Chapter 10
Decision Making by
Individuals and
Groups
Michael A. Hitt
C. Chet Miller
Adrienne Colella
Slides by R. Dennis Middlemist
Knowledge Objectives
1. Describe the basic steps in decision making.
2. Discuss the four decision-making styles,
emphasizing the effectiveness of each one.
3. Explain the role of risk-taking propensity and
reference points.
4. Define cognitive bias and explain the effects
of common types of cognitive bias on decision
making.
Knowledge Objectives
5. Discuss common pitfalls of group decision
making.
6. Describe key group decision-making
techniques.
7. Explain the factors managers should consider
in determining the level of associate
involvement in managerial decisions.
Decision-Making Process
Define the Problem
Identify Criteria
Decisions: Choices of actions
from among multiple feasible
alternatives
• Define the problem
Gather and Evaluate Data
List and Evaluate Alternatives
Select Best Alternative
Implement and Follow Up
Adapted from Exhibit 10-1: The Decision-Making Process
–
Gaps between where we are
today and where we would like
to be tomorrow
• Identify the criteria
–
What information is needed in
order to evaluate alternatives?
• Gather and evaluate data
–
Collect information relevant to
the criteria and potential
alternatives
Decision-Making Process
Define the Problem
Identify Criteria
Decisions: Choices of actions
from among multiple feasible
alternatives
• List and evaluate alternatives
Gather and Evaluate Data
–
–
List and Evaluate Alternatives
Develop an complete list of
possible solutions to the
problem (few constraints)
Assess each alternative using
each criterion from step 2
• Select best alternative
–
Select Best Alternative
Choose the one which satisfies
the criteria the best
• Implement and follow up
–
Implement and Follow Up
Adapted from Exhibit 10-1: The Decision-Making Process
Monitor the results
Optimal versus
Satisfactory Decisions

Optimal decision
–

The maximizing decision, yielding the absolute best result
Satisficing decision
–
Satisfactory rather than optimal decision




Lack capability to collect and process all of the information
relevant for a particular decision
Will never know if all possible alternatives have been identified
Lack of time and other necessary resources for completing all of
the decision activities
Thus, a tendency to choose the first satisfactory alternative
discovered
Decision-Making Styles

Individuals’ predispositions can affect decision
process at two critical stages
–
Gathering (Perceiving) of information


–
Sensing style
Intuition style
Evaluating (Judging) of alternatives


Thinking style
Feeling style
Define the Problem
Decision-Making Styles
Develop and
Evaluate List of
Alternatives
Choose Best
Alternative
Perceptual
Influences
Feedback
Gather and
Evaluate Data
Perceptual
Influences
Identify Criteria
Sensing
Intuition
Using the five
senses to identify
factual details
Using abstractions
and describing the
“big picture”
Thinking
Feeling
Using objective
analysis and
rational procedures
Using subjective
values with emotional
and personal factors
Implement and
Follow Up
Adapted from Exhibit 10-2: Influence of Decision Styles
Degree of Acceptable Risk


Risk exists when the outcome of a chosen
course of action is not certain
Risk-taking propensity (Willingness to take chances)
–
Low risk takers


–
May collect and evaluate more information
May become paralyzed by trying to obtain and consider too
much information
High risk takers


May may decisions based on too little information
May jump to decisions too quickly
Degree of Acceptable Risk

Reference point
–
Possible level of performance used to evaluate
one’s current standing, and may be



–
–
a goal
a minimum acceptable level of performance
the average performance level of others
If one’s current standing is below his reference point
he may take more risk to move above it
If one’s current standing is above his reference point
he may take less risk to avoid moving below it
Cognitive Biases
Ease of recall bias
Relying too much on
information that is easy
to recall from memory
Confirmation bias
Seeking information
that confirms early
beliefs and ideas
Cognitive
Biases
Sunk-cost bias
Not treating past
investments (time, effort,
money) as sunk-costs when
deciding to continue an
investment
Anchoring bias
Emphasizing too much,
the first piece of
information encountered
Group Decision Making

Decisions often are made by groups of people
–
–
–
–
May be composed of individuals at different or at the
same level in the organization
May make some decisions without managerial input
Tend to follow the same decision-making process
Will have dynamics and interpersonal processes
that make group decision making very different from
decisions made by an individual
Decision-Making Process
Common
Information Bias
Diversity-based
Infighting
Risky Shift
Groupthink
Brainstorming
Nominal Group
Technique
Group
Decision
Making
Delphi
Technique
Devil’s
Advocacy
Dialectical
Inquiry
Adapted from Exhibit 10-3: Group Decision-Making Phenomena—Pitfalls and Techniques
Group Decision-Making Pitfalls

Groupthink
–
Group members maintain or seek consensus at the
expense of identifying and debating honest
disagreements



Group members like one another and therefore do not want
to criticize each other’s ideas
Group members have high regard for the group’s collective
wisdom and therefore yield to early ideas or the ideas of a
leader
Group members derive satisfaction from membership in a
group possessing a positive self-image and therefore try to
prevent the group from having any serious divisions
Group Decision-Making Pitfalls

Groupthink
–
Symptoms include




Self-censorship
Pressure
Unanimity



Rationalization
Invulnerability
Mindguards


Morality
Stereotype
Common information bias
–
Group members overemphasize information held by a majority,
failing to be mindful of information held by one or a few group
members reduces


Availability of unique information ideas
Perspectives possessed by individual group members
Group Decision-Making Pitfalls

Diversity-based infighting
–
Instead of creating rich discussions and insight, diverse ideas
create ill will and fractured groups



May occur when individuals feel strongly about their ideas
No mechanisms exist to channel disagreement in productive
ways
Risky Shift
–
Groups make either riskier decisions than would have been
made by individual members acting alone

Direction of shift may be affected by diffusion of responsibility
Group Decision-Making Techniques

Brainstorming
–
Large number of ideas are generated while evaluation of
the ideas is deferred




Imagination is encouraged. No idea is too unique or different,
and the more ideas offered the better
Using or building on the ideas of others is encouraged
There is no criticism of any idea, no matter how bad it may
seem at the time
Evaluation is postponed until the group can no longer think of
any new ideas
Group Decision-Making Techniques

Nominal group technique
1.
2.
3.
4.

Individuals silently, and without discussion, write down
their ideas
Each member presents one idea at a time, until all ideas
are presented, without discussion
Ideas presented on a blackboard and then discussed to
clarify and evaluate
Silent and independent vote or ranking of alternative
choices
Delphi technique
–
Highly structured survey of participants regarding their
opinions or best judgments
Group Decision-Making Techniques

Dialectical inquiry
–
–

Debate between very different sets of recommendations
and assumptions to encourage full discussion
Overcomes tendency of group to avoid conflict when
evaluating alternatives
Devil’s advocacy
–
–
Individual or subgroup argues against the recommended
actions and assumptions put forth by other members of the
group
Also overcomes tendency of group to avoid conflict when
evaluating alternatives
Who Should Decide? (Vroom-Yetton Method)
Exhibit 10-4
Managerial Approaches to Associate Involvement in
Decision Making
Approach
Level of Associate Involvement
in Decision
Low
High
AI—Manager solves problem or makes decision alone, using information to which
she has current access.
AII—Manager requests information or may not explain the problem to associates.
Associates’ role in process is only to provide specific information requested.
CI—Manager explain problem to relevant associates, one by one, requesting
input as individuals. After discussion with individuals, manager makes decision
along, either using or not using associate’s input.
CII—Manager explains problem to associates as a group, obtaining group
members’ ideas and suggestions. Later, manager makes decision alone, either
using or not using associate’s input.
GII—Manager explains problem to associates as a group, working together with
them to generate and evaluate alternatives and agree on a solution. Manager acts
as facilitator, does not force group to accept his solution, and will accept and
implement a solution supported by the group.
Adapted from Exhibit 10-4: Managerial Approaches to Associate Involvement in Decision Making
Who Should Decide? (Vroom-Yetton Method)

Questions asked to determine level of associate
involvement in decision making
A.
B.
C.
D.
E.
F.
G.
Is there a quality requirement such that one solution is likely to be
more rational than solution, or will any number of solutions work
reasonably well)?
Do I have sufficient information to make a high-quality decision?
Is the problem structured (do I know the question to ask and where to
look for relevant information?
Is acceptance of the decision by associates critical to effective
implementation?
If I were to make the decision by myself, is it reasonably certain that it
would be accepted by my associates?
Do the associates share the organizational goals to be attained in
solving this problem?
Is conflict among associates likely in preferred solutions?
Who Should Decide? (Vroom-Yetton Method)
A
B
C
D
E
F
1-AI
No
Yes
Yes
G
2-AI
No
3-GII
No
4-AI
Problem
No
Yes
No
Yes
Yes
Yes
Decision points
Recommended strategies
No
Yes
Yes
Yes
No
No
Yes
No
5-AI
Yes
9-AII
Yes
11-CII
No
8-CI
No
10-AII
Yes
No
14-CII
No
7-CII
6-GII
Yes
12_GII
No
13-CII
Value of Individual vs. Group
Decision Making

Important considerations for judging the overall
value of group decision vs. individual decision
making
–
–
–
–
–
Time
Cost
Nature of the problem
Satisfaction and commitment
Personal growth
Value of Individual vs.
Group Decision Making
Exhibit 10-6
Communication
Advantages and Disadvantages of Group Decision Making
In the United States
Elsewhere
Groups can accumulate more knowledge
and facts and thus generate more and
better alternatives.
Groups take more time to reach decisions
than do individuals.
Groups often display superior judgment
when evaluating alternatives, especially for
complex problems.
Group social interactions may lead to
premature compromise and failure to
consider all alternatives fully.
Group involvement in decisions leads to a
higher level of acceptance of the decisions
and satisfaction.
Groups are often dominated by one or two
“decision leaders” which may reduce
acceptance, satisfaction and quality.
Group decisiion making can result in
growth for members of the group.
Managers may rely too much on group
decisions, leading to loss of their own
decision and implementation skills.
Adapted from Exhibit 10-6: Advantages and Disadvantages of Group Decision Making