Decision Making Model

We make numerous decisions every day. Some are significant, some not so significant. Workplace situations are not very different from this. Companies have to make day-to-day decisions and also make big-picture decisions. Some managers rely on their experience to make decisions, while some rely on data. It also depends on the nature of the decision to be made. However, humans' bounded rationality also plays a role in decision-making. Read ahead to understand the difference between all the different decision-making models and how and when they are implemented!

Decision-Making Model Elements

A workplace demands numerous decisions to be made. Every decision undergoes a series of processes that may not be consciously visible. The processes result from various factors such as culture, values, and experiences. The decisions made will have a significant impact on the business and therefore has to be made with utmost caution and preparedness.

The decision-making model guides decision-makers in making the right decisions. Various decision-making models can be used depending on the nature of the challenge. Commonly used decision-making models are the shared decision-making model, the bounded decision-making model, and the intuitive decision-making model.

The elements of the decision-making model include:

• The decision-maker,

• The decision problem or goal,

• Attitudes, values, and goals of the decision-maker,

• Assumptions concerning future events,

• The environment in which the decision is to be made,

• Available alternatives and their outcomes,

• The analytical results of the whole situation,

• The associated constraints,

• Selecting an alternative,

• Decision timing, and

• Proper decision communication.

Decision-Making Model Steps

Intuitive Decision-Making Model

When you are put in a situation you have already faced, your mind subconsciously recalls the patterns or learnings from the previous experience, which form the basis of your decision. It is the least rational form of decision-making. Intuitive decision-making is making decisions based on your "gut feeling." It is not a decision-making process that solely relies on emotions or feelings. It is based on logic from previously acquired information.

This decision-making model helps make fast decisions, as it is based on previous experiences and learned lessons. Intuition plays an essential role in a rapidly changing environment. It helps understand patterns and approach situations with a practical frame of reference. With the acquired experience, we can compare past situations with the current ones to make a better-informed decision. The experience strengthens intuitive skills, helping us make more confident decisions.

It provides a fast response based on previous failures and learned lessons. Intuition is the processed information that has been stored in the subconscious mind and helps us form decisions when needed in the future. It helps us understand patterns and approach situations with a practical frame of reference. With the acquired knowledge from the past, we can compare the current situation with past ones to make a final decision. Intuition helps make better and more confident decisions.

The intuitive decision-making model's steps can be explained using the Recognition Primed Decision (RPD) model. The RPD model describes how people make quick, effective decisions when they face a complex situation based on intuition. Figure 2 shows the steps of how experience and recognition of the situation can set the further course of action.

Bounded Rational Decision-Making Model

Bounded rationality helps reduce the problems' complexity and find satisfactory solutions. Based on the bounded rationality theory of economic behavior, people's limited knowledge and cognitive capacity affect their judgment.

This method chooses a solution that will generate a satisfactory result rather than finding an optimized solution. Most problems do not have the most optimal solution. This is because the optimal solutions can be very complicated for an individual's limited knowledge. Therefore, a simpler model is created to make rational decisions within this model. The decisions in an organization must ideally reflect its value and policies. Realistically, the decisions made have economic and time constraints. This will result in decision-makers making a satisfactory decision rather than the most rational decision.

Decision-Making Model Examples

Now that we have seen how the different decision-making models work, let's look at a few instances where they would be implemented in the workplace.

Rational decision-making is most useful while making complex decisions. It requires the collection of data and all the available information. For instance, if the company is trying to implement new communication tools but cannot decide which one. All the available data about the considered tools will be sourced. After deciding on the decision criteria and prioritizing them, the best communication tool is selected.

Intuitive decision-making is used when the decision-maker has gained considerable field experience and made similar decisions in the past. Those who have faced a similar situation can recall their experience to make quick decisions. We can apply this to many challenging day-to-day decisions managers have to make.

Bounded rational decision-making can be used when selecting a new supplier. While selecting a supplier, the organization will have to consider the costs and the reputation of the supplier. Reputable suppliers cost the company significantly more. As reputation and reliability are more important for the company, they compromise on costs and select a reliable and reputable supplier.

Biases and Errors in Decision-Making

As humans, we tend to have biased opinions and favor some decisions more than others. It affects the decision-making processes. Let's take a look at the common biases that affect decision-making.

Anchoring bias - our mind tends to absorb the initial information given to us quickly. We tend to give all our attention to this information and ignore the information provided to us later. The first piece of information acts as an anchor, and we judge the later information with respect to the anchor. This affects our decision-making process, as this hinders us from looking at the subsequent pieces of information.

Availability bias - our tendency to focus on readily available information and make decisions on this basis. We tend to combine this information with our existing knowledge and information. This will cause oversight of unfavorable and rare events.

Confirmation bias - this is based on the perception that we tend to seek information that supports our views and beliefs and neglect the ones that do not. This practice hinders us from collecting all the necessary information and objectively evaluating them.

Escalation of commitment - not willing to withdraw from a previously taken decision is known as escalation of commitment. The person refuses to find another solution, even if it is obvious that the solution they are trying to implement now will be unsuccessful. The commitment escalation tends to be higher when the decisions are evaluated by others.

Overconfidence bias occurs when people are overconfident about their abilities and knowledge. They tend to overestimate themselves, making them overly optimistic. Being overly optimistic more often leads to failure than not.

Randomness error - when people believe they can predict a random situation's outcome. This can majorly affect the decision-making process.

We can avoid such biases and errors by being more flexible while seeking out information and understanding it, focusing on the goal, avoiding finding reasons to make sense of random events, and opening up to more options.