Question

In a short essay, discuss the psychological orientation of the decision-maker as it relates to decision making under conditions of uncertainty. 150word

Answer 1

Rational decision making is a multi-step process, from problem identification through solution, for making logically sound decisions.

Rational decision making is a multi-step process for making choices between alternatives. The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. The word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

The approach follows a sequential and formal path of activities. This path includes:

1. Formulating a goal(s)
2. Identifying the criteria for making the decision
3. Identifying alternatives
4. Performing analysis
5. Making a final decision.

When decision makers face uncertainty, their psychological orientation will determine whether they follow a maximax choice (maximizing the maximum possible payoff); a maximin choice (maximizing the minimum possible payoff); or a minimax choice (minimizing the maximum regret—amount of money that could have been made if a different decision had been made). There are four decision-making styles. The directive style has a low tolerance for ambiguity and a rational way of thinking. The analytic style has a high tolerance for ambiguity and a rational way of thinking. The conceptual style has a high tolerance for ambiguity and an intuitive way of thinking. The behavioral style has a low tolerance for ambiguity and an intuitive way of thinking.

The 12 common decision-making errors and biases including: overconfidence, immediate gratification, anchoring, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self-serving bias, and hindsight. Managers can avoid the negative effects of such errors and biases by being aware of them and then not doing them. They should also pay attention to how they do make decisions and the heuristics (rules of thumb) they actually use. Finally, managers might want to ask those around them to help identify weaknesses in their decision-making style and try to improve on them. The managerial decision making model helps explain how the decision-making process is used to choose the best alternative either through maximizing or satisficing and then implement and evaluate the alternative. It also helps explain what factors affect the decision-making process including the decision-making approach (rationality, bounded rationality, intuition); the types of problems and decisions (well-structured and programmed or unstructured and nonprogrammed); the decision-making conditions (certainty, risk, uncertainty); and the decision maker’s style