Class 11: Decision Making - October 21
Reading: Readings: Johns/Saks, Chapter 11
Exercise: Carter Racing (course package)
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Decision Making:
the process of developing a commitment to some course of action
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Course of action based on a choice among alternatives
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Process
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commitment/resource investment
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Carter Racing:
race or no
Race
Not Race
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Pocono race is important (prize money and tv
exposure)
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Chance to get more sponsors, profits
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This season had to be a success
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Failures occur at all temperatures
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For all races below 55 degrees, there has only
been one gasket
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Might as well put your money on a big race
rather than a bunch of small ones
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71% of the engine not blowing
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Top 5 in 80%
of their completed races
(12/15)
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If they win, they get
$50 000
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Will lose $15000 of their entry fees if they back
out
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Only will be in debt
$32 500
if they lose
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Upside so much than the downside
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The mechanic with 20 years of experience
thinks there will not be a problem
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“Nobody ever won a race sitting in the pits”
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May never have the same opportunity again if
they conform to public opinion
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Blown the engine 7 times out of 24
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Spent $20000 to replace engine
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Cold morning (it was below freezing last night)
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Risky
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Lot of sponsors watching
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If they fail, they have no chance of coming back
and they have a whole season to figure out
what the actual problem is (need time)
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Test it in smaller races
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Lose their sponsorship of $500 000
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10-15% risk tolerance
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Look at survival
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Have never raced at 40 degrees
READING
1.1 What Is Decision Making?
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First, decision making involves making a choice among several action alternatives—the store can carry
more or less inventory, and the mental health centre can be located at the north or south end of town.
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Second, decision making is a process that involves more than simply the final choice among alternatives—if
you decide to accept the offer of a new job, we want to know how this decision was reached.
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Finally, “commitment” refers to the dedication of resources such as time, money, or personnel—if the store
carries a large inventory, it will tie up cash.
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also describe decision making as a process of problem solving
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For a
well-structured problem,
the existing state is clear, the desired state is clear, and how to get from
one state to the other is fairly obvious. Intuitively, these problems are simple, and their solutions arouse
little controversy. This is because such problems are repetitive and familiar.
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ill-structured problem
is one in which the existing and desired states are unclear and the method of
getting to the desired state (even if clarified) is unknown
The rational decision-making process:
11.2 The Compleat Decision Maker—A Rational Decision-Making Model
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perfect rationality
is the familiar Economic Person who has the following traits
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He or she can gather information about problems and solutions without cost and is thus completely
informed.
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- Fall '10
- L.Barclay
