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Decision

Choice made from among available alternatives

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Decision making

The process of identifying alternative courses of action

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System 1: intuitive and largely unconscious thinking

System 1 operated automatically and quickly

It is our fast, automatic, intuitive, and unconscious mode

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System 2: analytical and conscious thinking

System 2 is out slow, deliberate, analytical, and effortful mode of reasoning

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Rational model of decision making

Also known as the classical model

Style fo decision making that explains how managers should make decisions

It assume managers will make logical decisions that will be the optimum in furthering the organizations best interests

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4 steps to rational decision making

1) identify the problem or opportunity
2) think up alternative solutions
3) evaluate alternatives and select a solution
4) implement and evaluate the solution chosen

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Problems

Difficulties that inhibit the achievement of goals

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Opportunities

Situations that present possibilities for exceeding existing goals

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Diagnosis

Analyzing the underlying causes

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Non rational models of decisions making

Model that explains how managers make decisions

They assume that decision making it nearly always uncertain and risky, making it difficult for managers to make optimum decisions

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Bounded rationality

The ability of decision makers to be rational is limited by numerous constraints

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Satisficing models

Managers seek alternatives until they find one that is satisfactory, not optimal

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Intuition

Making a choice without the use of conscious thought or logical inference

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Decision tress

Graph of decisions and their possible consequences, used to create a plan to reach a goal

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Seven implementation principles

1) treat your organization as an unfinished prototype
2) no brag, just facts
3)see yourself and organizations as outsiders do
4)evidence base management is not just for senior executives
5) like everything else, you still need to sell it
6)if all else fails, slow the spread of bad practice
7) The best diagnostic question, “what happens when people fail”

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Analytics

Term used for sophisticated forms of business data analysis, such as portfolio analysis or time series forecast

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3 key contributors towards analytics

Use of modelling
Multiple applications
Support from top management

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Predictive modelling

Data mining technique used to predict future behavior and anticipate the consequences of change

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Heuristsics

Strategies that simplify the process of making decisions

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Availability bias

Tendency of managers to use information readily available from memory to make judgements; tending to give more weight to recent events

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Representative bias

The tendency to generalize from a small sample or a single event

(Just because something happens once doesn’t mean it will happen again)

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Confirmation bias

Biased way of thinking in which people seek information that supports their point of view and discount data that doesn’t

“Weed is bad”, 6 million results on google

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Sunk-cost bias

Way did thinking in which managers add up all the money already spent on a project and conclude it is too costly to simply abandon

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Anchoring and adjustment bias

The tendency to make decisions based on an initial figure

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Overconfidence bias

Bias in which people’s subjective confidence in their decision making is greater than their objective accuracy

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The hindsight bias

The tendency of people to view events as being more predictable than they really are

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Framing bias

The tendency of decision makers to be influenced by the way a situation or problem is presented to them

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Escalation of commitment bias

When decision makers increase their commitment to a project despite negative information about it

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Advantages to groups

1) greater pool of knowledge
2) different perspectives
3) intellectual stimulation
4) better understanding of decision rationale
5) deeper commitment to the decision

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Disadvantages to groups

A few people dominate or intimidate

Groupthink