Define Following Steps Involved in Economic Decision Making Flashcards

The proces of identifying and choosing alternate courses of action, may be rational but often nonrational. 4 steps in making decisions

1. Identify the problem or opportunity
2. Think up alternative solutions
3. Evaluate alternatives and select a solution
4. Implement and evaluate the solution chosen

1. Satisficing
2. Incremental
3. Intuition

1. Rational, analytical and slow to act
2. Emotional, impulsive, prone to form and follow habits

Difficult to see things from an outsiders perspective, hence we are apt to make irrational decisions

1. Identify the problem or opportunity
2. Think up alternative solutions
3. Evaluate alternatives and select a solution
4. Implement and evaluate the solution chosen

Problems- difficulties that inhibit the achievement of goalsOpportunities- situations that present possibilities for exceeding goalsEither way when presented you are called upon to make improvements from the present to the desirable. This is a matter of diagnosis (analzying the underlying cause)

Employees with ideas are an employers greatest competitive resource

In this stage you need to evaluate each alternative not only according to cost and quality but also according to the following questions

1. Is it ethical (if it isn't dont give it a second look)
2. Is it feasible (if not why bother)
3. Is it ultimately effective (good enough should cause you pause to reconsider)

Implemenation can be straightforward or lengthyFor successful implementation you need 2 things:

1. Plan carefully (reversing an action may be difficult, some decisions may require written plans)
2. Be sensitive to those affected (they may be inconvenienced, insecure, even fearful which can all trigger resistance. Be sure to give latitude in a change)

The law of unintended consequences (from econmics) is things happen that werent forseen. For this reason evaluation is required via follow up to decisions made. If you find the action not working, some possibilities are:

1. Give it more time (make sure everyone has had enough time to get use to the action)
2. Change it slightly (perhaps tweaking is in order)
3. Try another alternative (Go to plan B)
4. Start Over (back to Stage 1)

The model is prescriptive, describing how managers ought to make decisions. It doesn't describe how managers actually make decisions. It makes some highly desirable assumptions that are unrealistic:

1. That managers have complete information
2. Are able to make unemotional analysis
3. Are able to make the best decision for the organization

How managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions

Descriptive rather than presecriptive, they describe how managers actually make decisions rather than how they should. 3 models are

1. Satisficing Model (Satisfactory is good enough. Bounded rationality, the concept suggests that the ability of decision makers to be rational is limited by numerous constraints, such as complexity, time, money, cognitive capacity, values, skills, habits and unconscious reflexes. These constraints keep one from making an exhaustive search for the best alternative thus the term satisficing model
2. The Incremental Model (The least that will solve the problem. Managers take small short term steps to alleviate a problem, the temporary steps may impede a beneficial long term solution)
3. The Intution Model (It feels just right. Going with your gut or intution is making a choice without the use of conscious thought or logical inference. Intution that stems from expertise is known as holistic hunch. Intution based on feelings is known as automated experience. Intuition has 2 benefits (1) it can speed up decision making (2) It can be helpful to managers when resources are limited. A drawback is it can be difficult to convince others your hunches make sense. Intution is also subject to bias.

Attitude of wisdom rests on 3 truths

1. Use of modeling, going beyond simple descriptive statistics
2. Having multiple applications not just one
3. Support from the top

Trump the competition.7 principles are

1. Teat your organization as an unfinished prototype
2. No brag, just facts
3. See yourself and your organization as outsiders do
4. Evidence based management is not just for senior executives
5. Like everyting else you still need to sell it
6. If all else fails slow the spread of bad practice
7. The best diagnostic question, What happens when people fail?