LO2 - Identifying Problems and Opportunities

• Five Problem Identification Challenges:​


  • Solution-focused problems.​
  • Decisive leadership.​
  • Stakeholder framing.​
  • Perceptual defence.​
  • Mental models.
• Problems and opportunities are constructed from ambiguous  and conflicting information.
• The tendency to engage in perceptual defence (or its

  variation, called repressive coping) is a coping mechanism.
• mental models 


  Knowledge structures that we develop to describe, explain, and predict the world around us.
• Identifying Problems Effectively​


  1. Be aware of problem identification biases.​
  2. Resist temptation of looking decisive.​
  3. Develop a norm of “divine discontent” (aversion to complacency).​
  4. Discuss the situation with others.
• bounded rationality 


  The view that people are bounded in their decision-making capabilities, including access to limited information, limited

  information processing, and tendency toward satisficing

  rather than maximizing when making choices.
• Choosing alternatives

  
• Rational Choice Assumptions​


  • Goals are clear, compatible, and agreed upon.​
  • Decision makers can calculate all alternatives and their outcomes.​
  • Decision makers evaluate all alternatives simultaneously.​

  Decision makers use absolute standards to evaluate alternatives.​

  Decision makers use factual information to choose alternatives.​

  Decision makers choose the highest payoff alternative (maximization).​
• OB Evidence​


  Goals are ambiguous, in conflict, and lack full support.​

  Decision makers have limited information-processing abilities.​

  Decision makers evaluate alternatives sequentially.​

  Decision makers evaluate alternatives against an implicit favourite.​

  Decision makers process perceptually distorted information.​

  Decision makers choose the “good enough” alternative (satisficing).​
• implicit favourite 


  A preferred alternative that the decision maker uses repeatedly as a comparison.
• confirmation bias


  The process of screening out information that is contrary to our values and assumptions, and to more readily accept confirming information.
• psychologists Amos Tversky and Daniel Kahneman


  discovered that human beings have built-in decision heuristics that automatically distort those calculations.
• Sequential Evaluation and Implicit Favourite Biases​

  Rational choice: evaluate alternatives concurrently using unbiased valences and probabilities.​

  Reality: We use implicit favourite to compare each alternative sequentially.
• Why sequential evaluation with an implicit favourite?​


  1. Alternatives not all available at same time.​
  2. Natural human preference for comparing two choices.​
  3. People are cognitive misers (confirmation bias).​
  4. Human need for cognitive consistency and coherence.
• Biased Decision Heuristics​


  • Rational choice: calculate alternative with highest expected satisfaction.​

  Reality: We have built-in decision heuristic biases.
• Biased Decision Heuristics​

  1. Anchoring and adjustment
  2. Availability heuristic
  3. Representativeness heuristic
• 1. Anchoring and adjustment:​


  • Adjusting expectations/standards around an initial anchor point (e.g. opening bid).
• Anchoring and adjustment


  A natural tendency for people to be influenced by an initial anchor point such that they do not sufficiently move away from that point as new information is provided.
• Availability heuristic


  A natural tendency to assign higher probabilities to objects or events that are easier to recall from memory, even though ease of recall is also affected by nonprobability factors (e.g., emotional response, recent events).
• Availability heuristic:


  • Estimating probabilities by how easy event is recalled, even if ease of recall is also due to other factors.
•  Representativeness heuristic:


  • Estimating the probability of something by its similarity to known others rather than by more precise statistics.
• representativeness heuristic


  A natural tendency to evaluate probabilities of events or objects by the degree to which they resemble (are representative of) other events or objects rather

  than on objective probability information.
• satisficing


  Selecting an alternative that is satisfactory or “good enough,” rather than the alternative with the highest value (maximization). or “good enough,” rather than the alternative with the highest value (maximization).
• Problems with Maximization​


  Rational choice: Maximization is choosing the highest value alternative.
• Three human limitations:​ (Problems with Maximization​)

  1. People engage in satisficing – first “good enough” alternative.​
  2. People oversimplify the decision process.​
  3. People avoid making any decision when too many choices are presented.