DECISION MAKING:History, Personal Rationality, Social Model, Conceptual

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Organizational Psychology (PSY510)

LESSON 29

DECISION MAKING

Decision making may be defined as choosing one alternative form among several. A decision maker's

actions are guided by a goal. Each of several alternative courses of action is liked with various outcomes.

Information is available on the alternatives, on the likelihood that each outcome will occur, and on the value

of each outcome relative to the goal. The decision maker chooses one alternative on the basis of his or her

evaluation of the information. It is largely the technique for narrowing choices. The task of rational decision

making is to select the alternative that results in the more preferred set of all the possible consequences.

Decisions made in organizations can be classified according to frequency and to information conditions. In

a decision-making context, frequency is how often a particular decision recurs and information conditions

describe how much information is available about the likelihood of various outcomes.

History

The decision making process is often broken down into steps. According to Herbert Simon, following are

the steps of decision making:

· Intelligence activity

Intelligence here has been taken from the military. It means, gathering information about the

environment and the alternatives.

· Design activity

It is the process of developing and analyzing possible course of action.

· Choice activity

This the final stage of decision making, i.e. making the choice of the alternative.

Mintzberg has also given steps of decision making as follows:

· Identification

It is the phase during which a problem arises and is identified. In other words, diagnosis of the problem

is made.

· Development

This is the step in which the problem is compared with existing standards and procedures to see if it

could be solved using these. Otherwise, a new procedure is developed of solving the problem. The

development of this new procedure is purely based on trial and error.

· Selection

This is the final step in which the choice of the alternative is made.

Rationality in Decision Making

If appropriate means are chosen to reach the desired results, the decision is said to be rational. Rationality in

decision making is means to an end. But, modern organizations do not always make decisions on rationality.

All possible options or approaches to solving the problem under study are identified and the costs and

benefits of each option are assessed and compared with each other. The option that promises to yield the

greatest net benefit is selected. The main problem with rational-comprehensive approaches is that it is often

very costly in terms of time and other resources that must be devoted to gathering the relevant information.

Often the costs and benefits of the various options are very uncertain and difficult to quantify for rigorous

comparison. The costs of undertaking rational-comprehensive decision-making may themselves exceed the

benefits to be gained in improved quality of decisions.

Rationality in organizational decision making is of the following kinds:

Objective rationality

Can be applied to decisions that maximize value since value maximization is the ultimate goal of the

organization.

Subjective rationality

It is when a decision-maker is rational to the extent that she chooses a strategy which she believes will

produce the optimal consequence.

Deliberate rationality

A decision is made deliberately rational by the decision maker when he or she adjusts the means for the end

deliberately. In other words, it is when the decision maker or the manager creates a situation that the

decision become favourable.

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Organizational Psychology (PSY510)

Personal Rationality

Personal rationality is when the decision is directed towards personal goals rather than organizational goals.

Organizational rationality

It is when the decisions are directed towards the organizational goals.

Models of Decision Making

Economic Rationality Model

It is a perfectly and completely rational model based upon economic dictates. It is based on the classical

economic model and assumes that all decisions are made rationally. Further, it assumes that there is

awareness of all alternatives to the decision maker and the decision maker has a system of preferences to

make the decision. All decisions are directed towards the point of maximum profit, i.e. MC=MR, where

marginal costs equal marginal revenue-an economic model. It is a basically a quantitative model and not

supported by the modern economic models.

Social Model

This model regards humans as collections of feelings, emotions and unconscious wishes, therefore their

decision making also reflects the same. It is opposite to the Economic Rationality Model and takes into

view the humanistic side. Psychological influences have a significant impact on decision making and the

social model takes into account all these influences. The environment, peer pressure, experience and many

other factors influence decision making which is the basis of the Social Model.

Simon's Bounded Rationality Model

It is similar to the the econo-logic model but keeps in view people's and organization's idiosyncrasies and

limitations. In other words, it as an alternative to the Economic Rationality Model. According to this model,

the decision makers or the mangers take a simplistic view of the world and therefore look for the best

alternative rather than trying to maximize everything. They therefore use simple tools for decision making

and make their choices easily considering all the constraints of the practical world.

Judgemental, heuristics and biases model

This model regards that decision making is based upon heuristics (simplifications) and biases. Specific

systematic biases influence judgement and decision making. These biases are developed either from

experience or some other source. According to Kahneman and Tversky, decision makers rely on

simplification for making the decisions. The take into account more factors than just the economic factors.

Following are some of the biases that influence decisions:

Availability

This bias arises due the frequency of occurrence of something. In other words, the activity or happening

that is frequently available in the memory influences decision making. When a manager hires a business

graduate from a business school and finds him to be hard working, he is likely to hire another one from the

same school when given a choice the next time, based on the recollection from this memory.

Representativeness

This bias arises due to the tendency of the decision maker to find similarity between something previously

done and the alternative presented to him. His decision is influenced by this similarity. If the similarity

reveals a positive result in the past, he or she is likely to accept and vice versa.

Anchoring

This bias is based on held views. The given situation is likely to have an impact on the decision maker'

choice. If presented with a result at the start, the decision maker is likely to derive the same result or build

upon the same result.

Research show that decisions are made on all of the above basis.

Decision Making Styles

Following are four decision making styles in organizations:

Directive

Decagon makers with a directive style have a low tolerance for ambiguity and are oriented toward task and

the technical concerns. They are autocratic in nature.

Analytical

These decision makers tend to evaluate information and alternatives. The also have a high tolerance for

ambiguity and a strong task and technical orientation.

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Organizational Psychology (PSY510)

Conceptual

These decision makers are risk takers and have a broad perspective. They tend to envision things and take

into account people and social concerns. They are often innovative.

Behavioural

These decision makers are supportive and warm. They are usually democratic in style and tend to take into

account people's concerns. They have a low tolerance for ambiguity.

REFERENCES

· Luthans, Fred. (2005). Organizational Behaviour (Tenth Edition). United States: McGraw Hill Irwin.

· Mejia, Gomez. Balkin, David & Cardy, Robert. (2006). Managing Human Resources (Fourth Edition).

India: Dorling Kidersley Pvt. Ltd., licensee of Pearson Education in South Asia.

· Robbins, P., Stephen. (1996). Organizational Behaviour (Seventh Edition). India: Prentice Hall, Delhi.

· Huczynski, Andrzej & Buchanan, David. (1991). Organizational Behaviour: An Introductory Text

(Second Edition). Prentice Hall. New York.

· Moorhead, Gregory & Griffin, Ricky. (2001). Organizational Behaviour (First Edition). A.I.T.B.S.

Publishers & Distributors. Delhi.

· Decision

making:

Retrieved

from:

http://unpan1.un.org/intradoc/groups/public/documents/unssc/unpan022443.pdf

FURTHER READING

· A Glossary of Political Economy Terms. Paul M. Johnson, Department of Political Science, 7080 Haley

Center, Auburn University: http://www.auburn.edu/~johnspm/gloss/rational-comprehensive

· Armstrong, Thomas. 7 Kinds of Smart: Identifying and Developing Your Many Intelligences, New

York: Plume, 1993: http://www.thomasarmstrong.com/books_videos.htm#7 Kinds of Smart

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