Decisions are made in all areas of human endeavor. A glance at the newspaper headlines reveals the breadth of the range. The decision-making process involves economic, political, social, and technical considerations. However, the same decision-making process that may be observed for events worthy of inclusion on the front page of ‘Business Standards’ underpins even the most mundane human events such as eating, sleeping, or attending a show.
This is not to say that the procedure is simple. Intelligent machines communicate with one another as computing technology advances. As mechanical power replaced human muscle power at the beginning of industrialization, computing power will replace brain power, which it has already begun to do. Machines will now make a wide range of decisions involving virtually all fields of human endeavor. The initial focus in this type of decision-making was on modeling machine decisions after human decisions. The focus is now shifting to artificial intelligence processes, which have numerous applications in management.
Human decision-making is an intellectual process in all of its forms. This process has roots in the conscious and subconscious mind and consists of three stages. The very first is cognition. It is the starting point for the mind, which has scoured the environment for facts in order to make a decision. Cognition refers to the discovery or recognition of data in an information system. The second stage is the compilation of recognized facts into usable information systems. In the assembly process, the mind may use convergent or divergent thinking properties. Finally, the decision maker evaluates the cognates in terms of their relevance to a given problem during the testing stage. This intellectual process results in either a decision or not, and any managerial action programs.
One or more subconscious intellectual components may have a negative impact on the decision-making process. Inertia and impatience are the two most common flaws in decision-making. This is a perplexing situation. Fear of change is a common cause of inertia. Impatience may appear to be the polar opposite of inertia on the surface. However, the roots are the same.
Other potential significant contaminants of the decision-making process are either inherent in the individual decision-maker or represent flaws in the general logic employed. In the first case, mental sets are at work that are both consistent and persistent, and they are especially noticeable in unstructured or ambiguous decision-making situations.
While flaws in the general logic can be minimized—though not eliminated—by the appropriate design of the models and quantitative analyses that underpin the decision-making process, flaws in the subconscious decision-making frames of reference can only be examined after a decision has been made. Moving from general to technical thinking, one might begin with tabloid thinking, which is an oversimplification of complex matter. This logical flaw is related to the over-generalization from the specific, and unless very carefully used, the arguments form analogy, e.g., what is good for the public sector is good for India. The first flaw is known as denying the antecedent, while the second is known as affirming the consequent. The first is known to the reader in its most general form as “if A is true, B is true, and thus if A is false, B must be false,” as in “the only way to increase profits is to increase sales.” A may be required or sufficient to make B true, but it is entirely possible that B cannot be false unless A is false. The second, as shown later, is frequently made in forecasting studies or relationship analyses. In its most general form, it is known as “if A is true, B is true, and thus if B is true, A is true.” This statement assumes that the two variables have a reversible cause and effect relationship. Aside from being spurious, cause and effect relationships can be (1) necessary, (2) sufficient, (3) contingent, and (4) contributory.
They are explained further below:
- Necessary implies that A must exist in order for B to occur,
- Sufficient implies that A alone could cause B, but B could also be caused by C,
- Contingent implies that A causes B but only if C is present, or
- Contributory implies that A increases the likelihood of B occurring.
Decision-making under Certainty
As previously stated, decision theory begins with three fundamental concepts: actions, conditions, and outcomes. The decision maker is fully informed, able to compute with perfect accuracy, and fully rational when making decisions under certainty.
Decision under certainty implies that each alternative has one and only one consequence, and that choosing between alternatives is equivalent to choosing between consequences.
Example: There is only one possible outcome for each of the two options: “do nothing” at a future cost of $3.00 per unit for 10,000 units, or “rearrange” a facility at a future cost of $2.80 for the same number of units. The following is a decision matrix (or payoff table):
There is only one State of Nature in the matrix because each action has only one possible outcome (with certainty). The decision is obviously to take the action that will result in the most desirable outcome (at the lowest cost), which is “rearrange.”