MGMT 3130 Judgment and Decision

Making in Organizations

UNIT 1.1
PROBLEM DEFINITION

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 Where are we now?

Decision Heuristics Choice and Applications

Analysis and Biases Preference
Two systems of
Problem thinking Performance
Prospect theory
definition appraisal
Availability
heuristic
Decisions Motivating
Escalation of
involving multiple Representativeness employees by
commitment
objectives heuristic money? Or…?

Anchoring and Why people

Decision-making adjustment Time and
become bad
under uncertainty preferences
apples?
Embodied
cognition
Collecting more Is more choice
Bounded Going green
information always better?
awareness
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 RECAP
From the previous class, we learned that Decision Analysis (DA) involves
(1) the decomposition of a complex decision problem into a set of smaller
elements (objectives, alternatives, tradeoffs, uncertainties),
(2) the systematical thinking about each element, and
(3) the integration of the results so that a provisional best alternative can
be selected.
Benefits of performing DA
• Provide structure to a complex problem – You need to spell out clearly
the objectives, alternatives, tradeoffs, and uncertainties.
• DA shows you what you should do given the judgments that have been
elicited from you during the analysis.
• Provide a defensible rationale for choosing a particular option by tracing
back through the analysis.
• If the solution suggested by DA is inconsistent with your intuitive feelings,
the conflict can then be explored.
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 UNIT 1.1
PROBLEM DEFINITION

• Getting the problem right: The importance of

problem definition
• Identifying objectives: What are your goals?
(What are your criteria for evaluating the
alternatives?)
• Generating alternatives: What are the different
courses of action you can take to achieve the
objectives?

Hammond, J.S., Keeney, R.L., & Raiffa, H. (2002). Smart Choices: A Practical Guide to Making Better Life
Decisions. New York: Broadway Books. Chapters 2-4.
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 DEFINING YOUR DECISION PROBLEM

• Before you can solve a decision problem, you need to come up with
a problem definition – what the objectives and alternatives are.
• How you define the decision problem will affect the decision that
you reach.
• Let’s play a game to see why it is important to work on problem
definition…

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The nine-dot problem

Without lifting the pencil from Without lifting the pencil from
the paper, draw five continuous the paper, draw four continuous
straight lines which will cross straight lines which will cross
through all nine dots. through all nine dots.

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The orange story

• Once upon a time, two children were

fighting over an orange. Their mother
intervened and gave each half.
• Good solution?
One child ate the fruit and threw away the
skin; the other tossed the fruit and grated
the skin for baking cookies. The interests of
the two were different and compatible.
• What’s wrong with the initial problem
definition? Any false assumptions?

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It’s important to start from the right place

“The initial representation of a problem may be the most crucial single

factor governing the likelihood of problem solution. What may appear as
a formidable problem in one representation may be solved immediately
in another format. A mere change of representation may itself provide a
solution. Whether a problem is solved or not, and how long the solution
will take depend a great deal upon the initial representation.”
--- Posner, Michael I.

Posner, M.I. (1973). Cognition: An Introduction. Glenview, IL: Scott Foresman, p.149.
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 THE ART OF PROBLEM DEFINITION

What’s the best method for defining your decision problem?

Start by writing down your initial representation of the problem,
then question it, and refine it (and refine it, and refine it).
You may try to
Explore beyond the trigger – find out the real problem
Question the constraints and false assumptions
Establish a sufficient problem scope
Get some other perspectives
* These strategies are interrelated.

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 Explore Beyond The Trigger – Find Out The Real Problem

• Triggers can bias your thinking! They can trap you into viewing the
problem only in the way it first occurred to you! Find out the real
problem!!

Example: In a company producing orange soft drink…

Trigger: Consumers complained that “the orange soft
drink is too sweet.”
Problem definition based on the trigger:
Determine consumer preferences for alternative
levels of sugar content.
The real problem: The color of the drink is a dark shade of
orange giving the perception that the product is too “sugary.”

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 Question The Constraints And False Assumptions

• Your problem definition contains constraints…

• For example:
Problem definition: When should we conduct the 3-month market
test of our new product in southern China?
Constraints: There will be a market test. It will last for 3 months.
It will be in southern China.
• Constraints can simplify the problem; but may exclude good
solutions, especially when constraints are based on false
assumptions. (Remember the false constraints you imposed in the
nine-dot problem?)

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The case of product variety in car manufacturing

• At the early stage of industrial revolution, cars were mass-produced

using assembly lines, but product variety was limited.
• A famous quote by Henry Ford: “My customers can have a car painted
any color they want as long as it is black.”

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• Starting from 1940s, customers wanted more product variety. The
automobile industry faced a challenge: Changing from the production of
one model to another took time while machinery was set up or
reconfigured.

Frequent switching: Infrequent switching:

The changeover time Production runs that are too
(taken for granted as long cause high inventory
6-8 hours) causes loss levels, and hence high
of production. inventory holding costs.

• Ford (and other U.S. car manufacturers) applied mathematical models

to determine the optimal length of production runs of particular car
models.
• Japanese manufacturers, particularly Toyota, questioned the assumption
of fixed changeover time, and eventually got it down to 44 seconds.
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 Establish A Sufficient Problem Scope

• Broader vs. narrower problem scope:

Should related decisions be made part of this decision? Should part
of this decision be peeled off and dealt with separately?
• Too narrow of a problem scope can leave out important objectives
and valuable alternatives.

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The New Coke Case
• Shrinking market share faced by Coca-Cola
• Taste problem? Need a new formula?
• Invested US$4,000,000 in 200,000 blind taste
tests; results showed that the new formula was
preferred over the existing one and Pepsi’s.
• On 23 April 1985, New Coke was introduced…
• What has gone wrong? What should Coca-Cola
have done?

An ideal solution for a problem that is too

narrowly defined could be a poor solution for a
more broadly and accurately defined problem!

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 Gain Insights By Asking Others How They See The Problem

• Consider a magazine that has been experiencing a decline in its

readers over the past 2 years
Reason: Lack of Reason: Change of
resources to develop Reason: Lack of reading habit from
quality reports/stories. marketing efforts. printed to online
Key decision: What is Key decision: What is materials.
the best way to the best way to raise Key decision: What is
improve the articles’ product awareness? the optimal
quality? online/offline mix?

Media
Journalists Marketing consultants
experts

• Hopefully the new perspectives will help clarify the root-cause and
expose unnecessary constraints.
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 CASE STUDY: SAVING LIFE

Background Information:
You belong to the “Kidney Dialysis Patient Selection Committee” of the
Kidney Services Center. This Center is a private hospital that provides
outpatient renal dialysis to patients with kidney failure. The center
operates twelve hours a day, five days a week.
End-stage renal disease (ESRD) is a medical condition in which the kidneys
stop functioning. When this happens, the body can no longer cleanse
toxins that accumulate in the blood. The buildup of toxins is life
threatening. If the toxic buildup is not cleansed, ESRD patients typically
have a life expectancy of eight days.
Outpatient renal dialysis is a medical procedure in which the ESRD patient
is connected to an artificial kidney machine. The patient’s blood is
transferred to the machine where it is cleansed of toxins and then
returned to the patient’s body. The procedure usually takes five hours.
Most ESRD patients require three treatments a week.
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To: Kidney Dialysis Patient Selection Committee [You]
From: Chief Executive Officer, Kidney Services Center
Thank you for agreeing to serve on the Kidney Dialysis Patient Selection
Committee. The committee is empowered to select patients for treatment
at our center. This is a critically important function both for the center and
for people living with end-stage renal disease (ESRD). Your appointment is
for a term of three years. During this three year period, you and the other
group members will make all the patient selection decisions at our center.
This means you will need to develop criteria that we can use consistently
over the long term to make the patient selection decisions.
Currently, we have 7 patients competing for access to the dialysis treatment.
Without treatment, these patients will die within eight days. But the sad
reality is that we only have capacity to accept two additional patients for
long term dialysis at this time. I charge you to select two patients for
immediate access to treatment and make any additional recommendations
the committee deems appropriate. Because time is urgent, please report
back to me within one week.

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Attachment: List of Kidney Dialysis Candidates

Name Sex Age Medical History Social History

A M 16 Kidney failure secondary to Single. Arrested for drug
drug use dealing. Currently unemployed.
B F 37 Congenital deterioration of Married, 2 teenage children.
kidneys since childhood Social worker.
C M 65 Kidney failure secondary to Widow, 1 grown child.
high blood pressure Community volunteer.
D M 42 Kidney failure secondary to Married, 6 young children.
high blood pressure Security guard.
E F 31 Kidney failure secondary to Married, 1 young child.
domestic violence Kindergarten teacher.
F M 26 Kidney failure secondary to Single.
alcohol abuse Actor.
G F 39 Temporary renal shutdown Single.
as complication from Bio-technology researcher.
gastrointestinal surgery
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Your task:
Draft a reply to the CEO of the Kidney Services Center

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Debriefing: Saving Life

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Debriefing: Saving Life (continued)

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You’ve formulated the right decision problem. What’s next?

Now you need to think about

• Objectives – your criteria for evaluating the alternatives
• Alternatives – courses of action you can take to achieve the
objectives
With objectives and alternatives specified, you can construct a
consequence table that presents how well each alternative meets
each objective.

Alternatives

Objectives

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 THE ART OF IDENTIFYING OBJECTIVES

Step 1: Compose a wish list – Write down all the concerns you
hope to address through your decision
Flesh out your wish list by trying these techniques:
• If you know some of your alternatives, ask “what makes one
alternative better than another?”
• Consider a great – even if unfeasible – alternative. What’s so
good about it?
• Think about the worst possible outcome. What do you most
want to avoid?

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• For example: You are considering accepting a job offer
• Attractive salary
• Flexible work hours
• Beautiful office inferior
• Time for family and friends
• Meaningful job
• Learning opportunity
• Do people pay attention to all objectives?
Most people tend to concentrate on the tangible over the
intangible; as well as to stress the short term over the long terms.

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Step 2: Organize the objectives – Build an objective hierarchy
• Fundamental objective – the objective is important for its own sake.
• Means objective – the objective is important because of its
implications for a fundamental objective.

Fundamental
objective

Means Means
objective 1 objective 2

Means Means
objective 2.1 objective 2.2

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 To move: Downward in the hierarchy (away from fundamental
objectives)
Ask: “How could you achieve this?”
“What are the key components of this objective?”
To move: Upward in the hierarchy (toward fundamental objectives)
Ask: “Why is that important?”
“Of what more general objective is this aspect?”

E.g. You are considering accepting a job offer

Time for family Attractive Enjoyment at Learning
and friends salary work opportunity

Vacation Flexible Office Meaningful Colleagues who

days work hours inferior job share your values
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 Step 3: Compose your objective list
• For each fundamental objective, choose a level of aggregation most
helpful to you.
• Your objective list should not include both a fundamental objective
and its supporting means objectives; if you do so in evaluating
alternatives, you will give too much weight to that particular
fundamental objective.

E.g. You are considering accepting a job offer

Time for family Attractive Enjoyment at Learning

and friends salary work opportunity

Vacation Flexible Office Meaningful Colleagues who

days work hours inferior job share your values

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Your objective list should be:
• Complete – all the attributes that are of concern to you should
have been included.
• Measurable – you can judge how well your alternatives are
along the objectives.
• Absence of redundancy – objectives do not overlap, are not
referring to the same thing.
• Minimum size – any meaningful analysis could be impossible if
the list is too large.
To ensure this, objectives should not be decomposed beyond
the level where they can be evaluated. Sometimes the size can
be reduced by eliminating objectives that do not distinguish
between the alternatives.

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 GENERATING ALTERNATIVES

Now you need to think about your alternatives.

• Alternatives are different courses of actions for pursuing your
objectives.
• It’s important generating quality alternatives.
You can never choose an alternative you haven’t considered
• Unfortunately, people don’t tend to think a lot about alternatives,
they box themselves in with limited alternatives.
Let’s play a game to illustrate this…

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The water jar problem

Problem 1: Instruction:
I want to have 100 ml water Using the 3 water jars, get me
the required amount of water
within 5 steps.
For example, solution for this
problem is:
B–A–C–C
B

A
127 ml C
21 ml
3 ml

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The water jar problem – Answer sheet

B –A– C – C
Problem 1: __________________
Problem 2: __________________
Problem 3: __________________
Problem 4: __________________
Problem 5: __________________
Problem 6: __________________
Problem 7: __________________
Problem 8: __________________

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 The water jar problem is adopted in the following experiment:
Procedures:

A series of problems that can only be solved

by the same solution (the familiar solution)

Time

Group 1
A problem that can be solved
by the familiar solution or by
a much simpler solution

Time

Group 2

Luchins, A.S. (1942). Mechanization in problem solving: The effect of Einstellung. Psychological Monographs,
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54(6): Whole No. 248.
Results:
• Group 1: Applied the familiar solution to solve the final problem.
Didn't ‘see’ the simpler solution until it was pointed out.
• Group 2: Saw the straightforward solution without difficulty.
Lesson learned:
Our thoughts can become mechanized, we tend to follow a previously
successful way of solving problem without evaluating whether it is
best suited to the problem in hand.

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Estimated No. of sales in millions (worldwide) The case of the Nintendo cartridge:
70

60
The introduction of high-volume
50 CD-ROM
Sony’s PlayStation
40

30

20

10

0
Famicom Super Famicom N64 GameCube
1983 1990 1996 2001
Source: www.nintendo.com 35
The worst way to generate alternative is to “get boxed” in with a
single alternative, which can be:
• Existing solution: Use a previously devised alternative with
incremental changes.
• Single benchmarking: Copy the practices of a single
organization/work unit thought to have high prestige.
• Single search: Get boxed in with a single alternative presented by
others, e.g. vendor, consultant.
All these tactics have high failure rates!!!

Nutt, P. C. (1999). Surprising but true: Half the decisions in organizations fail.
Academy of Management Perspectives,13(4), 75-90.
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 TIPS TO GENERATE BETTER ALTERNATIVES

How can we generate better alternatives?

Reexamine your problem definition to remove unnecessary
constraints
Multitrack: Integrate multiple alternatives
Consider process alternatives & information-gathering alternatives
Cultivate creativity-enhancing organizational environment

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Reexamine Your Problem Definition To Remove Unnecessary Constraints

Example: A subordinate of you quit.

• The traditional practice is to promote from within, you look around
the company to see “which of my existing employees is most
suitable for the position?”
Alternatives: Existing employees
• May be you can consider external hiring
Alternatives: Potential job applicants
• May be you can consider: “How can I make sure that the work this
subordinate did before can still get done?”
Alternatives: Different ways of job restructuring

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Example: Dyson’s bagless vacuum cleaner
• In 1978, James Dyson became frustrated with
his vacuum cleaner’s diminishing performance.
Taking it apart, he discovered that its bag was
clogging with dust, causing suction to drop.
• Problem definition: “What kind of bags can improve suction
performance?”
Alternatives: Modifying different aspects of the bag

• Problem definition: “What are the ways to separate dirt from the air?”
Alternatives:
 Bags (by acting as a filter that traps the dirt and lets the air pass
through pores in the bag)
 Industrial cyclones (by creating a spinning mass of air that throws
particles to the edges by centrifugal force)
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 Multitrack: Integrate Multiple Alternatives

Consider the following experiment:

The task of participants is to design graphic Web advertisements.

“Single-prototype”
condition

“Multiple-prototype”
condition

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 Results:
As measured by click-through data and expert ratings, ads created
in the “multiple-prototype” condition significantly outperformed
those from the “single-prototype” condition.
Why? Participants in the “multiple-prototype” condition benefit
from more exploration, identifying the best features from each
prototype and combining them.
Lesson learned:
Push for “this AND that” rather than “this OR that.”
Benchmarking with multiple organizations; request for proposals
from multiple vendors or consultants.

Dow, S.P. et al. (2010). Parallel prototyping leads to better design results, more divergence, and
increased self-efficacy. ACM Transactions on Computer-Human Interaction, 17(4), 1-24.
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 Consider Process Alternatives &
Information-Gathering Alternatives

Process alternatives
• E.g. flipping a coin, voting, auctions
• Cannot satisfy everyone’s needs; Help to ensure the procedural
fairness of decisions involving parties with conflicting interests.
Information: weather forecast
Information-gathering alternatives
• Collect information to dispel the clouds of uncertainty
• E.g. market tests of potential new products
• But collecting information also means deferring a decision,
alternatives may disappear or erode in the interim.

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 Cultivate Creativity-enhancing Organizational Environment
From the video, what are the
important ingredients of
creativity? Where good ideas
come from?
To enhance creativity, managers can
• Hire people from diverse
backgrounds (diversity among
individuals).
• Create space (physical/virtual,
time, psychological safety) for
cultivation and sharing of ideas.
• Respect multiple ways of being
– to facilitate identity integration
(diversity within an individual).
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Identity Integration

• An individual has multiple social identities

E.g. Mamta is simultaneously a woman, an engineer, a Buddhist,
an Asian.
• Social identities may be seen as conflicting.
E.g. For women engineers, a strong gender identity often
conflicts with a strong professional identity.
• Depending on which one of these social identities is activated,
different knowledge systems (related to that identity) come to the
foreground.
• People have different tendencies in integrating multiple identities
(i.e. different degree of identity integration).
• Identity integration increases the chance of knowledge integration
(within the individual) and thus enhances creativity.

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A study on identity integration
• Women engineers have various degrees of identity integration:
Low in identity-integration:
“I am simply a woman working in engineering.”
“I keep everything about being a woman and being an engineer
separate.”
High in identity-integration:
“I am a female engineer.”
“My identity is best described by a blend of both a woman and an
engineer.”
• How does identity integration affect creativity of women engineers?
• Research findings: The “High II” are more creative in generating cell
phone features that are attractive for women (a domain where
knowledge from both identities is important) than the “Low II.”

Cheng, C.Y., Sanchez-Burks, J., & Lee, F. (2008). Connecting the dots within: Creative performance and
identity integration. Psychological Science, 19(11): 1178-1184. 45
Implications of identity integration on organizational practices
• Women often describe themselves as “not belonging”, “out of
place,” or “misplaced” in the professional world dominated by
males; they feel like they are forced to dress/behave like men.
• Also think of new immigrants in today’s workplace.
• If managers force people to suppress parts of their multiple
identities, they limit a potentially valuable source of creativity.
• To enhance creativity, managers should respect multiple ways of
being; help minorities to focus on the positive aspects of their
multiple identities rather than creating hardships to them.

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Time for REFLECTION

What ideas/concepts in Unit 1.1 surprised you most?

What’s your key takeaway?

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 INTENDED LEARNING OUTCOMES FOR UNIT 1.1

By now, you should be able to:

• Define your decision problem. Explain why is it important to (1)
examine beyond the trigger, (2) question the constraints, (3)
establish sufficient problems scope, and (4) gain insights from
others.
• Construct a good objective list for your decision problem, and
explain why the list is good.
• Generate quality alternatives for your decision problem.
Explain what’s good about (1) multitrack, (2) process alternatives,
& (3) information-gathering alternatives.
Also suggest organizational practices that enhance creativity.

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