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Decision-making can be regarded as the cognitive process resulting in the selection of a belief
or a course of action among several alternative possibilities. Every decision-making process
produces a final choice that may or may not prompt action. Decision-making is the study of
identifying and choosing alternatives based on the values and preferences of the decision maker.
Decision-making is one of the central activities of management and is a huge part of any process
of implementation.
Overview[edit]
Human performance with regard to decisions has been the subject of active research from
several perspectives:
Normative: the analysis of individual decisions concerned with the logic of decisionmaking and rationality and the invariant choice it leads to.[1]
analysis recognized and included uncertainties in its theorizing since its conception in 1964. [citation
needed]
A major part of decision-making involves the analysis of a finite set of alternatives described in
terms of evaluative criteria. Information overload occurs when there is a substantial gap between
the capacity of information and the ways in which people may or can adapt. The overload of
information can be related to problem processing and tasking, which effects decision-making.
[4]
These criteria may be benefit or cost in nature. Then the problem might be to rank these
alternatives in terms of how attractive they are to the decision-maker(s) when all the criteria are
considered simultaneously. Another goal might be to just find the best alternative or to determine
the relative total priority of each alternative (for instance, if alternatives represent projects
competing for funds) when all the criteria are considered simultaneously. Solving such problems
is the focus of multi-criteria decision analysis (MCDA), also known as multi-criteria decisionmaking (MCDM). This area of decision-making, although very old, has attracted the interest of
many researchers and practitioners and is still highly debated as there are many MCDA/MCDM
methods which may yield very different results when they are applied on exactly the same data.
[5]
[7]
Colorado have shown that more complex environments correlate with higher cognitive function
meaning a decision can be influenced by the location. The experiment measured complexity in a
room by the number of small objects and appliances present whereas a simple room had less of
those things. Cognitive function was greatly affected by the higher measure of environmental
complexity[6] making it easier to think about the situation and make a better decision.
decisions by determining the likelihood of a potential outcome, the value of the outcome,
multiplying the two, and then choosing the more positive of the two outcomes. For example, with
a 50% chance of winning $20 or a 90% chance of winning $10, people are thought to be more
likely to choose the first option (.50 X $20 = $10 : .90 X $10 = $9 :: $10 > $9).[8]
In reality, however, there are some factors that affect decision-making abilities and cause people
to make irrational decisions, one of them being availability bias. Availability bias is the tendency
for some items that are more readily available in memory to be judged as more frequently
occurring.[8] For example, someone who watches a lot of movies about terrorist attacks may think
the frequency of terrorism to be higher than it actually is.
Information overload[edit]
Information overload is "a gap between the volume of information and the tools we need to
assimilate it."[9] It is proven in some studies[which?] that the more information overload, the worse the
quality of decisions made. There are five factors:
Hall, Ariss & Todorov with an assistant Rashar phinyor (2007) described an illusion of knowledge,
meaning that as individuals encounter too much knowledge it actually interferes with their ability
to make rational decisions.[10]
Analyze performance, what should the results be against what they actually are
Something can always be used to distinguish between what has and hasn't been affected
by a cause
Causes to problems can be deducted from relevant changes found in analyzing the
problem
Most likely cause to a problem is the one that exactly explains all the facts
Decision-making
The alternative that is able to achieve all the objectives is the tentative decision
The decisive actions are taken, and additional actions are taken to prevent any adverse
consequences from becoming problems and starting both systems (problem analysis and
decision-making) all over again
There are steps that are generally followed that result in a decision model that can be
used to determine an optimal production plan.[12]
Decision planning[edit]
Making a decision without planning is fairly common, but does not often end well. Planning
allows for decisions to be made comfortably and in a smart way. Planning makes decisionmaking a lot more simple than it is.
Decision will get four benefits out of planning: 1. Planning give chance to the establishment of
independent goals. It is a conscious and directed series of choices. 2. Planning provides a
standard of measurement. It is a measurement of whether the decision-maker is going towards
or further away from goals. 3. Planning converts values to action. Thinking twice about the plan
and deciding what will help advance the plan best. 4. Planning allows for limited resources to be
committed in an orderly way. Always govern the use of limited resources. (e.g. money, time, etc.)
[14]
Analysis paralysis[edit]
Analysis paralysis is the state of over-analyzing (or over-thinking) a situation, or citing sources,
so that a decision or action is never taken, in effect paralyzing the outcome.
Everyday techniques[edit]
Decision-making techniques can be separated into two broad categories: Group decisionmaking and individual decision-making techniques.[15]
Voting-based methods.
Range voting lets each member score one or more of the available options. The
option with the highest average is chosen. This method has experimentally been shown
to produce the lowest Bayesian regret among common voting methods, even when
voters are strategic.[citation needed]
Majority requires support from more than 50% of the members of the group.
Thus, the bar for action is lower than with unanimity and a group of "losers" is implicit to
this rule.[citation needed]
Plurality, where the largest block in a group decides, even if it falls short of a
majority.
Delphi method is structured communication technique for groups, originally developed for
collaborative forecasting but has also been used for policy making.
Dotmocracy is a facilitation method that relies on the use of special forms called
Dotmocracy Sheets to allow large groups to collectively brainstorm and recognize agreement
on an unlimited number of ideas they have authored.
Pros and cons: listing the advantages and disadvantages of each option, popularized
by Plato and Benjamin Franklin.[16][17] Contrast the costs and benefits of all alternatives. Also
called "rational decision-making".
Simple prioritization: choosing the alternative with the highest probabilityweighted utility for each alternative (see Decision analysis).
Preference trees: In 1979, Tversky and Shmuel Sattach updated the elimination by
aspects technique by presenting a more ordered and structured way of comparing the
available alternatives. This technique compared the alternatives by presenting the aspects in
a decided and sequential order. It became a more hierarchical system in which the aspects
are ordered from general to specific[20]
Flipism e.g. flipping a coin, cutting a deck of playing cards, and other random or
coincidence methods.[21] Or prayer, tarot cards, astrology, augurs, revelation, or other forms
of divination, superstition or pseudoscience.
Taking the most opposite action compared to the advice of mistrusted authorities
(parents, police officers, partners...)
Opportunity cost: calculating the opportunity cost of each options and decide the
decision.
A need to use software for a decision-making process is emerging for individuals and
businesses. This is due to increasing decision complexity and an increase in the need to
consider additional stakeholders, categories, elements or other factors that effect decisions.
Orientation. Members meet for the first time and start to get to know each other.
Conflict. Once group members become familiar with each other, disputes, little fights and
arguments occur. Group members eventually work it out.
Emergence. The group begins to clear up vague opinions by talking about them.
Reinforcement. Members finally make a decision and provide justification for it.
It is said that critical norms in a group improves the quality of decisions, while the majority of
opinions (called consensus norms) do not. This is due to collaboration between one another, and
when group members get used to, and familiar with, each other, they will tend to argue and
create more of a dispute to agree upon one decision. This does not mean that all group members
fully agree; they may not want argue further just to be liked by other group members or to "fit in".
[24]
Decision-making steps[edit]
Each step in the decision-making process may include social, cognitive and cultural obstacles to
successfully negotiating dilemmas. It has been suggested that becoming more aware of these
obstacles allows one to better anticipate and overcome them.[25] The Arkansas program presents
eight stages of moral decision-making based on the work ofJames Rest:
1. Establishing community: creating and nurturing the relationships, norms, and procedures
that will influence how problems are understood and communicated. This stage takes
place prior to and during a moral dilemma.
2. Perception: recognizing that a problem exists.
3. Interpretation: identifying competing explanations for the problem, and evaluating the
drivers behind those interpretations.
4. Judgment: sifting through various possible actions or responses and determining which is
more justifiable.
5. Motivation: examining the competing commitments which may distract from a more moral
course of action and then prioritizing and committing to moral values over other
personal, institutional or social values.
6. Action: following through with action that supports the more justified decision. Integrity is
supported by the ability to overcome distractions and obstacles, developing
implementing skills, and ego strength.
7. Reflection in action.
8. Reflection on action.
Other decision-making processes have also been proposed. One such process, proposed by
Pam Brown of Singleton Hospital in Swansea, Wales, breaks decision-making down into seven
steps:[26]
1. Outline your goal and outcome.
2. Gather data.
3. Develop alternatives (i.e., brainstorming)
4. List pros and cons of each alternative.
5. Make the decision.
6. Immediately take action to implement it.
7. Learn from and reflect on the decision.
Selective search for evidence (aka confirmation bias; Scott Plous, 1993). People tend to
be willing to gather facts that support certain conclusions but disregard other facts that
support different conclusions. Individuals who are highly defensive in this manner show
significantly greater left prefrontal cortex activity as measured by EEG than do less defensive
individuals.[27]
Premature termination of search for evidence. People tend to accept the first alternative
that looks like it might work.
Cognitive inertia. Unwillingness to change existing thought patterns in the face of new
circumstances.
Selective perception. We actively screen out information that we do not think is important
(see also prejudice). In one demonstration of this effect, discounting of arguments with which
one disagrees (by judging them as untrue or irrelevant) was decreased by selective
activation of right prefrontal cortex.[28]
Wishful thinking. A tendency to want to see things in a certain usually positive light,
which can distort perception and thinking.[29]
Choice-supportive bias occurs when people distort their memories of chosen and
rejected options to make the chosen options seem more attractive.
Recency. People tend to place more attention on more recent information and either
ignore or forget more distant information (see semantic priming). The opposite effect in the
first set of data or other information is termed primacy effect.[30]
Repetition bias. A willingness to believe what one has been told most often and by the
greatest number of different sources.
Anchoring and adjustment. Decisions are unduly influenced by initial information that
shapes our view of subsequent information.
Group think. Peer pressure to conform to the opinions held by the group.
Source credibility bias. A tendency to reject a person's statement on the basis of a bias
against the person, organization, or group to which the person belongs. People preferentially
accept statement by others that they like (see prejudice).
Attribution asymmetry. People tend to attribute their own success to internal factors,
including abilities and talents, but explain their failures in terms of external factors such as
bad luck. The reverse bias is shown when people explain others' success or failure.
Framing bias. This is best avoided by using numeracy with absolute measures of
efficacy.[31]
individual is more likely to take on a risk when evaluating potential losses, and are more
likely to avoid risks when evaluating potential gains. This can influence one's decisionmaking depending if the situation entails a threat, or opportunity.[33]
Reference class forecasting was developed to eliminate or reduce cognitive biases in decisionmaking.
Post-decision analysis[edit]
Evaluation and analysis of past decisions is complementary to decision-making; see also mental
accounting and postmortem documentation.
Cognitive styles[edit]
Influence of Myers-Briggs type[edit]
According to behavioralist Isabel Briggs Myers, a person's decision-making process depends to
a significant degree on their cognitive style.[34] Myers developed a set of four bi-polar dimensions,
called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions
are: thinking and feeling; extroversion and introversion; judgment andperception;
and sensing and intuition. She claimed that a person's decision-making style correlates well with
how they score on these four dimensions. For example, someone who scored near the thinking,
extroversion, sensing, and judgment ends of the dimensions would tend to have a logical,
analytical, objective, critical, and empirical decision-making style. However,
some[who?] psychologists say that the MBTI lacks reliability and validity and is poorly constructed.
Other studies suggest that these national or cross-cultural differences exist across entire
societies. For example, Maris Martinsons has found that American, Japanese and Chinese
business leaders each exhibit a distinctive national style of decision-making. [35]
Herbert A. Simon coined the phrase "bounded rationality" to express the idea that human
decision-making is limited by available information, available time and the mind's informationprocessing ability. Further psychological research has identified individual differences between
two cognitive styles: maximizers try to make an optimal decision, whereas satisficers simply try to
find a solution that is "good enough". Maximizers tend to take longer making decisions due to the
need to maximize performance across all variables and make tradeoffs carefully; they also tend
to more often regret their decisions (perhaps because they are more able than satisficers to
recognise that a decision turned out to be sub-optimal).[36]
a program that links the initial position with the final outcome.
a formation of semi-complete linkages between the initial step and final outcome.
Unlike the combinational player, the positional player is occupied, first and foremost, with the
elaboration of the position that will allow him to develop in the unknown future. In playing the
positional style, the player must evaluate relational and material parameters as independent
variables. ... The positional style gives the player the opportunity to develop a position until it
becomes pregnant with a combination. However, the combination is not the final goal of the
positional playerit helps him to achieve the desirable, keeping in mind a predisposition for the
future development. The pyrrhic victory is the best example of one's inability to think
positionally."[38]
The positional style serves to:
Katsenelinboigen writes:
"As the game progressed and defense became more sophisticated the combinational
style of play declined. ... The positional style of chess does not eliminate the
combinational one with its attempt to see the entire program of action in advance. The
positional style merely prepares the transformation to a combination when the latter
becomes feasible.[39]
Neuroscience[edit]
Decision-making is a region of intense study in the fields of systems neuroscience,
and cognitive neuroscience. Several brain structures, including the anterior cingulate
cortex(ACC), orbitofrontal cortex and the overlapping ventromedial prefrontal cortex are
believed to be involved in decision-making processes. A recent neuroimaging study[40] found
distinctive patterns of neural activation in these regions depending on whether decisions
were made on the basis of perceived personal volition or following directions from someone
else. Patients with damage to the ventromedial prefrontal cortex have difficulty making
advantageous decisions.[41]
A common laboratory paradigm for studying neural decision-making is the two-alternative
forced choice task (2AFC), in which a subject has to choose between two alternatives within
a certain time. A study of a two-alternative forced choice task involving rhesus
monkeys found that neurons in the parietal cortex not only represent the formation of a
decision but also signal the degree of certainty (or "confidence") associated with the
decision.[42] Another recent study found that lesions to the ACC in the macaque resulted in
impaired decision-making in the long run of reinforcement guided tasks suggesting that the
ACC may be involved in evaluating past reinforcement information and guiding future action.
[43]
A 2012 study found that rats and humans can optimally accumulate incoming sensory
Psychiatry[edit]
Schizophrenia has been found to have the highest rate of impaired decision-making among
psychiatric disorders; depression is second, and bipolar disorder third.[49]
This section needs additional citations for verification. Please help improv
A business aims to generate value for its owners, customers and other stakeholders.
It must decide how to combine valuable resources typically buildings and
equipment, materials, people and knowledge in such a way that the value of the
output exceeds the costs of the input.
As resources flow into or out of a business, information flows too. Much of this
information leaves a footprint in the form of financial data as the activities along a
business value chain result in financial outcomes. These are reported in financial
statements including the cash flow and income statements as well as the formal
balance sheet. Traditional accounting is concerned with reporting on a business in
financial terms about its past performance.
Management accountants
Management accountants go beyond this to prepare both financial and non financial
information to support the business. They combine the relevant expertise of a
traditional professionally qualified accountant with an understanding of the drivers of
cost, risk and value in a business. This enables them to provide analysis and insights
which are used to improve future performance.
CIMA, the Chartered Institute of Management Accountants, is the worlds leading
professional body of management accountants. CIMA trained management
accountants help to lead the process of strategy formation in a business. Strategy is
the plan for achieving objectives. However, strategy only points the way. Many
decisions large and small must be made. Management is all about decision
making and management accountants play a vital role in providing the crucial
evidence that helps managers to make the right decisions.
Detecting, monitoring and evaluating risk is a very important element of this process.
Management accountants use their accounting know-how to factor risk into decisions
to help senior managers make realistic plans. The effectiveness of this depends on
good communication. Even the best information has little value if not received by the
right staff in the right format at the right time.
Although this may seem obvious its not always understood. And even when it is, decision types may not be fully
considered when decisions are being made.
Improve your decision making by considering some important variables.
In this article we introduce our series on types of decision making. From here you can link to pages which explain
how decisions are affected by such variables as:
According to Ohio State University management professor, Paul C. Nutt, we only get about 50% of our decisions
in the workplace right! Half the time they are wrong, so there is clearly plenty of scope to improve on our decision
making processes. Hopefully this series of articles will help you to imrove those odds.
Perhaps the obvious place to start is to ensure a decision really needs to be made. If you havent done so
already, you might like to read our article: Decision Making Lesson 1: Do You Need to Make One! Once youve
done this, and youre sure a decision needs to be made, the next thing to think about is the level of decision that
needs to be made.
One of the principle assumptions of a rational decision making process is that human beings make rational
decisions. However, often there is a wide range of factors which determine our decisions, many of which
are not rational. In many situations, decisions have to be made with incomplete and/or insufficent information.
In this context, an understanding of intuitive decision making approaches is useful. Intuition and Decision
Making introduces some recent thinking on how people make decisions. In contrast to rational processes, intuitive
decision making is less structured, and places more emphasis on feelings, perceptions and judgements, rather
than facts and analysis.
Perhaps though, the best solution is not either/or. Possibly the most practical of decision making skills is the
ability to combine a rational approach with intuitive insights. If you have time, have a look at this video of
Canadian thought-leader, Malcolm Gladwell. Hes at his entertaining and persuasive best in discussing the
differences between rational and intuitive decision making.
Once youve finished with Gladwells take on decision making, use these articles and our great-value resources to
inform your understanding and practice. Different types of decision making require different approaches,
something we particularly address in our e-guide: Making Better Decisions