MGB1010 · Introduction To Management
Decision Making
A decision is a choice among alternatives, and managing is, at bottom, a stream of them. The unit teaches the eight-step rational model as the ideal yardstick — identify the problem, set and weight criteria, develop, analyse and select alternatives, implement, evaluate — then immediately undercuts it. Real managers face bounded rationality (limited information, time and brainpower), so they satisfice — take the first “good enough” option — rather than optimise (Herbert Simon), and lean on intuition from experience. Decisions also differ by condition: certainty, risk (probabilities known) or uncertainty (probabilities unknown). A predictable set of cognitive biases (anchoring, confirmation, framing, sunk-cost, escalation of commitment, and more) bends judgement. Finally, groups bring more information and buy-in but cost time and open two failure modes — groupthink (Janis) and conformity pressure (Asch). The quiz move is to name which model, condition and bias is in play.
What this chapter covers
- 017.1 The rational decision-making process (eight steps)
- 027.2–7.3 Rational vs bounded rationality & satisficing (Simon)
- 037.4 Intuitive decision-making
- 047.5 Decision conditions — certainty, risk, uncertainty
- 057.6 Common cognitive biases
- 067.7 Individual vs group decision-making
- 077.8 Groupthink (Janis); 7.9 the Asch conformity effect
Worked example: name the model, the condition and the bias
- +2(a) Decision model. Accepting the first acceptable option under limits, rather than optimising, is satisficing under bounded rationality (Simon).
- +1(b) Decision condition. Outcomes are unknown and probabilities can't be estimated → uncertainty (not risk, where probabilities would be known).
- +1(b) Risk ≠ uncertainty. Calling a probability-known situation “uncertainty” (or vice versa) is the classic dropped mark — here probabilities genuinely can't be estimated.
- +1(c) Bias #1 — sunk-cost. Letting unrecoverable past spending sway a forward-looking choice is the sunk-cost bias.
- +1(c) Bias #2 — escalation of commitment. Throwing more into a failing course to justify earlier choices is escalation of commitment.
Key terms
- Rational decision model
- The ideal eight-step yardstick: identify the problem, identify and weight decision criteria, develop and analyse alternatives, select the value-maximising one, implement, and evaluate. It assumes full information, stable ranked preferences and no time/cost constraints — a useful benchmark whose assumptions almost never all hold.
- Bounded rationality & satisficing
- Herbert Simon's account: managers behave rationally but within the limits of their ability to process information (bounded rationality — limited information, time and capacity). So instead of optimising they satisfice — accept the first “good enough” alternative that meets an acceptable threshold and stop searching.
- Decision conditions
- Certainty (the outcome of every alternative is known — rare), risk (outcomes uncertain but probabilities are known, so weigh by expected value), and uncertainty (outcomes unknown and probabilities can't be estimated, so judgement and scenario thinking drive the choice). Risk ≠ uncertainty is a favourite quiz trap.
- Cognitive biases
- Predictable distortions of judgement — mental shortcuts that misfire. Examples: overconfidence, anchoring, confirmation, framing, availability, escalation of commitment, sunk-cost, hindsight and self-serving. A bias is an unintended error, distinct from satisficing, which is a deliberate coping strategy.
- Groupthink (Janis)
- The withdrawal of critical thinking when the pressure to agree overwhelms a group's realistic appraisal of alternatives: dissent is suppressed, doubts self-censored, and the group drifts to a premature consensus it then defends. Symptoms include an illusion of invulnerability and of unanimity. Fixed by a devil's advocate and withheld leader opinion.
Decision Making FAQ
What is the difference between the rational model and bounded rationality?
The rational model is the ideal: a fully logical, value-maximising decision-maker with full information, stable preferences and no constraints, who picks the single best option. Bounded rationality (Simon) is the realistic account: managers are rational, but within the limits of their ability to process information — limited data, time and brainpower — so instead of optimising they satisfice, taking the first “good enough” option. Most real managerial decisions are boundedly rational.
What is the difference between risk and uncertainty?
Both mean outcomes aren't certain, but they differ on probabilities. Under risk, you can attach probabilities (“30% chance of recession”) from data or experience, so you can weigh outcomes by expected value. Under uncertainty, you genuinely cannot estimate probabilities — too little information — so judgement, intuition and scenario thinking drive the choice. Calling a probability-known situation “uncertainty” is a classic dropped mark.
What is the difference between a bias and satisficing?
Satisficing is a deliberate strategy under bounded rationality: stop at “good enough” rather than search for the optimum. A bias is an unintended distortion of judgement — anchoring, framing, sunk-cost, escalation of commitment. One is a coping rule you choose; the other is an error that creeps in. The standard correctives for biases are awareness, devil's-advocacy and diverse input.
What is groupthink and how do you prevent it?
Groupthink (Janis) is the withdrawal of critical thinking when the pressure to agree overwhelms a group's realistic appraisal of alternatives — dissent suppressed, doubts self-censored, a premature consensus defended. Symptoms include an illusion of invulnerability and of unanimity. Standard fixes: appoint a devil's advocate, have the leader withhold their view until others speak, encourage open dissent, bring in outsiders, and hold a second-chance meeting. Asch's conformity research explains why a single dissenting ally helps so much.
Exam move
The takeaways here are not calculations — they are recognition, which is exactly what the quiz tests. Build a four-check routine for any decision vignette: (1) which model — rational, bounded/satisficing, or intuitive; (2) which condition — certainty, risk or uncertainty (keep risk ≠ uncertainty sharp); (3) which bias is distorting it; and (4) is it individual or group — and if group, watch for groupthink and Asch-style conformity. Know the eight rational steps as a checklist (steps 1–3, framing the problem, carry most of the danger). Keep biases and satisficing distinct — one is an error, the other a chosen coping rule. Then name the concept and apply it: that two-step is what earns the marks.
