimuli in judgment and evaluation which is due to lack of a translated linear mode, generating a falsehood in the reasoning process. The other one is due to unconscious automatization of humans’ cognitive act when trying to remember information from their memories (Newell & Shanks 2014).
Heuristics also raises several biases since our beliefs and judgments are anchored by the first impression one has on a condition and rarely considers new viewpoints to the situation which may lead to improper conclusions. This can be overcome by being unprejudiced and looking and assuming the cognitive strategy of putting into consideration the opposite (Campitelli & Gobet 2010).
Another bias arises in an organization when managers tend to pick choices that do not affect much the status quo. This occurs since individuals do not want to hold accountability for an act that can cause criticism hence prefers a safer course of action that possesses a less psychological risk to them. This can be overcome by having broad applicability as well as through the assumption of a motivational approach of liability.
Lastly, another bias that impacts the rationale of choices is the ‘sunk-cost’. According to this, the majority of those involved in decision making continue to support their past selections even if they do not appear effective anymore (Proctor 2010). The most effective way to block this bias is by consulting the opinions of others who were not involved in the decision-making process and will likely have an unbiased perspective on it.
Rational decision making is mainly a subjective way of decision making. Hence, it is wise to put into consideration subjective factors and avoid a call to rely only on objective facts when coming up with important decisions. Good decision makers should choose an alternative based on a single criterion or factor. When taking the most appropriate course of action in decision making entails, with few exceptions, evaluating many objectives (Lee 2011). One should consider all the objectives when making important decisions even if those objectives may compete with each other.
Choosing the best course of action always involves trade-offs among many objectives. Hence, all important decisions are said to be subjective. For example, when deciding what is important between money and time. Money and time are objectives in almost every single important decision. Compared to other objectives, money and time are easily measured in quantifiable objective ways, but this does not mean there are merely objective factors (Gabaix 2014). Even though we can measure them in discrete, measurable increments, they still have considerable subjective value in many crucial decisions. This is because their relative value is not the same, depending on the scenario and the group of people making the decision. First, one should consider the relative value of time versus money on an organizational level. The relative importance of time and money is dependent on the people making the decision. There exists no objective data that can ascertain the relative importance of these two objectives.
Problems associated with rationality in decision making
Bounded rationality notion is that an action can infringe a rational principle or be unsuccessful to adapt to a custom of ideal rationality but nonetheless be reliable with the quest for an applicable set of goals (Secchi 2011). Here are some examples to help explain: when the principle being dishonored is to purchase clothes that fit one’s body well, the customer action might be to buy clothes that are instead half size too, big. This action might be considered bounded rational if the clothes are needed urgently and if impeccably fitting clothes might be found for certain only by go to each of 15 geographically distributed shops. In this situation, only thinking of the decision maker as simply as an optimizer of comfort would lead to bewilderment at his selection, but the buying of poorly fitting clothes looks bit reasonable enough when the customer’s inadequate information of the retail location is put into consideration.
A different scenario would be when the principle being dishonored is to draw voting borders in a way that equalizes the residents within the voting regions created. The planner’s act might be to attempt to make sure that merely no two populations vary by more than one percent (Lunenburg 2011). This action would be considered bounded rational if the cost of computing an suitable boundary outline would increase with the rate of accuracy needed since it would then be proper to stand little inequalities in district populations to bar computational costs. In the above examples, an action that is certainly sub optional in a certain narrowly defined choice problem can be rationalized by putting into consideration the totality of the decision-making situation. In the first instance, buying clothes that are bit oversize does not appear unsuitable to give the costumer’s time limitation and obliviousness of precisely where well-fitting clothes can be found. Also, making voting districts with residents that are almost but not precisely equal seems practical given that improving the partitioning could be computationally expensive (Cabantous & Gond 2011). The general phenomenon that bounded rational behavior can be modified to look fully rational by widening the scope of the choice problem to which it is viewed as a response, has led to some commentators to suggest that the models of optimal decision making are satisfactory for social scientific purposes as long as the environment is comprehensive.
As explained earlier heuristics is a mental shortcut that helps one make quick but sometimes improper valuations. There are many types of mental shortcuts but the most common one comprises of depend on facts that comes to mind fast. This is known as the availability. If one quickly thinks of multiple instances of something happening, they believe that it is the most common (Grandori 2010). For example, after seeing numerous news reports about car thefts, one might make a conclusion that car theft is much more common than it really is in the region.
This type of availability heuristics is very supportive in decision making by managers when faced with choices that often lack enough time and resources to investigate further. This allows them to arrive at a conclusion faster (Kunc & Morecroft 2010). However, availability heuristics can lead to errors. For example, reports of plane accidents, child kidnappings, and train derailments often make folks accept as true that such happenings are much more common than they are truly are.
The major bias about this is that availability heuristics occur unconsciously and functions under the norm that ‘if you think of it, it must be important’. The things that comes to mind more simply are thought to be more common and more precise reflections of the real world (Baron 2014). For example, if one watches a film about a nuclear disaster, they become convinced that a nuclear war is highly likely.
The availability heuristics can be a useful tool, but it is also vital to know that it can sometimes lead to inappropriate assessments of a situation (Newell, Lagnado & Shanks 2015). Just because something looms large in your memory does not mean that it is more common or appropriate.
This model lies in the belief that decision makers resolve for a smaller than ideal resolution because of time and motivation deficiencies. Instead of pursuing the best alternative that maximizes significance, they accept the first available ‘good enough’ alternative (Simon 2013). This concept of settling for less than perfect is called satisficing.
For example, in our busy everyday lives, we often such approaches without much consideration. Imagine yourself sitting in the office on a weekday afternoon and suddenly you remember that you have to attend a birthday party later that evening on the same day. Had you remembered over the weekend, you might have spent some time browsing through shops looking for a perfect gift. Now, your only options are quite limited. You have only a single shop next to your office and you quickly go through the shelves on your way to the party, hence settling for best gift that remotely matches your friend’s interest. That was definitely not the best gift but it will certainly save you from the embarrassment of showing up empty-handed. The main drawback of this approach in decision making is the lowered quality of the final decision (Wood, Cogin & Bechmann 2009). But it does help to compensate for the loss of quality. It is also bit advantageous in a situation that is time costly, settling for a ‘good enough’ option can be an effective strategy.
Conclusion
The most crucial organizational responsibility of managers in an organization is to make a decision that will form the organization and goals. These decisions are mostly difficult and are often made in a setting of uncertainty and vagueness. The managers similar to other people are subject to being predisposed by their own unconscious minds and biases. People cannot be wholly rational when making decisions and do not have the time or the ability to follow totally a rational approach to making decisions. Instead, every vital decision is influenced and sometimes undermined by the innate limits and cognitive biases of beings (Taylor 2013). Since these limits are intrinsic to human nature, they cannot be avoided in the decision-making process. Hence, people including directors need to reflect on and manage how their own norms and emotions that influence their decisions.
References
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