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Chapter 6 Decision Making: The Essence of the Managers Job

TRUE/FAL E !UE T"#$

T%E DEC" "#$&MA'"$( )R#CE

1. Problem identification is purely objective.*Fa+se, -o.erate, p 0123

2. The second step in the decision-making process is identifying a problem.*Fa+se, eas4, p 0153

3. A decision criterion defines hat is relevant in a decision.*Tr e, -o.erate, p 0153

!. The fourth step of the decision-making process re"uires the decision maker to list viable alternativesthat could resolve the problem.

*Tr e, eas4, p 0173

#. $nce the alternatives have been identified% a decision maker must analy&e each one.*Tr e, -o.erate, p 0173

'. The step in the decision-making process that involves choosing a best alternative is termedimplementation.

*Fa+se, -o.erate, p 0683

T%E MA$A(ER A DEC" "#$ MA'ER

(. )aking decisions is ith the essence of management.*Tr e, eas4, p 0603

*. )anagerial decision making is assumed to be rational.*Tr e, -o.erate, p 0693

+. $ne assumption of rationality is that e cannot kno all of the alternatives.*Fa+se, .iffic +t, p 0693

1,. )anagers tend to operate under assumptions of bounded rationality.*Tr e, -o.erate, p 06 3

11. tudies of the events leading up to the Challenger space shuttle disaster point to an escalation of commitment by decision makers .

*Tr e, -o.erate, p 06 3

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12. )anagers regularly use their intuition in decision making.*Tr e, eas4, p 06;3

13. ational analysis and intuitive decision making are complementary.*Tr e, -o.erate, p 06;3

1!. Programmed decisions tend to be repetitive and routine.*Tr e, eas4, p 0613

1#. ules and policies are basically the same.*Fa+se, -o.erate, p 0663

1'. A policy is an e/plicit statement that tells a manager hat he or she ought or ought not to do.*Fa+se, -o.erate, p 0663

1(. The solution to nonprogrammed decision making relies on procedures% rules% and policies.*Fa+se, -o.erate, p 0663

1*. )ost managerial decisions in the real orld are fully nonprogrammed.*Fa+se, eas4, p 0623

1+. The ideal situation for making decisions is lo risk.*Fa+se, -o.erate, p 0623

2,. isk is the condition in hich the decision maker is able to estimate the likelihood of certainoutcomes.

*Tr e, eas4, p 0623

21. isk is a situation in hich a decision maker has neither certainty nor reasonable probabilityestimates.*Fa+se, .iffic +t, p 0653

22. People ho have a lo tolerance for ambiguity and are rational in their ay of thinking are said tohave a directive style.

*Tr e, -o.erate, p 0203

23. 0ecision makers ith an analytic style have a much lo er tolerance for ambiguity than do directivetypes.

*Fa+se, -o.erate, p 0203

2!. ndividuals ith a conceptual style tend to be very broad in their outlook and ill look at manyalternatives.

*Tr e, -o.erate, p 0203

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2#. ehavioral-style decision makers ork ell ith others.*Tr e, eas4, p 0203

2'. )ost managers have characteristics of analytic decision makers.*Fa+se, -o.erate, p 0203

2(. According to the bo/ed feature% )anaging 4orkforce 0iversity%5 diverse employees tend to makedecisions faster than a homogeneous group of employees.

*Fa+se, -o.erate, p 029, AAC

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MULT")LE&C%#"CE !UE T"#$7or each of the follo ing choose the ans er that most completely ans ers the "uestion.


3'. 0ecision making is typically described as >>>>>>>>>>>>>>>>% hich is a vie that is too simplistic.a. deciding hat is correct

b. putting preferences on paper c. choosing among alternativesd. processing information to completion

*c, -o.erate, p 0163

3(. A series of eight steps that begins ith identifying a problem and concludes ith evaluating thedecision6s effectiveness is the >>>>>>>>>>>>>>>>.a. decision-making process

b. managerial processc. ma/imin styled. bounded rationality approach

*a, eas4, p 0163

3*. >>>>>>>>>>>>>>>> is the e/istence of a discrepancy bet een an e/isting and a desired state of affairs.a. An opportunity

b. A solutionc. A eaknessd. A problem

*., eas4, p 0163

3+. n identifying the problem% a manager >>>>>>>>>>>>>>>>>.a. compares the current state of affairs ith here they ould like to be b. e/pects problems to be defined by neon lightsc. looks for discrepancies that can be postponedd. ill not act hen there is pressure to make a decision

*a, eas4, p 0153

!,. 4hich of the follo ing statements is true concerning problem identification?a. Problems are generally obvious.

b. A symptom and a problem are basically the same.c. 4ell-trained managers generally agree on hat is considered a problem.d. The problem must be such that it e/erts some type of pressure on the manager to act.

*., -o.erate, p 0153

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!1. 4hat is the second step in the decision-making process?a. identifying decision criteria

b. allocating eights to the criteriac. analy&ing alternativesd. identifying a problem

*a, -o.erate, p 0153

!2. To determine the >>>>>>>>>>>>>% a manager must determine hat is relevant or important toresolving the problem.a. geocentric behavior needed

b. number of allo able alternativesc. eighting of decision criteriad. decision criteria

*., -o.erate, p 0153

!3. 4hat is the third step in the decision-making process?a. allocating eights to the criteria

b. analy&ing the alternativesc. selecting the best alternatived. implementing the alternative


!!. f all criteria in the decision making are e"ual% eighting the criteria >>>>>>>>>>>>>>.a. improves decision making hen large numbers of criteria are involved

b. is not neededc. produces e/cellent decisionsd. improves the criteria

*b, .iffic +t, p 0153

!#. n allocating eights to the decision criteria% hich of the follo ing is helpful to remember?a. All eights must be the same.

b. The total of the eights should sum to 1.,.c. ;very factor criterion considered% regardless of its importance% must receive some eighting.d. Assign the most important criterion a score% and then assign eights against that standard.

*., .iffic +t, p 0173

!'. 4hat is the step here a decision maker ants to be creative in coming up ith possible alternative?a. allocating eights to the criteria

b. analy&ing alternativesc. developing alternativesd. identifying decision criteria

*c, eas4, p 0173

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'+. >>>>>>>>>>>>>> decision making is relatively simple and tends to rely heavily on previous solutions.a. onprogrammed

b. 8inear c. atisficingd. Programmed

*., -o.erate, p 0613

(,. A procedure >>>>>>>>>>>>>>>.a. is an e/plicit statement detailing e/actly ho to deal ith a decision

b. is a series of interrelated se"uential steps to respond to a structured problemc. is a set of guidelines that channel a manager6s thinking in dealing ith a problemd. allo s a manager to use broad decision-making authority

*b, -o.erate, p 0613

(1. A >>>>>>>>>>>>>> is an e/plicit statement that tells a manager hat he or she can or cannot do.a. procedure

b. policyc. ruled. solution


(2. A policy >>>>>>>>>>>>.a. typically contains an ambiguous term

b. is used fre"uently hen a manager faces a structured problemc. allo s little discretion on the part of the manager d. offers strict rules as to ho a problem should be solved


(3. 4hat is a difference bet een a policy and a rule?a. A policy establishes parameters. b. A rule establishes parameters.c. A policy is more e/plicit.d. A rule is more ambiguous.


(!. A >>>>>>>>>>>>>> typically contains an ambiguous term that leaves interpretation up to the decisionmaker.a. system

b. rulec. solutiond. policy

*., -o.erate, p 0663

(#. A business school6s statement that it strives for productive relationships ith local organi&ations5 isan e/ample of a >>>>>>>>>>>>>>>>.a. rule

b. policyc. procedure

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d. commitment*b, -o.erate, p 0663

('. Cnstructured problems >>>>>>>>>>>>>.a. are easily solved

b. present familiar circumstancesc. force managers to deal ith incomplete or ambiguous informationd. are routine


((. onprogrammed decisions are best described as >>>>>>>>>>>>>>>>.a. recurring% but difficult to make

b. very similar to problems in other areas of the organi&ationc. re"uiring more aggressive action on the decision maker6s thought processesd. uni"ue and nonrecurring

*., -o.erate, p 0663

(*. 4hen problems are >>>>>>>>>>>>>>% managers must rely on >>>>>>>>>>>>>> in order to developuni"ue solutions.a. structuredB nonprogrammed decision making

b. structuredB pure intuitionc. unstructuredB nonprogrammed decision makingd. unstructuredB programmed decision making


(+. 8o er-level managers typically confront hat type of decision making?a. uni"ue

b. nonroutine

c. programmedd. nonprogrammed*c, -o.erate, p 0663

*,. 4hich of the follo ing is likely to make the most programmed decisions?a. the D;$ of PepsiDo.

b. the vice president of 9eneral )otors Dadillac 0ivision.c. the head of the )inute )aid 0ivision at Doca-Dola.d. the manager of the local )c0onald6s.

*., eas4, p 0663

*1. >>>>>>>>>>>>>> is a situation in hich a manager can make accurate decisions because the outcomeof every alternative is kno n.a. Dertainty

b. isk c. Cncertaintyd. )a/ima/e. )a/imin

*a, eas4, p 0623

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*2. f an individual kno s the price of three similar cars at different dealerships% he or she is operatingunder hat type of decision-making condition?a. risk

b. uncertaintyc. certaintyd. factual

*c, eas4, p 0623

*3. A retail clothing store manager ho estimates ho much to order for the current spring season basedon last spring6s outcomes is operating under hat kind of decision-making condition?a. seasonal

b. riskc. uncertaintyd. certainty

*b, .iffic +t, p 0623

*!. >>>>>>>>>>>>>> is a situation in hich a decision maker has neither certainty nor reasonable probability estimates available.a. Dertainty

b. isk c. Cncertaintyd. )a/ima/

*c, eas4, p 0653

*#. onprogrammed decisions are typically made under a condition of >>>>>>>>>>>>>>>>.a. certainty

b. lo levels of risk c. uncertainty

d. reliability*c, .iffic +t, p 0653

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+2. 0ecision makers using hat decision-making style make fast decisions and focus on the short run?a. directive

b. behavioralc. analyticd. conceptual


+3. 4hat types are characteri&ed as careful decision makers ith the ability to adapt or cope ith uni"uesituations?a. directive decision makers

b. behavioral decision makersc. analytic decision makersd. conceptual decision makers


+!. 4ho are concerned about the achievements of those around them and are receptive to suggestionsfrom others?a. directive decision makers

b. behavioral decision makersc. analytic decision makersd. conceptual decision makers


+#. )any managers use >>>>>>>>>> or rules of thumb to simplify their decision making.a. heuristics

b. biasesc. errorsd. habits

*a, eas4, p 0293

+'. 4hen decision makers tend to think they kno more than they do or hold unrealistically positivevie s of themselves and their performance% they are e/hibiting >>>>>>>>>>>>>>>.a. self-serving bias

b. the anchoring effectc. immediate gratification biasd. overconfidence bias

*., eas4, p 0293

+(. 4hen decision makers seek out information that reaffirms their past choices and discount informationthat contradicts past judgments% they are e/hibiting >>>>>>>>>>>>>>>.a. availability bias

b. the anchoring effectc. self-serving biasd. confirmation bias

*., -o.erate, p 02 3+*. 4hen decision makers assess the likelihood of an event based on ho closely it resembles other

events or sets of events% they are using >>>>>>>>>>>>>>>.a. availability bias

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b. framing biasc. selective perception biasd. representation bias

*., -o.erate, p 02 3

++. 4hat is the tendency for decision makers to falsely believe that they ould have accurately predictedthe outcome of an event once that outcome is actually kno n?a. the hindsight bias

b. the sunk costs error c. the randomness biasd. the selective perception bias

*a, -o.erate, p 02 3

DEC" "#$ MA'"$( F#R T#DA> ?#RLD

1,,. According to the bo/ed feature% 7ocus on 8eadership%5 hen >>>>>>>>>>>>>>>% managersmight come from a culture that gathers facts or from a culture that is more intuitive in gathering ideasand possibilities.a. developing alternatives

b. implementing alternativesc. searching for informationd. identifying problems

*c, eas4, p 021, AAC >>>>>>>>>>>>>>.a. use the five-stage decision-making process

b. kno hen it is time to call it "uitsc. ignore cultural differences

d. identify their style of decision making*b, eas4, p 0263

1,2. 4hat is a characteristic that the e/perts say an effective decision-making process has?a. t is inconsistent.

b. t ackno ledges only objective thinking.c. t focuses on all factorsEeven those that do not seem important.d. t re"uires only as much information and analysis as is necessary.

*., -o.erate, p 0263

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1,3. 4hat term is used by avy aviators to describe a gut feeling that something isn6t right?a. leemers

b. the creepsc. uneasinessd. regret

*a, .iffic +t, pp 026&0223

1,!. )anagers of highly reliable organi&ations >>>>>>>>>>>>>> and let themmake decisions.a. D;$s

b. frontline orkersc. customersd. suppliers

*b, eas4, p 0223

1,#. 4hen highly reliable organi&ations >>>>>>>>>>>>>>.a. try to simplify data

b. aim for deeper understanding of the situationc. defer to the e/pertsd. act% then think


CE$AR"# A$D !UE T"#$7or each of the follo ing choose the ans er that most completely ans ers the "uestion.


0ecisions% 0ecisions < cenario=

ondra needed help. :er insurance company6s rapid gro th as necessitating making some changes% buthat changes? hould they add to the e/isting information system or should they buy a ne system? heas given the responsibility of analy&ing the company6s present information system and deciding hat thecompany should do that ould give them plenty of room. he as confused and needed help in makingthe correct decision.

1,'. According to the decision-making process% the first step ondra should take is to >>>>>>>>>>>>>.a. analy&e alternative solutions

b. identify decision criteriac. evaluate her decision6s effectivenessd. identify the problem

*., -o.erate, p 0163

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a. eighting the decision criteria b. analy&ing of alternativesc. identifying decision criteriad. selecting an alternative



The Dar < cenario=

Dolleen is a student% and her older brother has loaned her an old car. The car is in need of several repairs before she ill feel comfortable driving it.

113. Dolleen decides to have all of the problems fi/ed on the car. he assumes that the repair personhas found all the problems and that there ill be no problem correcting the imperfections ithin aspecified budget. This is an e/ample of a >>>>>>>>>> decision.a. parochial

b. irrationalc. ethicald. rational

*., .iffic +t, p 0693

11!. Dolleen6s brother has a different vie of the repairs. :e assumes that the repair person is using the best information available% but there may be other une/pected repairs that might surface and that ahigher budget might be more reasonable. :e is using >>>>>>>>>>>>>>.a. rational decision making

b. risk avoidancec. bounded rationality

d. tage ! decision making*c, .iffic +t, p 06 3

11#. Dolleen6s brother feels the car is orth repairing because he has o ned several cars made by thesame manufacturer as this car% and he has driven this car for several years. :e is using >>>>>>>>> todetermine that the car has value despite its need of repair.a. intuitive decision making

b. selective coordination of thought processesc. sunk costsd. return on investment

*a, .iffic +t, p 06;3

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The 7irst Fob < cenario=

Cpon graduation% you search for a job ith the university6s job placement center. Although you havestudied and prepared to ork in an advertising agency% the first job that you are offered is a supervisor ina manufacturing company orking the afternoon shift from 3G,, P.). until 11G,, P.).

11'. f you had made a larger search using the nternet and other employment search processes% youmight have been able to find more employment opportunities. This ould have been a more

>>>>>>>>> decision-making process.a. nonprogrammable

b. uncertainc. riskyd. perfectly rational

*., -o.erate, p 0693

11(. Cnder bounded rationality% you ould be e/pected to search for a job by >>>>>>>>>>>>>>>>.a. looking at all the opportunities that can be analy&ed in the time available

b. looking at all the opportunities availablec. looking outside the bo/5 in your searchd. analy&ing all the opportunities until you find the perfect job

*a, .iffic +t, p 06 3

11*. f you use a shortened process of searching for a job% it is likely that you >>>>>>>>>>> rather thanma/imi&ed in your decision process.a. minimi&ed

b. rationali&edc. satisficedd. agreed

*c, .iffic +t, p 06 3

11+. 0uring your job search% you depend on >>>>>>>>>> decision making by making your decision based on accumulated judgment and e/perience.a. e/periential

b. legalc. intuitived. formidable

*c, .iffic +t, p 06;3

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s the Picture Dlear? < cenario=

haron as the regional manager of a large cable television company. he faced many problems anddecisions daily% such as ho to price each market% ho to hire% hat kind of technology she should

purchase% and ho she should handle the increasing customer complaints. he needed some help sortingthese issues out.

12,. 4hen a customer calls and re"uests a refund for a partial month6s usage of cable% the fact thatsuch situations are routine and most likely have a standard response ould make the response a

>>>>>>>>>>>>>> decision.a. standard

b. routinec. policyd. programmed

*., -o.erate, p 0613

121. ometimes haron follo s a >>>>>>>>>>>>>>% a series of interrelated se"uential steps for responding to a structured problem.a. rule

b. policyc. procedured. suggestion


122. ometimes haron instructs her local managers to follo >>>>>>>>>>>>>> hen confronted ith problem situations. These establish parameters for the manager making the decision rather thanspecifically stating hat should or should not be done.a. rules

b. proceduresc. policiesd. orders


123. Cnfortunately% haron also faces issues containing information that is ambiguous or incomplete%such as hat kind of technology to purchase. These are kno n as >>>>>>>>>>>>>> problems.a. unstructured

b. variablec. randomd. hit-and-miss


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)anaging @our Dareer < cenario=

)ichelle has a ne job and is learning to perform the tasks assigned to her. 0ifferent situations demanddifferent decision-making processes.

12!. )ichelle finds a situation that instructs her in specific% interrelated% se"uential steps to respond toa problem. This is referred to as a >>>>>>>>>>>>>.a. rule

b. policyc. broad guidelined. procedure

*., -o.erate, p 0613

12#. )ichelle finds a company directive that specifically restricts her from taking certain actions. Thisis a >>>>>>>>>>>>>.a. rule



12'. As she learns the general guidelines of the job% )ichelle is given more decision-making authority.The guidelines establish parameters for decision making and are referred as a >>>>>>>>>>>>>.a. rule



12(. )ichelle eventually finds a problem that has no cut-and-dry solution. The problem is uni"ue andill never occur again. This problem is referred to as >>>>>>>>>>>>>.a. fle/ible

b. programmedc. adaptabled. nonprogrammed

*., -o.erate, p 0663

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0ecision-)aking Donditions < cenario=

andy Fo is the manager for Trucks Cs% a medium-si&ed hauling service located in the outheast. he isresponsible for scheduling trucks% initiating ne routes% and staffing both e/isting and ne routes. he iscurrently struggling ith e/isting information about the profitability of e/isting and future truck routes.

12*. andy Fo can make accurate decisions if she is illing to pay H#%,,, for research about the profitability of various truck routes. f she pays for the research% she believes that she is operatingunder a condition of >>>>>>>>>>>>.a. certainty

b. risk c. uncertaintyd. ma/ima/


12+. Foe% andy Fo6s best driver% tells her that he believes he can estimate that there is a (# percent probability that they can get the business of Pork rothers% nc.% if they initiate a truck route throughrural orth Darolina. Foe is operating under a condition of >>>>>>>>>>>>>>.a. certainty

b. risk c. uncertaintyd. ma/ima/


13,. andy Fo kno s that she is operating in an uncertain environment. he is basically an optimist%and e ould% therefore% e/pect her to follo a >>>>>>>>>>>>>> strategy.a. certainty

b. risk

c. uncertaintyd. ma/ima/*., -o.erate, p 0653

131. andy Fo kno s that she is operating in an uncertain environment. he is basically a pessimist% ande ould% therefore% e/pect her to follo a >>>>>>>>>>>>>> strategy.a. certainty

b. risk c. minima/d. ma/imin

*., -o.erate, p 0653

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132. andy Fo ishes to minimi&e her regret and ill probably opt for a >>>>>>>>>>>>>> strategy.a. certainty

b. risk c. minima/d. ma/ima/


E A> !UE T"#$


133. n a short essay% list and discuss the eight steps in the decision-making process.

Ans@era. tep 1G dentifying a problemEthe decision-making process begins ith the e/istence of a

problem or a discrepancy bet een an e/isting and a desired state of affairs. :o ever% adiscrepancy ithout pressure to take action becomes a problem that can be postponed.

b. tep 2G dentify decision criteriaEonce the manager has identified a problem that needs attention%the decision criteria important to resolving the problem must be identified. That is% managers mustdetermine hat6s relevant in making a decision.

c. tep 3G Allocating eights to the criteriaEat this step% the decision maker must eigh the items inorder to give them the correct priority in the decision. A simple approach is to give the mostimportant criterion a eight of 1, and then assign eights to the rest against that standard.

d. tep !G 0eveloping alternativesEthe fourth step re"uires the decision maker to list the viablealternatives that could resolve the problem. o attempt is made in this step to evaluate thealternative% only to list them.

e. tep #G Analy&ing alternativesEonce the alternatives have been identified% the decision maker must critically analy&e each one. 7rom this comparison% the strengths and eaknesses of each

alternative become evident.f. tep 'G electing an alternativeEthe si/th step is the important act of choosing the bestalternative from among those considered. All the pertinent criteria in the decision have no beendetermined and eighted% and the alternatives have been identified and analy&ed.

g. tep (G mplementing the alternativeEimplementation involves conveying the decision to thoseaffected by it and getting their commitment to it. f the people ho must carry out a decision

participate in the process% they6re more likely to enthusiastically support the outcome than if theyare just told hat to do.

h. tep *G ;valuating decision effectivenessEthe last step in the decision-making process involvesappraising the outcome of the decision to see if the problem has been resolved. 0id the alternativechosen and implemented accomplish the desired result? f not% the manager may consider returning to a previous step or may even consider starting the hole decision process over.

*.iffic +t, pp 016&0603

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13!. n a short essay% discuss the assumptions of rationality and the validity of those assumptions.

Ans@erA decision maker ho as perfectly rational ould be fully objective and logical. :e or she ouldcarefully define a problem and ould have a clear and specific goal. )oreover% making decisions usingrationality ould consistently lead to ard selecting the alternative that ma/imi&es the likelihood of achieving that goal. The assumptions of rationality apply to any decision. ational managerial decisionmaking assumes that decisions are made in the best economic interests of the organi&ation. That is% thedecision maker is assumed to be ma/imi&ing the organi&ation6s interests% not his or her o n interests.)anagerial decision making can follo rational assumptions if the follo ing conditions are metG themanager is faced ith a simple problem in hich the goals are clear and the alternatives limitedB the time

pressures are minimalB the cost of seeking out and evaluating alternatives is lo B the organi&ationalculture supports innovation and risk takingB and outcomes are relatively concrete and measurable.:o ever% most decisions that managers face in the real orld don6t meet all of those tests.*-o.erate, pp 069&06 3

13#. n a short essay% discuss bounded rationality and satisficing.

Ans@er0espite the limits to perfect rationality% managers are e/pected to follo a rational process hen makingdecisions. :o ever% certain aspects of the decision-making process are not realistic as managers makedecisions. nstead% managers tend to operate under assumptions of bounded rationalityB that is% they

behave rationally ithin the parameters of a simplified decision-making process that is limited by anindividual6s ability to process information. )anagers satisfice% rather than ma/imi&e% because they can6t

possibly analy&e all the information on all of the alternatives. That is% they accept solutions that are goodenough.5 They are being rational ithin the limits of their information-processing ability.

*eas4, p 06 3

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13'. n a short essay% discuss the difference bet een structured and unstructured problems. ncludespecific e/amples of each type of problem to support your ans er. e/t% discuss the type of decisionsthat ould be used to address each of these problems.

Ans@era. tructured problemsEthe goal of the decision maker is clear% the problem is familiar% and

information about the problem is easily defined and complete. ;/amples of these types of problems might include a customer anting to return a purchase to a retail store% a supplier beinglate ith an important delivery% a ne s team responding to an une/pected and fast-breaking event%or a college6s handling of a student anting to drop a class. uch situations are called structured

problems because they are straightfor ard% familiar% and easily defined problems. n handlingthese problem situations% the manager uses a programmed decision. 0ecisions are programmed tothe e/tent that they are repetitive and routine and to the e/tent that a definite approach has beenorked out for handling them. ince the problem is ell structured% the manager doesn6t have togo to the trouble and e/pense of going through an involved decision progress. Programmeddecision making is relatively simple and tends to rely heavily on previous solutions.

b. Cnstructured problemsEthese problems are ne or unusual% and information for them isambiguous or incomplete. 7or e/ample% the selection of an architect to design a ne corporatemanufacturing facility in angkok is an e/ample of an unstructured problem. 4hen problems areunstructured% managers must rely on nonprogrammed decision making in order to develop uni"uesolutions. onprogrammed decisions are uni"ue and nonrecurring. 4hen a manager confronts anunstructured problem or one that is uni"ue% there is no cut-and-dry solution. t re"uires a custom-made response through nonprogrammed decision making.

*.iffic +t, p 0613

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13+. n a short essay% discuss si/ of the t elve common decision errors and biases that managers make.

Ans@era. 4hen decision makers tend to think they kno more than they do or hold unrealistically positive

vie s of themselves and their performance% they6re e/hibiting the overconfidence bias. b. The immediate gratification bias describes decision makers ho tend to ant immediate re ards

and to avoid immediate costs. 7or these individuals% decision choices that provide "uick payoffsare more appealing than those in the future.

c. The anchoring effect describes hen decision makers fi/ate on initial information as a starting point and then% once set% fail to ade"uately adjust for subse"uent information. 7irst impressions%ideas% prices% and estimates carry un arranted eight relative to information received later.

d. 4hen decision makers selectively organi&e and interpret events based on their biased perceptions%they6re using the selective perception bias . This influences the information they pay attention to%the problems they identify% and the alternatives they develop.

e. 0ecision makers ho seek out information that reaffirms their past choices and discountinformation that contradicts past judgments e/hibit the confirmation bias. These people tend toaccept at face value information that confirms their preconceived vie s and are critical andskeptical of information that challenges these vie s.

f. The framing bias is hen decision makers select and highlight certain aspects of a situation hilee/cluding others. y dra ing attention to specific aspects of a situation and highlighting them%hile at the same time do nplaying or omitting other aspects% they distort hat they see andcreate incorrect reference points.

g. The availability bias is hen decisions makers tend to remember events that are the most recentand vivid in their memory. The result is that it distorts their ability to recall events in an objectivemanner and results in distorted judgments and probability estimates.

h. 4hen decision makers assess the likelihood of an event based on ho closely it resembles other events or sets of events% that6s the representation bias. )anagers e/hibiting this bias draanalogies and see identical situations here they don6t e/ist.

i. The randomness bias describes hen decision makers try to create meaning out of randomevents. They do this because most decision makers have difficulty dealing ith chance eventhough random events happen to everyone and there6s nothing that can be done to predict them.

j. The sunk costs error is hen decision makers forget that current choices can6t correct the past.They incorrectly fi/ate on past e/penditures of time% money% or effort in assessing choices rather than on future conse"uences. nstead of ignoring sunk costs% they can6t forget them.

k. 0ecision makers ho are "uick to take credit for their successes and to blame failure on outsidefactors are e/hibiting the self-serving bias.

l. 7inally% the hindsight bias is the tendency for decision makers to falsely believe that they ouldhave accurately predicted the outcome of an event once that outcome is actually kno n.

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