Chapter Twelve

Decision Making
and Negotiation
 Chapter Objectives

Describe the nature of decision making.

Discuss the decision-making process
from a variety of perspectives.
Explain related behavioral aspects of
decision making.
Describe group decision making in
organizations.
Discuss negotiation in organizations.

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 The Nature of Decision Making

Decision Making
The process of choosing one alternative from
among several.
Decisions in organizations can be classified
according to frequency and to information
conditions.
Frequency how often a particular decision situation
recurs
Information conditions how much information is
available about the likelihood of various outcomes

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 Figure 12.1: Elements of Decision Making

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 Types of Decisions

A Programmed Decision
A decision that recurs often enough for a
decision rule to be developed
A Nonprogrammed Decision
A decision that recurs infrequently
and for which there is no previously
established decision rule

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 Table 12.1: Characteristics of Programmed
and Nonprogrammed Decisions

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 Decision-Making Scenarios

Conditions of Certainty
The manager knows the outcome of each
alternative
Conditions of Risk
The decision maker cannot know with certainty
what the outcome of a given action will be but has
enough information to estimate the probabilities of
various outcomes
Conditions of Uncertainty
The decision maker lacks enough information to
estimate the probabilities of possible outcomes

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 Figure 12.2: Alternative Outcomes Under
Different Information Conditions

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 The Rational Decision-Making Process

The rational decision-making approach

is a systematic, step-by-step process for
making decisions
It further assumes the organization is
economically based and managed by decision
makers who are entirely objective and have
complete information.

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 Figure 12.3:
The
Rational
Decision
Making
Process

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 The Behavioral Approach to Decision Making

The rational approach assumes managers

operate logically and rationally, the behavioral
approach acknowledges the importance of
human behavior in the decision-making
process.
A crucial assumption of the behavioral approach is
that decision makers operate with bounded
rationality rather than with perfect rationality as
assumed by the rational approach.

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 The Behavioral Approach to Decision Making
(continued)

Bounded Rationality
The idea that decision makers cannot deal with
information about all aspects and alternatives
pertaining to a problem and therefore choose to
tackle some meaningful subset of it
Characteristics of the Behavioral Approach:
Suboptimizing
Satisficing

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 The Behavioral Approach to Decision Making
(continued)

Suboptimizing
Knowingly accepting less than the best possible
outcome.
Frequently it is not feasible to make the ideal decision is
a real-world situation given organizational constraints.
The decision maker often must suboptimize to avoid
unintended negative effects on other departments,
product lines, or decisions.
Satisficing
Examining alternatives only until one finds a
solution that meets minimal requirements.

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 The Practical Approach to Decision Making

The Practical Approach

Combines the steps of the rational approach with
the conditions in the behavioral approach to create
a more realistic approach for making decisions.
The steps in this process are the same as in the
rational approach; however, the conditions
recognized by the behavioral approach are added
to provide a more realistic process.

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 Figure 12.4:
Practical
Approaches
to Decision
Making With
Behavioral
Guidelines

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 The Personal Approach to Decision Making

The conflict model deals with the personal

conflicts people experience in particularly
difficult decision situations. (Also called the
Janis-Mann concept.)
Terms used in the model:
Self-reactions comparisons alternatives with
internalized moral standards
Unconflicted adherence continuing with current
activities if doing so does not entail serious risks
Unconflicted change making decisions in
present activities if doing so presents no serious
risks

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 Ethics and Decision Making

Ethics
An individuals personal beliefs about what is right
and wrong behavior
In general, ethical dilemmas for managers
may center on direct personal gain, indirect
personal gain, or simple personal
preferences.
Managers should carefully and deliberately
consider the ethical context of every one of
their decisions.

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 Escalation of Commitment

Escalation of commitment is the tendency to

persist in an ineffective course of action.
There are several possible reasons for escalation
of commitment:
Some projects require much front-end investment and
offer little return until the end, requiring the investor to
stay in all the way to get any payoff.
Sometimes the social structure, group norms, and group
cohesiveness support a project so strongly that
cancellation is impossible.
One way to avoid escalation of commitment is to
have good information about the ongoing potential
of a project.

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 Group Decision Making

People in organizations work in variety

of groups: formal or informal, permanent
or temporary.
Most of these groups make decisions
that affect the welfare of the
organization and its people.

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 Group Polarization

Group Polarization
The tendency for a groups average
postdiscussion attitudes to be more extreme than
its average prediscussion attitudes.
Can be caused by a number of factors including:
Persuasive arguments
Diffusion of responsibility
Can profoundly affect group decision making if
group members are known to lean toward a
particular decision before a discussion, since their
postdecision position will likely be even more
extreme.

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 Groupthink

Groupthink
A mode of thinking that occurs when members of
a group are deeply involved in a cohesive in-group
and their desire for unanimity offsets their
motivation to appraise alternative courses of
action.
The current trend toward increasing use of teams
in organizations may increase instances of
groupthink because self-managing teams tend to
be susceptible to this type of thought.

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 Symptoms of Groupthink

An illusion of invulnerability
Collective efforts to rationalize or discount
warnings.
An unquestioned belief in the groups inherent
morality
Stereotyped views of enemy leaders as too
evil to warrant genuine attempts to negotiate
Direct pressure on a member who expresses
strong arguments against any of the group
stereotypes

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 Symptoms of Groupthink (continued)

Self-censorship of deviations from the

apparent group consensus
A shared illusion of unanimity
The emergence of self-appointed
mindguards, or members who protect
the group from adverse information

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 Table 12.2: Prescriptions for Preventing
Groupthink

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 Group Decision Making Participation

A major issue in group decision making is the

degree to which employees should participate
in the process.
Early management theories, such as the scientific
management school, advocated a clear separation
between the duties of managers and workers.
Other approaches have urged that employees be
allowed to participate in decisions to increase their
ego involvement, motivation, and satisfaction.

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 Group Decision Making Participation
(continued)

Advantages Disadvantages
Groups are superior for One especially capable individual
may make a better judgment than
judgment tasks. a group.
In problem-solving tasks, An individual or small group may
groups generally produce be able to accomplish some things
more and better solutions faster than a large group.
than do individuals. Individual decision-making avoids
the special problems of group
Complex problems are more decision-making (groupthink or
appropriate for groups. group polarization.)
Increases greater interest in If the problem is fairly
straightforward, it may be more
the task. appropriate to have a single
individual work on it.

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 Group Problem Solving

Brainstorming
A technique used in the idea generation phase of
decision making that assists in developing
numerous alternative courses of action.
The Nominal Group Technique
A method in which group members follow a
generate-discussion-vote cycle until they reach an
appropriate decision.
The Delphi Technique
A method of systematically gathering judgments of
experts for use in developing forecasts

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 Negotiation in Organizations

Negotiation
The process in which two or more parties (people
or groups) reach an agreement even though they
have different preferences.
Approaches to Negotiation
Interest in negotiation has grown steadily
Four primary approaches to negotiation have
dominated this study:
individual differences
situational characteristics
game theory
cognitive approaches

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 Individual Differences

Early psychological approaches concentrated

on the personality traits of the negotiators.
Traits investigated have included demographic
characteristics and personality variables.
The assumption of this type of research was that
the key to successful negotiation is selecting the
right person to do the negotiation, one who has
the appropriate demographic characteristics or
personality.
This type of research rarely showed positive
results because situational variables negated the
effects of the individual differences.

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 Situational Characteristics

Situational characteristics are the context

within which negotiation takes place,
including:
Types of communication between negotiators
Potential outcomes of the negotiations
Relative power of the parties (both positional and
personal)
Time frame available for negotiation
Presence of other parties
The shortcomings of the situational approach
are similar to those of the individual
characteristics approach.
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 Game Theory

Game Theory
Developed by economists using mathematical
models to predict the outcomes of negotiation
situations.
Problems:
It requires the ability to describe all possible outcomes for
every possible move in every situation before the
negotiation startsan often tedious process; if possible at
all.
It assumes negotiators are rational at all times.
This approach, although elegant in its
prescriptions, is usually unworkable in a real
negotiation situation.

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 Cognitive Approaches

The fourth approach to negotiation consists of

several cognitive approaches, which
recognize that negotiators often depart from
perfect rationality during negotiations
They try to predict how and when negotiators
will make these departures.
These cognitive approaches have advanced
the study of negotiation a long way beyond
the early individual and situational
approaches.

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 Win-Win Negotiation

Win-Win Negotiation
One of the best of these models is the Win-Win
Negotiator developed by Ross Reck and his
associates.
The Win-Win approach does not treat
negotiations as a game resulting in winners
and losers.
Instead, it approaches negotiation
as an opportunity for both sides to be
winners.

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