There are two types of decision making approach, each approach may have same of opposite end result. Yet we need to understand both what behind the reason.

1. Decision making in
organization
Product Development Upgrading – Nov 22, 2018

2. Decision making in organization
š Leader often engage in organizational decision making.

3. Model of Rational Action
š Logic of consequence: choices and instrumental effort
š Logic of appropriateness: rule following and interpretive activity

4. Model of Rational Action
š “I choose not to steal because stealing is wrong.”
š “I choose not to steal because the value of what I could gain from stealing is not worth
the risk of getting caught and put in jail.”

5. Logic of consequence
š Knowing alternatives - what are the option
š Knowing the consequences of these alternatives - what happens if we take an option
š Having ordered preferences - ranked goals and objectives in term of greater and lesser
value

6. Using a decision rule, or choice process
š An ideally or fully rational person - clarity in knowing
š A boundedly rational person - ambiguity in knowing

7. An ideally or fully rational person
Following are necessary in order to make ideally of fully rational decisions:
š More time, information, and attention than most people possess in most situations.
š Knowledge of the consequences associated with each possible action or choice.
š Knowledge of all your possible actions or choices.
š Knowledge of your preferences. In other words, you need a way of ranking possible
consequences in terms of their desirability.

8. Example
No (90%) Yes (10%) Net expected utility
Don’t ask out +2 -8 (2*0.9) – (8*0.1) = 1
Ask out -10 +10 (-10*0.9) – (10*0.1) = -8

9. A boundedly rational person
Why?
š We are boundedly rational, we often lack the time to consider every alternative, or we
lack cognitive capacity to optimize
š Dating example again, we now choose from 10 people and only consider the expected
utility of asking them all and them saying YES. And we decide as soon as we reach
someone above an expected utility threshold of say 3.

10. Orderofchoice
Expected utility
A
D
C
B
E
J
F
G
I
H
EU = -10
EU = -10
EU = -4
EU = -5
EU = 3
EU = 0
EU = -1
EU = 3.3
EU = 9.5
EU = 10
Point of choice
Threshold

11. Logic of appropriateness
š Situations are classified into categories associated with rules and identity (roles). What kind
of problem is it? Who usually addresses it? How has it been addressed in the past?
š Decision makers have official identities and roles that are evoked in particular situations
š Decision makers match rules and identities to kinds of situations (this is X situation for Y
people to manage)

12. Bounded rationality
Ambiguity is common
š Lack of clarity in our agreement, experience, imitation and change
š This render matching frequently a process of satisficing again