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Organizational Psychology

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Organizational Psychology­ (PSY510)
VU
LESSON 29
DECISION MAKING
Decision making may be defined as choosing one alternative form among several. A decision maker's
actions are guided by a goal. Each of several alternative courses of action is liked with various outcomes.
Information is available on the alternatives, on the likelihood that each outcome will occur, and on the value
of each outcome relative to the goal. The decision maker chooses one alternative on the basis of his or her
evaluation of the information. It is largely the technique for narrowing choices. The task of rational decision
making is to select the alternative that results in the more preferred set of all the possible consequences.
Decisions made in organizations can be classified according to frequency and to information conditions. In
a decision-making context, frequency is how often a particular decision recurs and information conditions
describe how much information is available about the likelihood of various outcomes.
History
The decision making process is often broken down into steps. According to Herbert Simon, following are
the steps of decision making:
·  Intelligence activity
Intelligence here has been taken from the military. It means, gathering information about the
environment and the alternatives.
·  Design activity
It is the process of developing and analyzing possible course of action.
·  Choice activity
This the final stage of decision making, i.e. making the choice of the alternative.
Mintzberg has also given steps of decision making as follows:
·  Identification
It is the phase during which a problem arises and is identified. In other words, diagnosis of the problem
is made.
·  Development
This is the step in which the problem is compared with existing standards and procedures to see if it
could be solved using these. Otherwise, a new procedure is developed of solving the problem. The
development of this new procedure is purely based on trial and error.
·  Selection
This is the final step in which the choice of the alternative is made.
Rationality in Decision Making
If appropriate means are chosen to reach the desired results, the decision is said to be rational. Rationality in
decision making is means to an end. But, modern organizations do not always make decisions on rationality.
All possible options or approaches to solving the problem under study are identified and the costs and
benefits of each option are assessed and compared with each other. The option that promises to yield the
greatest net benefit is selected. The main problem with rational-comprehensive approaches is that it is often
very costly in terms of time and other resources that must be devoted to gathering the relevant information.
Often the costs and benefits of the various options are very uncertain and difficult to quantify for rigorous
comparison. The costs of undertaking rational-comprehensive decision-making may themselves exceed the
benefits to be gained in improved quality of decisions.
Rationality in organizational decision making is of the following kinds:
Objective rationality
Can be applied to decisions that maximize value since value maximization is the ultimate goal of the
organization.
Subjective rationality
It is when a decision-maker is rational to the extent that she chooses a strategy which she believes will
produce the optimal consequence.
Deliberate rationality
A decision is made deliberately rational by the decision maker when he or she adjusts the means for the end
deliberately. In other words, it is when the decision maker or the manager creates a situation that the
decision become favourable.
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Organizational Psychology­ (PSY510)
VU
Personal Rationality
Personal rationality is when the decision is directed towards personal goals rather than organizational goals.
Organizational rationality
It is when the decisions are directed towards the organizational goals.
Models of Decision Making
Economic Rationality Model
It is a perfectly and completely rational model based upon economic dictates. It is based on the classical
economic model and assumes that all decisions are made rationally. Further, it assumes that there is
awareness of all alternatives to the decision maker and the decision maker has a system of preferences to
make the decision. All decisions are directed towards the point of maximum profit, i.e. MC=MR, where
marginal costs equal marginal revenue-an economic model. It is a basically a quantitative model and not
supported by the modern economic models.
Social Model
This model regards humans as collections of feelings, emotions and unconscious wishes, therefore their
decision making also reflects the same. It is opposite to the Economic Rationality Model and takes into
view the humanistic side. Psychological influences have a significant impact on decision making and the
social model takes into account all these influences. The environment, peer pressure, experience and many
other factors influence decision making which is the basis of the Social Model.
Simon's Bounded Rationality Model
It is similar to the the econo-logic model but keeps in view people's and organization's idiosyncrasies and
limitations. In other words, it as an alternative to the Economic Rationality Model. According to this model,
the decision makers or the mangers take a simplistic view of the world and therefore look for the best
alternative rather than trying to maximize everything. They therefore use simple tools for decision making
and make their choices easily considering all the constraints of the practical world.
Judgemental, heuristics and biases model
This model regards that decision making is based upon heuristics (simplifications) and biases. Specific
systematic biases influence judgement and decision making. These biases are developed either from
experience or some other source. According to Kahneman and Tversky, decision makers rely on
simplification for making the decisions. The take into account more factors than just the economic factors.
Following are some of the biases that influence decisions:
Availability
This bias arises due the frequency of occurrence of something. In other words, the activity or happening
that is frequently available in the memory influences decision making. When a manager hires a business
graduate from a business school and finds him to be hard working, he is likely to hire another one from the
same school when given a choice the next time, based on the recollection from this memory.
Representativeness
This bias arises due to the tendency of the decision maker to find similarity between something previously
done and the alternative presented to him. His decision is influenced by this similarity. If the similarity
reveals a positive result in the past, he or she is likely to accept and vice versa.
Anchoring
This bias is based on held views. The given situation is likely to have an impact on the decision maker'
choice. If presented with a result at the start, the decision maker is likely to derive the same result or build
upon the same result.
Research show that decisions are made on all of the above basis.
Decision Making Styles
Following are four decision making styles in organizations:
Directive
Decagon makers with a directive style have a low tolerance for ambiguity and are oriented toward task and
the technical concerns. They are autocratic in nature.
Analytical
These decision makers tend to evaluate information and alternatives. The also have a high tolerance for
ambiguity and a strong task and technical orientation.
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Conceptual
These decision makers are risk takers and have a broad perspective. They tend to envision things and take
into account people and social concerns. They are often innovative.
Behavioural
These decision makers are supportive and warm. They are usually democratic in style and tend to take into
account people's concerns. They have a low tolerance for ambiguity.
REFERENCES
·  Luthans, Fred. (2005). Organizational Behaviour (Tenth Edition). United States: McGraw Hill Irwin.
·  Mejia, Gomez. Balkin, David & Cardy, Robert. (2006). Managing Human Resources (Fourth Edition).
India: Dorling Kidersley Pvt. Ltd., licensee of Pearson Education in South Asia.
·  Robbins, P., Stephen. (1996). Organizational Behaviour (Seventh Edition). India: Prentice Hall, Delhi.
·  Huczynski, Andrzej & Buchanan, David. (1991). Organizational Behaviour: An Introductory Text
(Second Edition). Prentice Hall. New York.
·  Moorhead, Gregory & Griffin, Ricky. (2001). Organizational Behaviour (First Edition). A.I.T.B.S.
Publishers & Distributors. Delhi.
·  Decision
making:
Retrieved
from:
http://unpan1.un.org/intradoc/groups/public/documents/unssc/unpan022443.pdf
FURTHER READING
·  A Glossary of Political Economy Terms. Paul M. Johnson, Department of Political Science, 7080 Haley
Center, Auburn University: http://www.auburn.edu/~johnspm/gloss/rational-comprehensive
·  Armstrong, Thomas. 7 Kinds of Smart: Identifying and Developing Your Many Intelligences, New
York: Plume, 1993: http://www.thomasarmstrong.com/books_videos.htm#7 Kinds of Smart
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Table of Contents:
  1. INTRODUCTION TO ORGANIZATIONAL PSYCHLOGY:Hawthorne Effect
  2. METHODOLOGIES OF DATA COLLECTION:Observational method, Stability of Measures
  3. GLOBALIZATION:Aspects of Globalization, Industrial Globalization
  4. DEFINING THE CULTURE:Key Components of Culture, Individualism
  5. WHAT IS DIVERSITY?:Recruitment and Retention, Organizational approaches
  6. ETHICS:Sexual Harassment, Pay and Promotion Discrimination, Employee Privacy
  7. NATURE OF ORGANIZATIONS:Flat Organization, Neoclassical Organization Theory
  8. ORGANIZATIONAL CULTURE:Academy Culture, Baseball Team Culture, Fortress Culture
  9. CHANGING ORGANIZATIONAL CULTURE:Move decisively, defuse resistance
  10. REWARD SYSTEMS: PAY, Methods of Pay, Individual incentive plan, New Pay Techniques
  11. REWARD SYSTEMS: RECOGNITION AND BENEFITS, Efficiency Wage Theory
  12. PERCEPTION:How They Work Together, Gestalt Laws of Grouping, Closure
  13. PERCEPTUAL DEFENCE:Cognitive Dissonance Theory, Stereotyping
  14. ATTRIBUTION:Locus of Control, Fundamental Attribution Error
  15. IMPRESSION MANAGEMENT:Impression Construction, Self-focused IM
  16. PERSONALITY:Classifying Personality Theories, Humanistic/Existential
  17. PERSONALITY ASSESSMENT:Standardized, Basic Categories of Measures
  18. ATTITUDE:Emotional, Informational, Behavioural,Positive and Negative Affectivity
  19. JOB SATISFACTION:The work, Pay, Measurement of Job Satisfaction
  20. MOTIVATION:Extrinsic motive, Theories of work motivation, Safety needs
  21. THEORIES OF MOTIVATION:Instrumentality, Stacy Adams’S Equity theory
  22. MOTIVATION ACROSS CULTURES:Meaning of Work, Role of Religion
  23. POSITIVE PSYCHOLOGY:Criticisms of ‘Traditional’ Psychology, Optimism
  24. HOPE:Personality, Our goals, Satisfaction with important domains, Negative affect
  25. EMOTIONAL INTELLIGENCE:EI IS Related To Emotions and Intelligence
  26. SELF EFFICACY:Motivation, Perseverance, Thoughts, Sources of Self-Efficacy
  27. COMMUNICATION:Historical Background, Informal-Formal, Interpersonal Communication
  28. COMMUNICATION (Part II):Downward Communication, Stereotyping Problems
  29. DECISION MAKING:History, Personal Rationality, Social Model, Conceptual
  30. PARTICIPATIVE DECISION MAKING TECHNIQUES:Expertise, Thinking skills
  31. JOB STRESS:Distress and Eustress, Burnout, General Adaptation Syndrome
  32. INDIVIDUAL STRESSORS:Role Ambiguity/ Role Conflict, Personal Control
  33. EFFECTS OF STRESS:Physical Effects, Behavioural Effects, Individual Strategies
  34. POWER AND POLITICS:Coercive Power, Legitimate Power, Referent Power
  35. POLITICS:Sources of Politics in Organizations, Final Word about Power
  36. GROUPS AND TEAMS:Why Groups Are Formed, Forming, Storming
  37. DYSFUNCTIONS OF GROUPS:Norm Violation, Group Think, Risky Shift
  38. JOB DESIGN:Job Rotation, Job Enlargement, Job Enrichment, Skill Variety
  39. JOB DESIGN:Engagement, Disengagement, Social Information Processing, Motivation
  40. LEARNING:Motor Learning, Verbal Learning, Behaviouristic Theories, Acquisition
  41. OBMOD:Applications of OBMOD, Correcting Group Dysfunctions
  42. LEADERSHIP PROCESS:Managers versus Leaders, Defining Leadership
  43. MODERN THEORIES OF LEADERSHIP PROCESS:Transformational Leaders
  44. GREAT LEADERS: STYLES, ACTIVITIES AND SKILLS:Globalization and Leadership
  45. GREAT LEADERS: STYLES, ACTIVITIES AND SKILLS:Planning, Staffing