McShane/Von Glinow M:OB 2e 6 Decision Making and Creativity McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Decision Making Defined The conscious process of making choices among one or more alternatives with the intention of moving toward some desired state of affairs. 6-2 Rational Choice Paradigm  Effective decision makers identify, select, and apply the best possible alternative using all information and alternatives  Two main elements: 1. Subjective expected utility determines alternative with highest value (maximization) 2. Decision making process – systematic stages of decision making 6-3 1 Rational Choice Decisionmaking Process 2. Choose the best decision process Subjective expected utility 6-4 Problem Identification Challenges Problems/opportunities are constructed from ambiguous information, not “given” to us Influenced by cognitive and emotional biases Five problem identification challenges  Stakeholder framing  Mental models  Decisive leadership  Solution-focused problems  Perceptual defense 6-5 Identifying Problems Effectively 1. Be aware of perceptual and diagnostic limitations 2. Fight against pressure to look decisive 3. Maintain “divine discontent” (aversion to complacency) 4. Discuss the situation with colleagues -- see different perspectives 6-6 2 Making Choices: Rational Choice Assumptions vs OB Observations Rational Choice Paradigm Assumptions Observations from Organizational Behavior Goals are clear, compatible, and agreed upon Goals are ambiguous, conflicting, and lack agreement People are able to calculate all alternatives and their outcomes People have limited information processing abilities People evaluate all alternatives simultaneously People evaluate alternatives sequentially more 6-7 Making Choices: Rational Choice Assumptions vs OB Observations Rational Choice Paradigm Assumptions Observations from Organizational Behavior People use absolute standards to evaluate alternatives People evaluate alternatives against an implicit favorite People make choices using factual information People make choices using perceptually distorted information People choose the alternative with the highest payoff (SEU) People choose the alternative that is good enough (satisfice) 6-8 Biased Decision Heuristics People have built-in decision heuristics that bias evaluation of alternatives 1. Anchoring and adjustment – initial position (e.g., opening bid) becomes an anchor that biases our evaluation of subsequent offers/positions 2. Availability heuristic – we estimate the probability of an event by how easy we can recall it, even though other factors influence ease of recall 3. Representativeness heuristic -- we estimate the probability of something by its similarity to something else (e.g. stereotypes) even when more accurate probability information is available 6-9 3 Paralyzed by Choice  Decision makers are more likely to avoid making a decision as the number of alternatives increases  Decision avoidance occurs even when the decision maker benefits from selecting any alternative (such as joining a company pension plan).  Evidence of human information processing limitations Courtesy of Microsoft 6-10 Emotions and Making Choices 1. Emotions form preferences before we consciously evaluate those choices 2. Moods and emotions influence how well we follow the decision process 3. We ‘listen in’ on our emotions and use that information to make choices 6-11 Intuitive Decision Making Ability to know when a problem or opportunity exists and select the best course of action without conscious reasoning Intuition as emotional experience  Gut feelings are emotional signals  Not all emotional signals are intuition Intuition as rapid nonconscious analysis  Uses action scripts 6-12 4 Making Choices more Effectively Systematically evaluate alternatives against relevant factors Be aware of effects of emotions on decision preferences and evaluation process Scenario planning 6-13 Problems with Decision Evaluation Confirmation bias  Inflate quality of the selected option; forget or downplay rejected alternatives  Caused by need to maintain a positive selfconcept Escalation of commitment  Repeating or further investing in an apparently bad decision  Caused by self-justification, self-enhancement effect, prospect theory effect, closing costs 6-14 Evaluating Decisions More Effectively  Separate decision choosers from evaluators  Establish a preset level to abandon the project  Find sources of systematic and clear feedback  Involve several people in the evaluation process 6-15 5 Creativity Defined  Developing an original idea that makes a socially recognized contribution  Applies to all aspects of the decision process – problems, alternatives, solutions 6-16 Creative Process Model Verification Illumination Incubation Preparation 6-17 Characteristics of Creative People Independent imagination includes: • Higher openness to experience personality • Lower need for affiliation motivation • Higher selfdirection/stimulation values Independent imagination Cognitive and practical intelligence Characteristics of Creative People Knowledge/e xperience Persistence 6-18 6 Creative Work Environments Learning orientation  Encourage experimentation  Tolerate mistakes Intrinsically motivating work  Task significance, autonomy, feedback Open communication and sufficient resources Team competition and time pressure have unclear/inconsistent effects on creativity 6-19 Creative Activities Redefine the Problem Associative Play CrossPollination • Review abandoned projects • Storytelling • Diverse teams • Artistic activities • Explore issue with other people • Morphological analysis • Information sessions • Internal tradeshows 6-20 Employee Involvement Model  Definition: The degree to which employees influence how their work is organized and carried out Potential Involvement Outcomes • Better problem identification Employee Involvement • Synergy produces more/better solutions Contingencies of Involvement • Better at selecting the best choice • Higher decision commitment 6-21 7 Contingencies of Involvement Higher employee involvement is better when: Decision Structure Knowledge Source Decision Commitment Risk of Conflict • Problem is new & complex (i.e nonprogrammed decision) • Employees have relevant knowledge beyond leader • Employees would lack commitment unless involved 1. Norms support firm’s goals 2. Employee agreement likely 6-22 Subjective Expected Utility Estimating the best possible alternative (maximization) Expected -- probability of an outcome occurring .2 Choice A  Choice ‘B’ has higher utility (value) than choice ‘A’  Choice ‘B’ expected utility is (.8x7)+(.2x-2)+(.3x1)=6.4 Outcome 1 (+7) Outcome 2 (-2) .9  e.g., Chance that outcome 3 will occur is 90% if choice ‘A’ is chosen, 30% if choice ‘B’ is chosen Utility -- Value or happiness produced by each option from value of expected outcomes .5 Outcome 3 (+1) .8 Choice B .2 Outcome 1 (+7) Outcome 2 (-2) .3 Outcome 3 (+1) Probability of outcome occurring Utility (expected happiness) 6-23 8
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