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Chapter 15
Exam 4
27
Business
Undergraduate 3
04/19/2011

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Term
Decision Making
Definition
the process by which members of an organization choose a specific course of action to respond to both opportunities and problems
Term
Nonprogrammed Decision Making
Definition
decision making in response to novel opportunities and problems
Term
Programmed Decision Making
Definition
decision making in response to recurring opportunities and problems
Term
Performance Program
Definition
a standard sequence of behaviors that organizational members follow routinely whenever they encounter a particular type of problem or opportunity
Term
Classical Decision-Making Model
Definition
a prescriptive approach based on the assumption that the decision maker has all the necessary information and will choose the best possible solution or response
Term
Steps to the Classical Model
Definition
1. List alternatives
2. List consequences of each alternative
3. Rank alternatives from most to least preferred
4. Select alternative that will result in the most preferred set of consequences
Term
Administrative Decision-Making Model
Definition
based on the assumption that there will not be full information and acknowledge that psychological and sociological processes often cause people to make suboptimal decisions
Term
Satisficing
Definition
searching for and choosing an acceptable response or solution, not necessarily the best possible one
Term
Bounded Rationality
Definition
an ability to reason that is constrained by the limitations of the human mind itself
Term
Heuristics
Definition
rules of thumb that simplify decision making
Term
Availability Heuristic
Definition
the rule of thumb that says an event that is easy to remember is likely to have occurred more frequently than an event that is difficult to remember
Term
Representativeness Heuristic
Definition
the rule of thumb that says similar kinds of events that happened in the past are a good predictor of the likelihood of an upcoming event
Term
Base Rate
Definition
the actual frequency with which an event occurs
Term
Anchoring and Adjustment Heuristic
Definition
the rule of thumb that says that decisions about how big or small an amount (such as a salary, budget, or level of costs) should be can be made by making adjustments from some initial amount
Term
Escalation of Commitment
Definition
the tendency to invest additional time, money, or effort into what are essentially bad decisions or unproductive courses of action
Term
Sunk Costs
Definition
costs that cannot be reversed and will not be affected by subsequent decision making
Term
Sources of Errors in Decision-Making
Definition
Heuristics

Escalation of Commitment

Term
Conditions under which Decisions are Made
Definition
Certainty
Risk
Uncertainty
Term
Certainty
Definition
outcomes are known
Term
Risk
Definition
outcomes can be stated in terms of a probability
Term
Uncertainty
Definition
outcomes are not known
Term
Objective Probabilities
Definition
probabilities based on hard facts and statistics
Term
Subjective Probabilities
Definition
probabilities based on personal judgments and beliefs
Term
Advantages of Groups
Definition
Diversity of skills, knowledge, and expertise

Increased memory for facts

Increased error detection

Increased acceptance of decision

Term
Disadvantages of Group
Definition
Inadequate time

Potential for groupthink

Term
Groupthink
Definition
where poor decisions are made because of desire to reach consensus quickly as opposed to accurately
Term
Brainstorming
Definition
a spontaneous, participative decision-making technique that groups use to generate a wide range of alternatives from which to make a decision
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