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Time: 4 hours
Level: Masters
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 Introduction Resource- This unit covers a few key topics that will help you to think in broad ways about how you and others take decisions; we shall also introduce you to some themes in social science which have direct relevance...
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- Introducing decision-making Resource
- A vast literature on decision making stretches back over several centuries and encompasses a wide range of academic disciplines – from history and literature through to mathematics. This unit is not a...
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| | 2 Understanding your own approach
- Exercising judgement Resource
- To understand how we make decisions, it is useful to start with the ways in which we make judgements about information we are presented with. Let's start this unit with an activity designed to get you...
- Different approaches to decision making Resource
- Think of a major decision you have recently been involved in making at work. For each of the following statements about your decision-making process make a note of the number which shows your level of...
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| | 3 The rational-economic perspective and its problems
- Introduction Resource
- Much of economics and finance theory rests on the notion of people as formally rational decision makers. First, people are understood to have ordered preferences. That is, if someone prefers A to B and...
- Utility theory Resource
- Utility theory is based on this assumption of rationality and describes all decision outcomes (financial and otherwise) in terms of the utility (or value) placed on them by individuals. Within this framework,...
- Limitations of the rational-economic perspective Resource
- As an approach to understanding economic life, the assumption of formal rationality has been very successful. For example, there is great deal of evidence that, on average, prices in financial markets...
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| | 4 A psychological perspective
- Introduction Resource
- A psychological perspective does not start from the assumption that people are fundamentally irrational. Rather, it emphasises a different logic: a logic that meets the challenges we have evolved to face...
- Bounded rationality and the use of heuristics Resource
- As decision makers, none of us has infinite resources or time to devote to gathering and analysing information. In addition, we all have significant limitations to the amount of complexity we can cope...
- Framing the problem Resource
- As you saw in Activity 1, how a problem is framed can have a significant effect on how you make decisions. Medical decisions can be affected by whether outcomes are framed as likelihood of deaths or of...
- Using information Resource
- Our use of information is often biased in important regards. First, we pay more attention to information that is easily available (the availability heuristic). Second, we overweight memories which are...
- Deciding: problems of judgement Resource
- We are constantly bombarded by information. Simply walking though a room risks flooding us with more sensory information that we can possibly process. Stop for a moment and consider all the different things...
- Post-decision evaluation Resource
- For most normally functioning people, maintaining self-esteem is an important internal goal. This can cause us to filter out or discount information that might show us in an unfavourable light. This is...
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| | 5 A sociological perspective
- Introduction Resource
- As we noted earlier, both the rational-economic and psychological perspectives on decision making tend to ignore the social context in which we live and work. We turn now to consider this social context....
- The social construction of reality Resource
- What do we mean when we say reality is socially constructed? We inhabit a social world. Many of the ‘facts’ of our lives which we take for granted are ‘facts’ only in so far as we hold common mental models...
- Social institutions Resource
- Of course, the extent of agreement about meaning can be highly variable: from the ephemeral (a certain style of clothing may come to stand for a shared attitude among a small group of teenagers for a short...
- The pursuit of legitimacy Resource
- Social institutions affect which actions are seen as legitimate. As we make decisions in organisations it is common to be concerned not just with economic outcomes but also with ‘legitimacy ’: ‘How will...
- Social pressures which affect our decision making Resource
- Broadly, there are three kinds of social pressure which affect how we make decisions:
- A way of dealing with social pressures: decoupling Resource
- Organisations often deal with these social pressures by decoupling responses to these different pressures. The need to appear legitimate in the eyes of important constituencies is met by actions and practices...
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| | 6 Risk and decision making
- Introduction Resource
- An important aspect of decision making which crosses all three perspectives is making decisions about risks. Risk is all-pervasive in organisational life and many decisions require us to weigh up and choose...
- A rational-economic perspective on risk Resource
- A rational-economic perspective generally represents risk as a combination of the expected magnitude of a gain or loss, combined with some probability distribution of anticipated outcomes. Economic ideas...
- The psychology of risk Resource
- Within the psychological paradigm there is a different starting point for understanding risk. In financial economic accounts, risk is generally regarded as a combination of the expected magnitude of loss...
- Prospect theory Resource
- Kahneman and Tversky (1979) developed ‘prospect theory’ to describe this combination of risk and loss aversion. This suggests that whether an individual is risk seeking or risk averse will depend on where...
- The social construction of quantifiable risk Resource
- Earlier in this unit we referred to the way in which social groups can develop shared cognitive schema. One important role for shared cognitive schema is to define the risks that we pay attention to, the...
- The social construction of unknown risk Resource
- While some risks can be quantified, many are unknown. In the face of such uncertainty our approach to risk depends on fundamental assumptions about the way the world works which cannot be readily subject...
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| | 7 Making a difference to decision making
- Introduction Resource
- We have taken a brief excursion through three different perspectives on decision making (the rational-economic, the psychological and the social) and we have considered how we think about risk from these...
- Understanding the limits of rationality Resource
- An important first step in making more effective decisions is to understand the limits of human rationality. Because of these limits we have developed formal processes for reasoning: statistics; probability...
- What is an effective decision? Resource
- To improve decision making it is first important to have a clear idea of how we should judge an effective decision. While in this unit we have suggested that decisions often stray from formal rationality,...
- Avoiding decision traps Resource
- While it is not possible to change our human natures, it is possible to immunise ourselves to some extent against common decision traps. Useful strategies include:
- Becoming an institutional entrepreneur Resource
- While acting in ways that are seen to be legitimate is important for both individuals and organisations, social institutions are not immutable. Some people and organisations seem to have a talent for changing...
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| | References and Acknowledgements | |
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