Page 80 - DMGT402_MANAGEMENT_PRACTICES_AND_ORGANIZATIONAL_BEHAVIOUR

Unit 3: Planning and Decision-making

3.11 Decision-making Errors Notes

Here are common decision errors made by the managers:
1. Ambiguity Effect: They prefer a known probability to an unknown one.

2. Bias Blind Spot: They do not compensate enough for our own bias.
3. Biased sampling: They base decisions on available small samples.
4. Bounded Rationality: They only use limited logic in decisions
5. Disconfirmation bias: They tend to agree with what supports their own beliefs
6. Endowment Effect: They value more highly the things we own.

7. Overconfidence Barrier: Sometimes they are too confident in our own judgments.
8. Psychological Accounting: Sometimes they care about direct outcomes. They also compare
in ratios rather than absolute amounts.

9. Sunk-Cost Effect: They are reluctant to pull out of an investment.

Issues in Decision-making

Some of the common issues in decision-making are:
1. Reaching agreement on goals: Perhaps the most serious problem in decision making is the
failure to identify a clear and consistent set of goals. A group without basic objectives is
aimless and unproductive, but a group with a well-defined purpose can be very innovative
and effective.
2. Reaching agreement on procedures: Once a clear set of goals are decided, now arises the
need to decide how to achieve these goals. One way or another, the individual or group
will make decisions, but not all decisions are equally sound and democratic.
3. Unequal group commitment and involvement: The sustainability of an organisation depends
on equal involvement and commitment among its members. Fining members for missing
meetings or failing to pay dues may ensure full attendance and equal financial contributions,
but there is no simple way to make members put the same amount of energy into all of the
group's activities.
4. Group conflicts: Each organisation's culture has a unique understanding of conflict. Some
cultures encourage open and emotional disputes, while others value strict politeness and
very cautious disagreement. Every culture, though, makes a distinction between
"productive" and "unproductive" conflict. Good conflicts are those that help the group
understand difficult problems and choose among alternative solutions. Bad conflicts cause
only confusion, bad decisions, hurt feelings, anger (and possibly violence), and the breakup
of a team or a group.
5. Weak communication and literacy skills: In many organisations, members will have
different levels of literacy and communication skills. Some members will be better at
reading, speaking in public, persuading others, listening, and thinking during meetings.
6. Extreme power differences: Members of a team or a group in/for which a decision is to be
taken usually do not have exactly the same amount of power or influence in the group, but
sometimes one or two group members have far more power than other members

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