2.2 Different approaches to decision making

Activity 2

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 agreement with the statement.

		Strongly disagree	Disagree	Neither agree nor disagree	Agree	Strongly agree
1	I/We gathered all relevant information.	1	2	3	4	5
2	I/We carried out a detailed analysis of all the financial costs, opportunity costs, and benefits of each option and likely outcome.	1	2	3	4	5
3	I/We made the decision on the basis of detailed analysis and objective criteria.	1	2	3	4	5
4	Discussion of the decision focused mostly on the accuracy and quality of the information and analysis on which it was based.	1	2	3	4	5
5	Personal opinions and experience were very important to the making of this decision.	1	2	3	4	5
6	Important elements of the decision-making process were based on ‘hunches’ or intuition.	1	2	3	4	5
7	Discussion and analysis focused on the information that was most easily available.	1	2	3	4	5
8	The decision process was quite emotional.	1	2	3	4	5
9	It was important that the final decision was a good fit with how we normally do things in my organisation.	1	2	3	4	5
10	I/We needed to be seen to be doing the right thing.	1	2	3	4	5
11	I/We needed to be sure that influential individuals or groups were happy with the outcome.	1	2	3	4	5
12	Decision makers were concerned with the effect of the decision on their reputation.	1	2	3	4	5

Add the scores for Questions 1–4, Questions 5–8, and Questions 9–12. Make a note of the three totals and the category they to which they correspond in the bar chart below.

Maximise

The questions in Activity 2 divide into three areas. Questions 1–4 focus on the formal rational decision-making process. Questions 5–8 take a psychological perspective and focus on the tendency to rely on ‘heuristics’ (mental shortcuts or rules of thumb) when making decisions. Questions 9–12 focus on the role of social influences on judgement and decision making.

What does the bar chart you have constructed tell you about the decision-making process you described? Which was most important in this case? In many decisions all three play a part.

The three different approaches to making decisions reflected in this activity form the core of our discussion of decision making.

Philip Tetlock (1991) identifies three competing metaphors employed for understanding human decision making:

• people as naïve economists (rational perspective)

• people as naïve psychologists (psychological perspective) and

• people as naïve politicians (social perspective).

Financial economics, for example, rests on the first approach. People are seen as making rational judgements in pursuit of maximum expected utility. In some variants people are modelled as making such judgements effectively; more pessimistic versions assume limited capabilities. While the rational-economic perspective on decision making has met with great success, not least because it is easy to model mathematically, there is abundant evidence that it is a poor description of individual behaviour.

The second, psychological perspective, approach sees people as driven to achieve cognitive mastery of their environment. Again, there are more optimistic and more pessimistic versions. The more optimistic describe people who make effective use of lay versions of formal logical and statistical procedures to arrive at conclusions about the physical world and the behaviour of others (Kelley, 1967).

Heuristics are mental shortcuts or ‘rules of thumb’. For example, the British Army saying ‘If it moves salute it, if it doesn't paint it white’ is an example of a heuristic. We use heuristics and take shortcuts to reduce the complexity, cost and time taken to make decisions. While the more pessimistic depict us as cognitive misers, prone to a wide range of systematic failings of judgement and biases (Nisbett and Ross, 1980), there is increasing evidence that we move between both extremes – switching from simple heuristics to more complex cognitive strategies in response to the importance of the situation and desired outcomes (Fiske and Taylor, 1991).

What both the economic and psychological perspectives have in common is the notion of people as limited-capacity information processors and the concept of ‘bounded rationality’ (Simon, 1957): that is, there are limits to the cognitive and information-processing capacity we can devote to any judgement. Both perspectives also focus on individual behaviour rather than social processes. This is the starting point for the third sociological perspective identified by Tetlock: people as naïve politicians. In this approach people are seen as acting to manage the social world they inhabit. An important goal in decision making is satisfying the constituencies to which the individual feels accountable. The key question from this perspective is ‘What strategies do people use in managing accountability to social groups and norms?’ This is the domain of sociology and of institutional theory in particular.

In the following sections we examine each of the three perspectives in more detail.