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Big decisions, such as career choices, take a lot of planning and thought to make sure we make the right decision for our needs. Individuals throughout organizations use the information they gather to make a wide range of decisions. Despite the far-reaching nature of the decisions in the previous example, not all decisions have major consequences or even require a lot of thought. On the other hand, unique and important decisions require conscious thinking, information gathering, and careful consideration of alternatives. In this chapter we are going to discuss different decision-making models designed to understand and evaluate the effectiveness of nonprogrammed decisions.
The rational decision-making modelA series of steps that decision makers should consider if their goal is to maximize their outcome and make the best choice.
While decision makers can get off track during any of these steps, research shows that searching for alternatives in the fourth step can be the most challenging and often leads to failure. Despite all its benefits, you may have noticed that this decision-making model involves a number of unrealistic assumptions as well. In addition to the rational decision making, bounded rationality, and intuitive decision-making models, creative decision making is a vital part of being an effective decision maker.
The five steps to creative decision making are similar to the previous decision-making models in some keys ways.
A NASA scientist describes his decision-making process leading to a creative outcome as follows: He had been trying to figure out a better way to de-ice planes to make the process faster and safer. Researchers focus on three factors to evaluate the level of creativity in the decision-making process.
Use the nominal group technique (see Tools and Techniques for Making Better Decisions below) in person or electronically to avoid some common group process pitfalls. Sometimes when we are faced with making a hard decision, we can be overly emotional and therefore make the wrong one. The ability to make good decisions can help us become happier people, thus better at human relations. There are different types of decisions ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Structured decision-making processes include rational, bounded rationality, intuitive, and creative decision making. No matter which model you use, it is important to know and avoid the decision-making traps that exist. Framing biasThe tendency of decision makers to be influenced by the way problems are presented.
Understand the pros and cons of individual and group decisions you will make in your career. Despite its popularity within organizations, group decision making suffers from a number of disadvantages.
Thus, whether an individual or a group decision is preferable will depend on the specifics of the situation. Invite experts or qualified colleagues who are not part of the core decision-making group to attend meetings and get reactions from outsiders on a regular basis and share these with the group.
Nominal Group Technique (NGT)A technique designed to help with group decision making by ensuring that all members participate fully.
Delphi TechniqueA group process that utilizes written responses to a series of questionnaires instead of physically bringing individuals together to make a decision. Majority ruleA decision-making rule in which each member of the group is given a single vote, and the option receiving the greatest number of votes is selected.
ConsensusA decision-making rule that groups may use when the goal is to gain support for an idea or plan of action. Group Decision Support Systems (GDSS)Interactive computer-based systems that are able to combine communication and decision technologies to help groups make better decisions. Decision treesDiagrams where answers to yes or no questions lead decision makers to address additional questions until they reach the end of the tree.
Utilizing decision trees can improve investment decisions by optimizing them for maximum payoff.
Finally, there are a variety of tools and techniques available for helping to make more effective decisions in groups, including the nominal group technique, Delphi technique, majority rule, consensus, GDSS, and decision trees. Some decisions are obvious and can be made quickly, without investing much time and effort in the decision-making process. Fortunately, there are several methods that can be used when making a difficult decision, depending on various environmental factors. Even when specific models are followed, groups and individuals can often fall into potential decision-making pitfalls.
However, real estate is unique in that it has four distinct components of investment return. Marcus and Millichap closes more real estate investment sales than any other brokerage firm—over 60% of which involve a 1031 Exchange. Learn more about what made this case especially complex and how Marcus and Millichap overcame the financing obstacles.
With advanced economies still struggling to perform and investment markets showing uncertainty, investors would do well to stick to five tenets that will guide them through any investment setting and yield respectable outcomes.
Substantial research shows that asset allocation decisions materially impact on the behaviour of investment returns. The second most important decision that any investor will take is the decision to adhere to this asset allocation. Investors who do this often enough, and for long enough, raise the risk of not achieving their long-term investment objective, and this is exacerbated by the fact that buying at the bottom of the market is difficult from an emotional perspective and almost impossible from a technical perspective. Accurate and reliable forecasting is notoriously difficult and bad forecasting leads to bad investment decisions.
Although what an investor acquires is a key consideration, equally critical is how much is paid for the asset. Any investor will appreciate that buying assets in tough times is hard, and staying with the investment can get even harder if times get tougher and a rocking horse is in sight. Cannon Asset Managers is a niche investment management company based on the philosophy and principles of value investing. Compounding is all about earning more money by reinvesting the interest you gain from your investment. Investors can reinvest dividends earned elsewhere (such as stocks) into unit trusts since the minimum subsequent investment amount for most funds on our platform is RM100. See the license for more details, but that basically means you can share this book as long as you credit the author (but see below), don't make money from it, and do make it available to everyone else under the same terms. However, the publisher has asked for the customary Creative Commons attribution to the original publisher, authors, title, and book URI to be removed. This chapter will discuss the ways we can learn to make good personal decisions but also good decisions for the organizations we work for.
For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school.
We will cover four decision-making approaches, starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision-making model. In fact, one researcher found that no alternative generation occurred in 85 percent of the decisions he studied.Nutt, P.
First, when making a decision, you may want to make sure that you establish your decision criteria before you search for alternatives. It assumes that people completely understand the decision to be made, that they know all their available choices, that they have no perceptual biases, and that they want to make optimal decisions.
It is likely that you rarely sit down and complete all eight of the steps in the rational decision-making model.
The model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns. The Edward Debono's model of the Six Thinking Hats provides us with a different way of thinking about the way we make decisions. By developing self-awareness skills (I am feeling xx way) and then managing our emotions once we recognize them, we can learn to make healthy, wise decisions. When we understand how we feel about a certain decision we have to make, we can look realistically at all possible solutions from a cognitive level, which allows us to also make better decisions.

Daniel Kahnemann (another Nobel Prize winner) and Amos Tversky spent decades studying how people make decisions.
Group decision making has the advantage of drawing from the experiences and perspectives of a larger number of individuals. For example, if there is an emergency and a decision needs to be made quickly, individual decision making might be preferred.
The decision to launch Challenger that day, despite problems with mechanical components of the vehicle and unfavorable weather conditions, is cited as an example of groupthink.Esser, J.
Others, however, require substantial consideration of the circumstances surrounding the decision, available alternatives, and potential outcomes. Due to mechanical difficulties, however, your ship was forced to land at a spot some 200 miles (320 km) from the rendezvous point. Understand ReturnsMost people purchase real estate in hopes of earning wealth from their purchase, just as they would with any other investment asset.
I'm a long term residential investment real estate owner and I also enjoy consulting and teaching.
This leadership role gives us an edge in all aspects of the investment market, including analysis, underwriting, marketing, negotiating and financing, all designed to serve our clients and ensure maximum value.
Across all local markets and investment property types, no one can match our knowledge and specialization. Our ability to translate market trends into market intelligence enables you to make decisions with confidence.
Indeed, the single most important decision for investors relates to their strategic long-term asset allocation.
Investors will do best by using their strategic asset allocation as a guiding light in managing investments. Buying a good business or a good property is one thing, but overpaying for that asset will result in a poor investment. These investments have two characteristics: they are great assets and this is not reflected in their price. However, reinvestment of dividends makes a significant difference over an extended period of time as compared to short periods of time. No investment decision should be taken without first viewing a fund's prospectus and if necessary, consulting with financial or other professional advisers.
This chapter will help you understand how to make decisions alone or in a group while avoiding common decision-making pitfalls. For example, the decisions made by executives and consulting firms for Enron ultimately resulted in a $60 billion loss for investors, thousands of employees without jobs, and the loss of all employee retirement funds.
These decisions require conscious thinking, information gathering, and careful consideration of alternatives.. The importance of making good decisions relates to our ability to manage our emotional intelligence to make sure we make the right decisions.
In other words, if you want to make sure that you make the best choice, going through the formal steps of the rational decision-making model may make sense. For example, if you purchase a car and have nothing but problems with it, you will be less likely to consider the same make and model when purchasing a car the next time. For example, this model proposed that we should search for all possible alternatives before making a decision, but that process is time consuming, and individuals are often under time pressure to make decisions.
As you read about the Debono decision-making model, this model specifically asks that you look at your own emotions and the emotions of others. These emotional intelligence skills, specifically self-awareness and self-management, can help us make thoughtful, sound decisions that improve our productivity, happiness, and satisfaction. Framing bias refers to the tendency of decision makers to be influenced by the way that a situation or problem is presented. There are many similarities as well as many differences between individual and group decision making. Hence, a group may have the potential to be more creative and lead to more effective decisions. Individual decision making may also be appropriate if the individual in question has all the information needed to make the decision and if implementation problems are not expected. Group decision-making processes also have multiple models to follow, depending on the situation. On the other hand, if too much information is presented, people can suffer from analysis paralysis, in which no decision is reached because of the overwhelming number of alternatives. And you’ll probably be very surprised to learn how much work it really is just to buy a home. So too with different investment markets: fast-growing emerging markets or fast-growing industries are not necessarily great investment cases. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons.
As you know, the key to positive human relations in these situations is communication and application of emotional intelligence skills such as self-awareness when making decisions alone. These types of straightforward decisions are termed programmed decisionsDecisions that occur frequently enough that we develop an automated response to them., or decisions that occur frequently enough that we develop an automated response to them. At some point, a phone call came from a state health department to inform them of eleven cases of gastrointestinal distress that might be related to their product, which led to a decision to recall ChargeUp. With the flattening of organizations and intense competition among companies, individuals and organizations are driven to be creative in decisions ranging from cutting costs to generating new ways of doing business. Immersion is the step in which the decision maker consciously thinks about the problem and gathers information.
Similar to the rational decision making model discussed earlier, this model uses hats to represent the steps we need to follow in order to make good decisions. An awareness of some of the pitfalls of decision making enhances our ability to make good decisions.
There are many factors that influence group dynamics and also affect the group decision-making process. On the other hand, if one person does not have all the information and skills needed to make a decision, if implementing the decision will be difficult without the involvement of those who will be affected by the decision, and if time urgency is more modest, then decision making by a group may be more effective. While consensus tends to require more time, it may make sense when support is needed to enact the plan.
And unlike commodity Internet listing services, our technology tools come with one-on-one relationships with investment experts from the nation’s leader in real estate transactions – Marcus & Millichap. Emotional intelligence is required in the form of relationship management when making decisions in groups. Similarly, the decision made by firms to trade in mortgage-backed securities is having negative consequences for the entire economy in the United States. The automated response we use to make these decisions is called the decision ruleAutomated response to problems that occur routinely.. This is a nonprogrammed decision, because for several decades, customers of fast-food restaurants were more concerned with the taste and price of the food rather than its healthiness. A total of 89 percent of managers surveyed admitted to using intuition to make decisions at least sometimes and 59 percent said they used intuition often.Burke, L. A key to success in creative decision making is having or acquiring expertise in the area being studied. When we make good decisions, we are happier, which makes for more positive human relations skills. Second, decision makers may incorrectly believe that spending more time and energy might somehow help them recover their losses. All parties involved in such outcomes made a decision, and everyone is now living with the consequences of those decisions.
While this decision was conservative, it was made without a process that weighed the information. Finally, operational decisionsDecisions employees make each day to make the organization function. In fact, the availability of too much information can lead to analysis paralysisA decision-making process in which more and more time is spent on gathering information and thinking about it, but no decisions actually get made., in which more and more time is spent on gathering information and thinking about it, but no decisions actually get made. However, many people would spend hours of their time and hundreds, even thousands of dollars repairing the car in the hopes that they might recover their initial investment. Effective decision makers avoid escalation of commitment by distinguishing between when persistence may actually pay off versus when it might mean escalation of commitment.

Finally, when the decision is made by a group rather than a single individual, implementation of the decision will be easier, because group members will be more invested in the decision. Because complaints are a recurring problem, responding to them may become a programmed decision.
Conversely, successful managers know what they want at the outset of the decision-making process, set objectives for others to respond to, carry out an unrestricted search for solutions, get key people to participate, and avoid using their power to push their perspective.Nutt, P. If you are able to generate several distinct solutions to a problem, your decision-making process is high on flexibility. Another unique aspect of brainstorming is that since the variety of backgrounds and approaches give the group more to draw upon, the more people are included in the process, the better the decision outcome will be.
One theory is that decision biases played a large role in this serious error, and anchoring on the fact that the plane had been consumed by flames led the coroner to call off the search for any possible survivors.Becker, W. If the group is diverse, better decisions may be made, because different group members may have different ideas based on their backgrounds and experiences.
While groups have the potential to arrive at an effective decision, they often suffer from process losses. Improving group decisions by better pooling information: A comparative advantage of group decision support systems. The restaurant might enact a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. The green hat allows us to come up with potential solutions or courses of action, while the blue hat helps us manage the process of making the decision. However, those who did not vote in favor of the decision will be less likely to support it.
If you know you want to have room for at least five adults, get at least twenty miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you have identified the decision criteriaA set of parameters against which all of the potential options in decision making will be evaluated..
Another advantage of the rational model is that it urges decision makers to generate all alternatives instead of only a few. The main difference is that rather than choosing the best option and maximizing the potential outcome, the decision maker saves cognitive time and effort by accepting the first alternative that meets the minimum threshold.
It would be easy to criticize the decision to continue to drive the car because in hindsight, the noises heard in the morning would make us believe that the driver should have known something was wrong and taken the car in for service.
However, in the 1990s, the landscape for cell phone technology was dramatically different from that in the 1980s, and the widespread cell phone coverage around the world eliminated most of the projected customer base for Iridium.
You might also consider assigning separate decision makers for the initial buying and subsequent selling decisions. This unfortunate decision caused Nutrorim to rethink the way decisions were made when under pressure. The manager of the restaurant implemented the free dessert policy as a way to handle customer complaints, which is a tactical decision. By generating a large number of alternatives that cover a wide range of possibilities, you are unlikely to make a more effective decision that does not require sacrificing one criterion for the sake of another.
However, the driver in question may have heard similar sounds before with no consequences, so based on the information available at the time, continuing with the regular routine may have been a reasonable choice. It is important to be aware of this tendency, because depending on how a problem is presented to us, we might choose an alternative that is disadvantageous simply because of the way it is framed. Had they been paying attention to these developments, the decision makers could have abandoned the project at some point in the early 1990s.
Periodic evaluations of an initially sound decision to see whether the decision still makes sense is also another way of preventing escalation of commitment. Group decision fiascoes continue: Space shuttle Challenger and a revised groupthink framework.
The company now gathers information to make informed choices even when time is of the essence.Garvin, D.
Finally, the servers at the restaurant are making individual decisions each day by evaluating whether each customer complaint received is legitimate and warrants a free dessert. Before we can move too much further, you need to decide how important each factor is to your decision in step 3. Managers make decisions under challenging circumstances, including time pressures, constraints, a great deal of uncertainty, changing conditions, and highly visible and high-stakes outcomes. Finally, the verification and application stage happens when the decision maker consciously verifies the feasibility of the solution and implements the decision. Interestingly, he did not make any money from these transactions himself, and his sole motive was to be successful.
This type of review becomes particularly important in projects such as the Iridium phone, in which the initial decision is not immediately implemented but instead needs to go through a lengthy development process. Finally, group decision making takes more time compared to individual decision making, because all members need to discuss their thoughts regarding different alternatives. Strategic management in turbulent times: The short and glorious history of accelerated decision making at Hewlett-Packard. Thus, it makes sense that they would not have the time to use the rational decision-making model.
We do not know exactly how many ideas he had over the course of his career, but his ideas are fairly different from each other. In such cases, it becomes important to periodically assess the soundness of the initial decision in the face of changing market conditions. Making use of difference: Diversity, debate, decision comprehensiveness in top management teams.
Step 4 requires you to generate all alternativesOther possible solutions to a problem in a decision-making process. Yet when CEOs, financial analysts, and health care workers are asked about the critical decisions they make, seldom do they attribute success to luck. He made a lot of profit for the company early on and became overly confident in his abilities to make even more. Finally, creating an organizational climate in which individuals do not fear admitting that their initial decision no longer makes economic sense would go a long way in preventing escalation of commitment, as it could lower the regret the decision maker may experience.Wong, K. To an outside observer, it may seem like they are making guesses as to the course of action to take, but it turns out that experts systematically make decisions using a different model than was earlier suspected. As virtual meetings grow larger, it is reasonable to assume that information overload can occur and good ideas will fall through the cracks, essentially recreating a problem that the GDSS was intended to solve, which is to make sure every idea is heard. Research on life-or-death decisions made by fire chiefs, pilots, and nurses finds that experts do not choose among a list of well thought out alternatives. Finally, the blue hat would cause Andi to make sure she used all hats to make a decision and, based on the data, would go ahead and make the best choice.
Third, a discussion takes place around each idea, and members ask for and give clarification and make evaluative statements. Cognitive diversity and consensus in group decision making: The role of inputs, processes, and outcomes.
People who purchase lottery tickets as a way to make money are probably suffering from overconfidence bias. Following the four-step NGT helps to ensure that all members participate fully, and it avoids group decision-making problems such as groupthink. The intuitive decision-making model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns.Breen, B.
However, groups take longer with this approach, and if consensus cannot be reached, members tend to become frustrated.Peterson, R.
Thanks to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work.
Once a viable course of action is identified, the decision maker puts the solution into motion. Novices are not able to make effective decisions this way, because they do not have enough prior experience to draw upon.

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