Introduction to Managerial Decision Making
This chapter is about judgments and decision making which are cognitive in nature. Whether big or small, we take decisions in everyday life but there are certain steps that can be followed to take decision rationally. It is a six-step process. Humans have limited attention and rationality and cannot be expected to behave rationally in all the circumstances. Humans are natural problems solvers and use heuristics for the same. Heuristics are divided in four parts, viz. available heuristics, representative heuristics, confirmation heuristics and Affect heuristics. This book concentrates on human judgment and rationality in decision making. The book makes us learn that rational behavior cannot be expected all the time from the humans and they bound to take quick and irrational decisions. There are six steps that help anybody take the rational decisions under all circumstances. There are two types of systems that impact our thinking – System 1 and System 2. While system 1 is intuitive, fast and effortless, System 2 is slow, explicit and logical. Thus, we must follow system 2 while taking some of the most important decisions. There are limitations to the human rationality and it is the very basic nature of humans to be heuristic. Humans are problem solvers but do not make efforts to do it rationally. Humans discount the future and take lot of interest in other’s decisions but forget the same while taking their own. Humans also take decisions on the basis of their own benefit or suitability and not on the basis of ethics or being righteous.
There are many ways that the learning in this chapter can be applied. To begin with, applying available heuristic, we can buy those stocks that are traded most or least and thus they are best valued. Similarly, we may apply the learning of representative heuristics to select a job. A job-seeking fresher out of college would prefer big multinational ...