Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Secondly, the manager should consider calculating an expected value for every concluded branch, then each probable node and every decision node as a simple means of identifying expected values for each decision alternative. While the expected value is equal to the payoff, it is also the product of its probability and payoff.
Due to its results, the expected value rule is regarded as the most reliable way of judgment in managerial decision making because of its reliability in maximizing anticipated profit. However, the ability of a manager to reach actual decisions and maximize profit through this tool is based on his/her willingness to accept risk. The expected value rule is reliable because it enables managers to have different attitudes towards risk-taking in the process of making decisions. The different attitudes in turn enable managers to make risky decisions in ways that maximizes expected utility of the valuable or profitable outcomes.
An example of the application of the expected value rule to make a decision involved deciding whether to purchase a new automatic security...
This decision was fueled by the need to enhance security given the recent increase of insecurity. I started by looking at the payoffs of each of these decision alternatives, which is improved security. The purchase and installation of an automatic security system would require huge one-off cost of nearly $1,000 while employing a security guard will cost approximately $500 per month. While the second decision alternative is cheaper in the short-term, it is expensive in the long-run. Therefore, I decided to purchase and install an automatic security system because it will cost less in the long-term and help enhance security.
References:
Olivas, R. (2007). 3.4. Expected Value. Retrieved April 10, 2014, from http://www.stylusandslate.com/decision_trees/3_0_basic_concepts/3_4_expected_value/3_4_expected_value.html
Thomas, C.R. & Maurice, S.C. (2008). Decisions Under Risk and Uncertainty. In Managerial
Economics (9th ed., Chapter 15). Retrieved from http://highered.mcgraw-hill.com/sites/0073402818/student_view0/chapter15/
Judgment in Managerial Decision Making: Availability, representativeness, and affect heuristics The availability heuristic can best be summed up 'if it is not worth being remembered, it is not important.' In short, if a problem is available (i.e., preoccupying the manager) it is assumed to be more important than one which is not. Sometimes dealing with immediate problems are necessary, such as when managing a crisis or during an organization's busy season. However,
A year later, Soviet's premier in collaboration with Cuba installed nuclear missiles on the Cuban island, a few miles from the U.S. This decision triggered the Missile Crisis in Cuba and many global leaders feared the possibility of a nuclear war (Blight & Kornbluh, 2007). Focalism / focusing illusion played a part in this failure As evidenced above, Kennedy's reign offers potent examples of the psychological theory about flawed focusing illusion
Some of that came from the sunk costs, but much of it also came from the escalation of commitment between the countries, as well (Beniada, 2006). In other words, if there are two entities working on a project and one of them says it will not back down and will finish the project, the other entity will often do the same to save face and to keep its commitment.
Judgment in Managerial Decision Making Almost everyone has, at some point, been a victim of groupthink -- perhaps by thinking of speaking up in a meeting, and then deciding not to, so as not to appear unsupportive of the team's stand. Although such occurrences are quite common, and may appear quite normal, they are indicative of faulty thinking. Groupthink is, in basic terms, "a phenomenon that occurs when the desire for
To this end, synergy can be likened to economies of scope, whereby the quality of decisions reached goes up with the inclusion of more minds (Nelson & Quick, 2012). Information-sharing is based on the idea that every individual possesses some unique information besides that which is known by everyone (Nelson & Quick, 2012). When several individuals come together in a group, they consolidate these unique pieces of information, creating
Judgment in Managerial Decision Making Linear Decision Making Linear decision making works by looking at, essentially, a "straight line of choices" that involves picking one option even when the future options cannot be seen. This is important to consider, because it allows a person to address a potential issue in a way that requires careful thought. As the person moves down the line of choices, he or she has to decide each