The Science of Decision Making

 INTRODUCTION:
The manager's decision includes making decisions or participating in production,
communicating with others, and overseeing how to do it. Managers can make Rational,
Non-rational and Irrational Decision.
Term Rational word applies to decisions that are analyzed in a sensible way, that is, Not-
Rational decisions that are intuitive and justifiable, and Irrational reasoning that reacts
to emotions and with the decisions and actions of the chosen work Are distracted.

 RATIONAL DECISION MAKING:

When making logical decisions, goals, and options, the consequences of pursuing
different options are calculated and the proximity of these results to the goals is assessed.
 IRRATIONAL DECISION MAKING:
Irrational means that it is difficult to adapt to the goal. Both rational and Non-rational
decisions are considered with general knowledge, not irrational. Unfair decisions are
decisions that contradict or contradict this argument.
 NONRATIONAL DECISION MAKING:
Non-rational decision-making, the response to decision-making needs is usually fast, very
fast, and it is impossible to analyze the situation in a sequential manner, and the decision
makers usually do not make real progress on any process in the processes. The reason
for decision makers or their right to decide is that decision makers can have a lot of
confidence in the correctness of their innate decision and they are likely to give credit for
their abilities for their quick experience.

This Non-rational decision process is not magical in any sense. Instead, they exist in
physical conditions or factors or in the physical and social environment, and most of them
are affected by our unconsciousness or efforts we are not aware of. They also include a
large number of facts, patterns, concepts, techniques, abstractions, and what we usually
call formal knowledge or beliefs that are less or greater influenced by our conscious efforts
and learning.

The Psychology Behind Irrational Decisions Has A Lot

To Do With How You Manage Emotions?
While we go for window shopping and see what we don't need, but because it is
selling, we buy it. Although we think that the decisions we make in our lives are
driven by reason, sometimes our choices are more unreasonable. We most of the
time take decision by past experience rather than deep thinking or making logic for
the decision .In TED-Ed's latest video, “The Psychology Behind Irrational Decisions” host
Sara Garofalo explains we make decisions that are not “rational” According to the "pure
economics based on rationality, it means that they not only bring the best results.

So why do we still make unreasonable decisions? In order to take advantage of this loss,
behaviorist economists take a firm stance to avoid the trend of loss is a trend. Garofalo
said in the video that decision-making methods are highly susceptible to psychological
shortcuts, which can lead to incorrect decisions. Applying a heuristic approach to
infectious emotions is not unfavorable. Solving any problems is not true, but it is enough
to achieve direct goals.

Other theories show that irrational behaviors automatically stem from emotional reactions
or inability to give our feelings and experiences the best results. Due to the influence of
bias, human behavior is inappropriate, and it is strongly and consistently affected in the
way it presents the problem. A study in University College London found that even though
both options lead to similar results,
Participants may lose £30 for retaining the £20 option. In one study, brain imaging showed
that Amygdala, a region that regulates emotions and mediates “combat or escape”
responses, reduces bias in decision making.
 Example:
At the same time, combined with the decline, our brain lured us to choose a more detailed
option than the general options. For example, in one study, the researchers asked
participants to consider a traditional six-sided mold with four green faces and two red
faces, where the mold was 20 times, green (G) and red (R). Will be rotated. Order will be
recorded. They were asked to select a sequence from a group of three, and if the
sequence they were selected appeared in an alternate amount of dice (RGRRR,
GRGRRR.GRRRRR), more than half of the participants choose the second sequence,
although one of them was in the second option compared to the smaller one.

Intelligence Agents More Prone To

Irrational Decision Making Than Students
Valerie Reyna and her colleagues presented 63 undergrads, 54 college-educated adults
and 36 intelligence officers (77 per cent were special agents; 7 per cent were officers;
and 16 per cent were admin) with dozens of decision-making scenarios related to
saving human lives. For example: Imagine the U.S. is preparing for the outbreak of an
unusual disease, which is expected to kill 600 people. Two options were then presented
and the participants were asked to decide between them as they would in real life. The
options were presented in a way that either emphasized lives to be saved:
Example: Please indicate which option you prefer: a) 200 people saved for sure or (b)
1/3 probability 600 people saved and 2/3 probability no one saved?
Or worded in a way to emphasize lives to be lost:
i.e. Please indicate which option you prefer: a) 400 die for sure or (b) 2/3 probability
600 people die and 1/3 probability no one dies?
The idea is that probable outcomes are matched for options (a) and (b) across the two
presentations of the choice, and yet the “framing” of the options affects how people
choose. The key finding is that intelligence officers were more swayed by the framing of
the problems, and they were also more confident in their choices. The researchers say
this is a sign of irrational decision making because the agents were more prone to
“treating equivalent outcomes differently based on superficial wording.” In short, “they
were more willing to take risks with human lives when outcomes were framed as losses
rather than as gains.”
College educated adults’ susceptibility to framing was mid-way between the students’
and the agents’. Overall the results are consistent with “developmental reversal” – the
finding that children are less prone to framing effects than adults. By this account,
intelligence agents are located further along the developmental trajectory than typical
adults and so even more prone to framing effects.

Choice May Sometimes Be a Cognitive Illusion

Sometimes we may believe that we are making decisions consciously when in actuality
the decisions have already been made, according to research published in
Psychological Science, a journal of the Association for Psychological Science. This
illusion seems to occur when different perceptual and cognitive processes reach our
awareness out of order.
In 2005 Lars Hall and Petter Johansson, both at Lund University in Sweden, ran an
experiment that transformed how cognitive scientists think about choice. The
experimental setup looked deceptively simple. A study participant and researcher faced
each other across a table. The scientist offered two photographs of young women
deemed equally attractive by an independent focus group. The subject then had to
choose which portrait he or she found more appealing.
Next, the experimenter turned both pictures over, moved them toward the subjects and
asked them to pick up the photo they just chose. Subjects complied, unaware that the
researcher had just performed a swap using a sleight-of-hand technique known to
conjurers as black art. Because your visual neurons are built to detect and enhance
contrast, it is very hard to see black on black: a magician dressed in black against a
black velvet backdrop can look like a floating head.
Hall and Johansson deliberately used a black tabletop in their experiment. The first
photos their subjects saw all had black backs. Behind those, however, they hid a
second picture of the opposite face with a red back. When the experimenter placed the
first portrait face down on the table, he pushed the second photo toward the subject.
When participants picked up the red-backed photos, the black-backed ones stayed
hidden against the table's black surface—that is, until the experimenter could
surreptitiously sweep them into his lap.
The first surprise was that the image switches often went undetected: Hall and
Johansson reported that their subjects realized that the photo they picked up was not
their actual choice only 26 percent of the time. Then came an even bigger shock. When
the researchers asked the participants to explain their selection—remember, they chose
the other picture—they did not falter: “She's radiant. I would rather have approached her
at a bar than the other one. I like her earrings!” a subject said, even though the woman
he actually chose had no earrings.
Over and over, the participants made up stories to account for their non-choices.
Instead of pondering their picks first and then acting on them, the study subjects
appeared to act first and think later. Their improbable justifications indicate that we can
use hindsight to determine our own motives—just as we might speculate about what
drives someone else's behavior after the fact. In their now classic paper, Hall and
Johansson dubbed this new illusion “choice blindness.”
Choice blindness reveals that not only are our choices often more constrained than we
think, but our sense of agency in decision making can be a farce in which we are the
first to deceive ourselves.
Bear and Paul Bloom performed a couple of simple experiments to test how we
experience choices. In one experiment, participants were told that five white circles
would appear on the computer screen in front of them and, in rapid-fire sequence, one
would turn red. They were asked to predict which one would turn red and mentally note
this. After a circle turned red, participants then recorded by keystroke whether they had
chosen correctly, had chosen incorrectly, or had not had time to complete their choice.
The circle that turned red was always selected randomly, so probability states that
participants should predict the correct circle 20% of the time. But when they only had a
fraction of a second to make a prediction, these participants were likely to report that
they correctly predicted which circle would change color more than 20% of the time.
In contrast, when participants had more time to make their guess — approaching a full
second — the reported number of accurate predictions dropped back to expected levels
of 20% success, suggesting that participants weren’t simply lying about their accuracy
to impress the experimenters.
What happened, Bear suggests, is that events were rearranged in subjects’ minds:
People subconsciously perceived the color red before they predicted it would appear,
but they consciously experienced these two things in the opposite order. The conscious
experience of choice may be constructed after we act — even when it feels like it is the
cause of our behavior, say the researchers.
Bear and Bloom’s research builds on past work suggesting that many decisions seem to
be under more conscious control than they actually are. In many cases, consciousness
may simply be window dressing, note the researchers.
Bear said it is unknown whether this illusion is caused by a quirk in perceptual
processing that can only be reproduced in the lab or whether it might have “far more
pervasive effects on our everyday lives and sense of free will.”
A pigeon that learns to peck at a key in order to obtain food pellets can be described as
instrumentally rational, that is, acting in such a way as to achieve its goals. Instrumental
rationality is also known sometimes as personal or individual rationality. In fact, the
argument can be made that animals are more instrumentally rational than humans as
defined by performance on judgment and decision making tasks. Humans, with their
complex layers of multiple goals and value systems will not always choose correctly
according to the immediate goals that the psychologists uses to determine rationality.
If we consider animals a little more, we can clearly see that there is lack between the
terms rational and irrational. Animals frequently follow instinctive behavior patterns
which conflict with their individual interests, exposing themselves to injury or death in
pursuit of the interests of their genes. More precisely, they follow instructions which
helped genes to replicate in their environment of evolutionary adaptation at some point
in the past. As Stanovich puts it: “An animal can be arational, but only humans can be
irrational.”
It seems that rationality is not simply to do with instrumentality; it is to do with choice.
There is a theory that humans have an old mind, animal like in many ways, combined
with a new and distinctively human mind. Humans, like them, learn habits and
procedures from experience that enable us to repeat behaviors rewarded in past. But
rationality of new mind is not slave of past; as humans we can imagine the futures,
conduct thought, experiments and mental simulations and chose to act in one way or
another. We can also sometimes manage to override our old minds, inhibiting our
wishes to smoke cigarettes, join gambling and other activities which may feel quite
compulsive but conflict the goals that our new mind is setting for the future. IN fact, we
are most likely to praise someone as rational when the new mind overrides in this way
and conversely quick to condemn as irrational, the people who give away to their basic
urges. However, while new mind cognition is volitional that does not mean that
individual is free to choose actions in all circumstances. Our behavior is the product of
both the old and new minds and so powerful emotions and strong habits may override
the choices of the new mind.
What is it about RDM that provokes a rationality debate absent in the rest of cognitive
psychology? We think of ourselves and others as conscious people in charge of our
decisions. To be sure there are many automated and unconscious mechanisms
responsible for matters such as language processing, pattern recognition, memory
retrieval etc. But they are merely slave systems doing our bidding. We, the conscious
persons, are still in charge, still calling the shots. This is a powerful illusion, but an
illusion nonetheless. We lack knowledge of our mental processes and the reasons
underlying our decisions, frequently rationalizing or theorizing about our own behavior.
The feeling that we are in control and that conscious thought determines actions is also
an illusion.
In two minds theory, conflict can easily arise between the goals that are pursued in the
new and old minds. Moreover, the cognitive mechanisms for pursuit of goals differ
radically, with experiential learning dominating the old mind, and hypothetical thinking
the new mind. Two minds conflict is the essential cause of the cognitive biases that are
observed in the study of reasoning and decision making. Biases arise from automated
and unconscious mechanisms which divert us from solution of the tasks set. Frequently,
there is a default intuitive response that leads people into error unless overridden by
conscious reasoning. The ability to override such defaults is influenced by a number of
factors including confidence in the original answer, cognitive ability and thinking
dispositions. But in general, when someone fails to reason correctly according to the
instruction it is due to an unconscious or intuitive influence of some kind. They are not
choosing to get the answer wrong.
Outside of the laboratory, the behavior that strikes us as irrational is that in which a
person experiences a two minds conflict in which the old mind is winning. For example,
the heavily obese, compulsive gamblers and alcoholics are treated with very little
sympathy in modern society. They are held to be responsible for their own health or
financial problems because they could apparently choose to be different. Those of us
who are not problem gamblers, for example, think it quite irrational that people should
continue to bet money on casino games like roulette. The normative theory agrees,
because all betting systems are based on the fallacious belief that later bets can
compensate for earlier ones, whereas each individual bet has an expected loss. But
from a psychological point of view this normative analysis is not only simplistic but
essentially useless in understanding the causes of problem gambling and how to deal
with them. Most effective in such cases is cognitive-behavioral therapy which is
essentially a two minds treatment.

How “Framing effect” influences decision making

Framing Effect: The framing effect is a cognitive bias where people decide on options
based on if the options are presented with positive or negative semantics.

The frame that a decision-maker adopts is controlled partly by the formulation of the
problem and partly by the norms, habits, and personal characteristics of the decision-
maker.

According to the research made by Amos Tversky and Daniel Kahneman Which
explained how phrasing affected participants' responses to a choice in a hypothetical life
and death situation in 1981, This effect has been shown in other contexts as well.
The Students of the University of British Columbia and Stanford University were
presented with the following scenario:
Problem 1 [N = 152]: Imagine that the U.S. is preparing for the outbreak of an unusual
Asian disease, which is expected to kill 600 people. Two alternative programs to combat
the disease have been proposed. Assume that the exact scientific estimate of the
consequences of the programs are as follows:
If Program A is adopted, 200 people will be saved. [72 percent] If Program B is adopted,
there is 1/3 probability that 600 people will be saved, and 2/3 probability that no people
will be saved. [28 percent] Which of the two programs would you favor?
The majority choice in this problem is risk averse: the choice of saving 200 lives is more
attractive than a risky choice of equal expected value. A second group of respondents
was given the cover story of problem 1 with a different formulation of the alternative
programs, as follows:
Problem 2 [N = 155]: If Program C is adopted 400 people will die. [22 percent]
If Program D is adopted there is 1/3 probability that nobody will die, and 2/3 probability
that 600 people will die. [78 percent] Which of the two programs would you favor?
The majority from the second group of respondents selected program D. This
concluded that people tend to be risk averse when the problem is presented in terms of
gains, but risk tolerant when it is presented in terms of losses.

Individuals who face a decision problem and have a definite preference

(i) Might have a different preference in a different framing of the same
problem
(ii) Are normally unaware of alternative frames and of their potential effects
on the relative attractiveness of options
(iii) Would wish their preferences to be independent of frame

Framing Effect and Language

Researchers examining the framing effect’s influence have found that people provided
with framing situations in a foreign language as compared with the native language
does not exhibit the same effect.
A recent study published in the Journal of Cognitive Psychology suggested why this
might be. In the first study, they presented native Thai speakers and non – native
English speakers ‘Asian Disease problem’. Asian Disease problem is simply a problem
or scenario where people are faced with an imaginary outbreak of an exotic disease and
asked to choose how they will address the issue. These problems were written in Thai
and English and framed as “gain” or “loss”. The researchers found that there was no
framing effect when the problems were presented to the participants in their non- native
language and there was framing effect when it was presented in their native language.
In the second study, different bilingual participants were presented a task that required
limited language and reading skills and the framing effects was seen in both
participants’ native and non-native languages.
These conflicting results were explained by model created by APS William James which
proposed that there are two cognitive systems: a fast system (System 1) that relies on
heuristics, intuition, and affective processes, and a slow system (System 2) that is more
rational, effortful, and systematic. System1 can be easily be easily influenced by the
framing effects while System 2 resists framing effects.
In the first study people were able to solve task related activity easily when it was in
their native language thus System1 played its role and they were influenced by the
framing effect and when the problem was in their non-native language it was difficult for
them and System 2 played its role thus resisting framing effect.
In the second study, however, the problem was in both native and non- native language
because it required limited language and reading skill System1 played its role and the
both participants were influenced by the framing effect.

How Stress Drains Decision Making Over Time

Stress and Response:
Stress is your body’s way of responding to any kind of demand or threat. When you
sense danger whether it’s real or imagined the body’s defenses kick into high gear in a
rapid, automatic process known as the “fight-or-flight” reaction or the “stress response.”

The stress response is the body’s way of protecting you. When working properly, it
helps you stay focused, energetic, and alert. In emergency situations, stress can save
your life giving you extra strength to defend yourself, for example, or spurring you to
slam on the brakes to avoid a car accident.

A common way that researchers induce stress in study volunteers is by making them
give a speech. In that case, there were plenty of opportunities during the APS 22nd
Annual Convention to see the stress response in action, joked Mara Mather of the
University of Southern California, during her introduction to the symposium “How Stress
Alters Decision Making.” Mather presented an overview of biological responses to
stress, especially how stress affects striatal dopaminergic reward systems. In addition to
causing physical changes, stress can influence our decisions. The panel of researchers
presented behavioral experiments that show how decision making can be altered by
stress and anxiety, as well as fMRI data suggesting where in the brain these behaviors
may originate.

Stephanie Preston of the University of Michigan argued that “resource decisions,”

choices on what critical resources (such as food) to get, keep, and throw away, can be
important for survival. Many animals store food to use in times of scarcity, but humans
are stockpilers too — individuals routinely keep money in the bank (or under their
mattress) and cans in the pantry. However, in some individuals, this collecting behavior
is taken to extremes in the form of compulsive hoarding — collecting excessive
amounts of objects that have little or no value. Preston found that, across species,
including humans, anxiety and threats appear to increase the motivation to acquire and
collect food and goods, and further, that the orbital frontal cortex and nucleus
accumbens (regions commonly associated with behavioral control and reward seeking),
may be involved in hoarding tendencies.

Stress can also affect financial decision making. Anthony Porcelli from Rutgers
University presented findings on how acute stress (such as might be created by sticking
your hands in ice water) impacts risk-taking. When individuals are making a financial
decision, “reflection” often occurs — when faced with a loss, people take riskier options,
but when faced with gains, people tend to act more conservatively .During a risky task
in which volunteers could earn a lot of money, but also had the potential to lose
everything, men and women took similar amounts of risk in the control condition.
However, under stress, men took more risks but women tended to be more
conservative. This gender difference could be moderated by differing responses to
stress in the dorsal striatum and anterior insula, two areas also associated with reward-
related decision making. During control conditions, women had increased activity in
those regions, while men had decreased activity. In the stress condition, the opposite
was true, with women showing decreased activity while men had increased activation in
those regions.

Americans are among the most stressed people in the

world, according to a new survey. And that’s just the
start of it.
Last year, Americans reported feeling stress, anger and worry at the highest levels in a
decade, according to the survey, part of an annual Gallup poll of more than 150,000
people around the world.
Your stress level will differ based on your personality and how you respond to situations.
Some people let everything roll off their back. To them, work stresses and life stresses are
just minor bumps in the road. Others literally worry themselves sick.
We make decisions all the time, and many of those decisions are made under stressful
conditions: Should we get the surgery, even though it is a very risky procedure? The
economy has been unstable what should we do with our investments? Gaining a better
understanding of how stress affects decision making is critical not only for psychological
science, but has important, real-world implications.

Decision Making by Marketing Research.

Marketing research is a crucial part of marketing system; it helps to refine ideas in

decisions making of management by giving accurate, appropriate, and timely
information. Every decision requires unique needs for information, and appropriate
strategies can be evolved based on the information collected through marketing
research.
Creative use of market information helps firms to attain and maintain a competitive
advantage.
Marketing decisions contains problem that range from fundamental move in the
positioning of a business or the decision to penetrate a new market to list tactical
questions of how best to load a grocery shelf.
(Situation analysis, strategy development, marketing program development, and
implementation) are the four stages which helps decision making in market planning
process. During each stage, marketing research gives a major present for clarifying and
diagnosing issues and then selecting among decision alternatives.
Robert Beno Cialdini (born April 27, 1945) is the Regents' Professor Emeritus of
Psychology and Marketing at Arizona State University and was a visiting professor of
marketing, business and psychology at Stanford University, as well as at the University
of California at Santa Cruz.
Prof. Cialdini studies the art of convincing and, according to his work, influence is based
on 6 powerful principles:

1. Free giveaways: give something to get something. Give your client something
that makes him feel lucky. If a waiter gives you a candy together with a bill, you’ll
 probably tip him. If he gives you the same bill and the same candy, but adds ‘And
this is for you, because you were such a cool client’, the tip will be way bigger.

2. Celebrity Endorsement: buying something means trusting someone. Human

beings, hence consumers, follow credible leaders. If a person called Peter tries to
sell you an apartment, you will be less inclined to buy it from him than if he was
introduced to you as a real estate professional with 22 years of experience in
selling and buying apartments.

3. Following the trend: people tend to do what other people do. Instead of telling
them what to do in a certain situation, it is easier to get someone to change
his/her behavior by telling him/her what other people did in similar situations.

4. Commitment: selling by involving. Make people feel they are part of your
community. If people have a say in what the brand, product or service brings to
the market, people will buy you more. Start small with this, you’ll see that once
you get commitment from consumers, you can snowball your marketing actions.
Commitment is the basis of a loyal relationship.

5. Liking: we tend to buy more from people who like us. We are narcissistic beings
who easily buy from people who complement and appreciate us. Of course, the
main question here is the authenticity: how can you authentically, naturally and
believably thank and be grateful to your consumer? Try inviting them to an online
closed community for example and ask their opinion and feedback on what you
are doing.

6. Scarcity: people love to buy things other people cannot buy. We tend to rush for
things that are rarely available. So the question here is: ‘How do I make my
product look and feel rare and scarce?’ A powerful example is the Concord
example: The day British Airways announced one round trip a day from London
to New York instead of 2, sales actually went up spectacularly. So fewer flights at
a higher cost resulted in a huge sales increase.
 Summary (Decision Making): Think seriously about making logical decisions and weigh
the negative consequences. Making irrational decisions is based on simple judgment.
Inappropriate decisions were taken without any consequence.
 References:
1. Predictably Irrational
2. Thinking, Fast and Slow
3. www.psychologicalscience.org/
4. Cohen L. J. (1981). Can human irrationality be experimentally demonstrated? Behav.
Brain Sci.
5. Edwards W. (1954). The theory of decision making. Psychol. Bull.
6. Evans J., St B. T. (2007b). On the resolution of conflict in dual-process theories of
reasoning. Think. Reason.
7. Evans J., St B. T. (2010). Thinking Twice: Two Minds in One Brain. Oxford: Oxford
University Press
8. Stanovich K. E. (2013). Why humans are (sometimes) less rational than other animals:
cognitive complexity and the axioms of rational choice. Think. Reason.
9. Wegner D. M. (2002). The Illusion of Conscious Will. Cambridge: MIT books
10. Wilson T. D. (2002). Strangers to Ourselves. Cambridge: Belknap Press
11. The Framing of Decisions and the Psychology of Choice by Amos Tversky and Daniel
Kahneman.
12. Decision-making and the framing effect in a foreign and native language. Journal of
Cognitive Psychology
13. Authors: Jeanne Segal, Ph.D., Melinda Smith, M.A., Robert Segal, M.A., and Lawrence
Robinson.
14. http://fhyzics.com/decision-making-by-marketing-research.html
15. https://en.wikipedia.org/wiki/Robert_Cialdini
16. https://www.insites-consulting.com/6-principles-of-persuasive-marketing-how-to-influence-
people/