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Presentation Decision-Making-Theory.pptx
- 1. slidesmania.com DECISION MAKING THEORY By: BofelA. Trugillo, MAED
- 2. slidesmania.com Hello! I’m… Here iswhere you introduce yourself. You can add your name, title and a little background. Right click the image and replace it with your own.
- 3. slidesmania.com At the endof the discussion, participants will be able to: 1.Define Decision Making, Decision Making Theory or Theory of Rational Choice. 2.Compare and contrast Normative, Descriptive and Prescriptive Decision Theories. 3.Identify and define types of decisions.
- 4. slidesmania.com DECISION MAKING THEORY ●It was first addressed by Herbert Simon in 1948 on his book about Administrative Behavior: “A Study of Decision-Making Process in Administrative Organization. ● Decision Making is usually defined as a process or sequence of activities involving stages of problem recognition, search of information, the definition of alternatives and selection of an actor of one from two or more alternatives consistent with the ranked. ● Decision theory or the theory of rational choice is a branch of probability, economics, and analytic philosophy that uses the tools of expected utility and probability to model how individuals should behave rationally under uncertainty preferences.
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- 6. slidesmania.com THE NORMATIVE DECISION THEORY Normativedecision theory is concerned with identification of optimal decisions where optimality is often determined by considering an ideal decision maker who is able to calculate with perfect accuracy and is in some sense fully rational.
- 7. slidesmania.com EXAMPLES OF NORMATIVE DECISIONMAKING 1. Leader Decision 2. Individual Consultation 3. Group Consultation 4. Facilitation 5. Delegation
- 8. slidesmania.com 1. LEADER DECISION Theleader makes the decision and announces it to the group. They may gather information from the group but don't consult the group regarding the decision itself. For example, an IT manager who decides a legacy technology needs to be phased out without consulting the team. A leader decision may be optimal in the following situations:
- 9. slidesmania.com Group decision making islikely to trigger unproductive politics Inclusive decision making is not likely to reduce resistance Leader has the expertise to make the decision Required action is clear Resistance not expected Team lacks the expertise that would be helpful to the decision
- 10. slidesmania.com 2. INDIVIDUAL CONSULTATION The leaderconsults individual members of the group to make a decision. The decision is made by the leader who may or may not use the input collected. For example, a software architect who makes design decisions by consulting various technology specialists. The specialists don't have the overall view required to make architectural decisions but are helpful in understanding aspects of the problem. This may work out where:
- 11. slidesmania.com Leader knows what theyare doing Resistance not expected Team has valuable expertise Team lacks ability to make decision as a group
- 12. slidesmania.com 3. GROUP CONSULTATION Theleader makes the decision but consults the entire team. This is done where the team has valuable expertise and the problem is complex enough to benefit from various perspectives and debate. Alternatively, group consultation may be chosen to reduce anticipated resistance to the decision. Teams that feel consulted are less likely to offer resistance. For example, a restaurant manager who is considering extending the restaurant's hours who collects feedback about this plan from staff, particularly regarding if they are willing to work extended shifts. This can make sense where any of these conditions apply:
- 13. slidesmania.com Leader knows what they are doing Negotiation withteam is required for solution acceptance Problem is complex with uncertain solution Resistance is expected Team has valuable expertise Team lacks ability to make decision as a group
- 14. slidesmania.com 4. FACILITATION The leaderallows a group to make the decision but facilitates the process. This may include making the decision if the group is unable to reach consensus. For example, a CEO who asks their executive team to decide on a disaster recovery strategy.
- 15. slidesmania.com Decision requires multiple types oftalent, perspective and knowledge Negotiation with team is required for solution acceptance Problem is complex with uncertain solution Resistance is expected Team has the ability to make decision as a group Team has valuable expertise
- 16. slidesmania.com 5. DELEGATION The leaderdelegates the decision to an individual or group. The leader may or may not review the decision or override the decision if it is perceived as unsatisfactory.
- 17. slidesmania.com Decision benefits from creative freedom Decisionis non- critical or routine Decision needs to be made efficiently Team can make decision competently and independently
- 18. slidesmania.com THE DESCRIPTIVE DECISION THEORY Descriptivedecision theory is concerned with describing observed behaviors often under the assumption that those making decisions are behaving under some consistent rules.
- 19. slidesmania.com THE PRESCRIPTIVE DECISION THEORY Prescriptivedecision theory is concerned with predictions about behavior that positive decision theory produces to allow for further tests of the kind of decision-making that occurs in practice. In recent decades, there has also been increasing interest in "behavioral decision theory", contributing to a re- evaluation of what useful decision-making requires.
- 20. slidesmania.com TYPES OF DECISIONS 1.CHOICEUNDER UNCERTAINTY 2.INTERTEMPORAL CHOICE 3.INTERACTION OF DECISION MAKERS 4.COMPLEX DECISIONS
- 21. slidesmania.com 1. CHOICE UNDERUNCERTAINTY The area of choice under uncertainty represents the heart of decision theory. Known from the 17th century (Blaise Pascal invoked it in his famous wager, which is contained in his Pensées, published in 1670), the idea of expected value is that, when faced with a number of actions, each of which could give rise to more than one possible outcome with different probabilities, the rational procedure is to identify all possible outcomes, determine their values (positive or negative) and the probabilities that will result from each course of action, and multiply the two to give an "expected value", or the average expectation for an outcome; the action to be chosen should be the one that gives rise to the highest total expected value.
- 22. slidesmania.com 2. INTERTEMPORAL CHOICE Intertemporalchoice is concerned with the kind of choice where different actions lead to outcomes that are realized at different stages over time. It is also described as cost- benefit decision making since it involves the choices between rewards that vary according to magnitude and time of arrival.
- 23. slidesmania.com 3. INTERACTION OFDECISION MAKERS Some decisions are difficult because of the need to take into account how other people in the situation will respond to the decision that is taken. The analysis of such social decisions is often treated under decision theory, though it involves mathematical methods.
- 24. slidesmania.com 4. COMPLEX DECISIONS Otherareas of decision theory are concerned with decisions that are difficult simply because of their complexity, or the complexity of the organization that has to make them. Individuals making decisions are limited in resources (i.e. time and intelligence) and are therefore bounded rational; the issue is thus, more than the deviation between real and optimal behavior, the difficulty of determining the optimal behavior in the first place.
- 25. slidesmania.com Descriptive theory tends tobe more useful in deciding what people will do and how they will act, while normative theory focuses on people’s optimal behavior. Understanding both is essential in understanding key components of economics, and making sense of our
- 26. slidesmania.com Thank you! Do youhave any questions?
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