Chapter 3

Chapter 3 - Chapter 3 Making Decisions The best decision...

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Chapter 3 – Making Decisions The best decision maker is rational. He makes consistent, value-maximizing choices within specified constraints. The Rational Model 1. identify and define the problem 2. identify the decision criteria 3. weight the previously identified criteria 4. generate possible alternatives 5. rating ea. alternative on each criterion 6. compute the optimal decision Assumptions of the Model 1. problem clarity – decision maker is assumed to have complete info regarding the decision situation 2. known options – maker can identify all relevant criteria/list alternatives/aware of all possible consequences of alternatives 3. clear preferences – criteria/alternatives can be ranked and weighted to reflect their importance 4. constant preferences – specific decision criteria are constant, weights assigned are stable over time 5. no time/cost constraints – maker can get full info about criteria b/c it is assumed there is no time/cost constraints 6. maximum payoff – maker will choose alternative that yields highest perceived value Uncertainty & Risk Analyzing alternatives = challenging task of decision maker 3 conditions of analyzing 1. certainty — decision maker knows in advance the outcome of the decision 2. risk —conditions where the maker is able to estimate the likelihood of alternatives 3. expected value —concept that lets makers place a numerical value on positive/negative consequences likely to happen from choosing certain alternative Uncertainty = most difficult condition to make decisions under. They rely on intuition or creativity Creativity rational decision makers need this. It’s the ability to make a product, service, idea, procedure, process that’s both novel/unusual and useful Creative potential – most people have this when confronted with decision making prob

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