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Sub: DECISION ANALYSIS

UNIT II

BEHAVIORAL ASPECTS IN DECISION MAKING

By: M Rafeeq

I. Board Framework for Decisions: -

Decision-making is an integral pat of the Management, where explorations of the

behavioural aspects of the decision process were at minimum. In 1950s after development ofdecision theory management gained much more and with the emergence of more

sophisticated and powerful tools of mathematical and statistics.

There are two types of framework models:

1) Closed 2) Open.

1) Closed: - This is the classical decision situation, where a decision maker faces aknown set of alternatives and selects one or several such courses of

action by a rational selection process. (Rational based or season)

2) Open: - It parallels the adaptive or learning model. This particular kind of

framework is designated to facilitate a more complex view of the

decision process. The act of choice spans many dimensions ofbehaviour, rational as well as non-rational aspects.

Both models are not mutually exclusive i.e., they are having same set of basic

decision elements

Decision elements: -

Decision theory is the Complete decision model. A decision model to be complete

means it is Universally applicable and it must solve the most complex as well as simplest

problems.

The six common elements to all decisions are:

1. The state of nature or events - the various possible outcomes for a decision maker,

which are not under the control of decision maker.

2. The decision maker- the individual or group making a choice is referred to as the

decision maker. The decision maker is influenced by facts of the choice situationand his environment i.e., social, political and economic forces around him.

3. The goals and ends to be served In some situations the goals are clearly defined

& operative. In others such as sequential choice situation where choices areinfluenced by past choices and outcomes.

4. The relevant alternatives and the set of actions from which a choice will be made.

5. A relation, which produces an ordering of alternatives in some arrangement6. The choice i.e., the selection of one or some combination of alternatives.

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1. Closed Decision Models: -

Organizations are goal-oriented systems i.e., they are designed to improve the

planning, problem solving and decision making abilities of individuals to achieve goals.

Therefore the most commonly used & accepted analytical framework for choicebehaviour or decision-making in an organization is the closed decision model.

This framework is a concept of rationality rooted to individual choice behaviour.

Individual is faced in a given situation with a number of choices or alternatives or

several possible courses of action each course of action is likely to lead a unique consequence.

We can call individual rational if he takes into account the possible consequence of

actions open to him, according to his estimation and leads to the best or most preferredconsequence.

The ideas rational man makes a choice on the basis of:

1) A known set relevant alternatives with corresponding alternatives.2) An established rule or relation, which produces an ordering of the alternatives.

3) Maximizing, such as many rewards, income, physical goods or some form of

utility.Most widely accepted decision models in management are closed frameworks, which

are structured, closed of the decision maker and with the complexity of act of choice.

Eg:- For closed decision making or rational choice.1. Linear programming problems.

Max Z = 6x1 + 8x2

S+c

4x1 + 6x2 8

3x1 + 6x2 9

Where

x1, x2 0.

- The goals or ends are - Profits (Max)

- The decision makes has feasible alternatives.- Problem solving algorithms such as the simplex method is also used to

obtain optimal solution.

2. Game Theory

2) Open Decision models: -]

In closed system, there are few dimensions of decision environment areselected and applied to decision process. The decision maker is assumed to a logical,

methodical maximizer.

In open system, its total environment continually influences the dimensions.

In open decision models, an individual cannot weigh all alternatives i.e., decision

maker does not posses the ability to recognize and weigh the alternative choices so he cantminimize as done is closed decision models.

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There are two types of open decision models:

1. Single choice open decision model.

2. Multiple choice open decision model.

1. Single choice open decision model : -This model in same ways resembles a dynamic end-means or closed scheme

i.e., the decision is made within the framework of a predetermined goal and

established alternatives.

1 and 3 are compared

level of Take limited Satisfactory

aspiration number of alternatives solution

Period 1 2 3 4

Search sequence Search sequence

Fig:- A single choice Open Model.

The decision maker passes through three time periods = Period1, Period2 and

Period 3.

Period 1: -

The individual starts out with an idealized goal structure, by designing one or moregoals as a first approximation of the ideal goal in the structure. The action goals are

considered as representative of the decision makers aspiration level.

Period 2: -

The individual engages in search activity and defines a limited number of outcomesand alternatives where relations are established. The analysis proceeds from loosely defined

rules of approximation, because it take only limited umber of outcomes and alternatives,

which defines to establish a further search towards a solution.

Period 3: -A search among limited alternatives is undertaken to find a satisfactory as solution,

contrasted with an optimal solution. Satisfactory is defined in terms of the aspiration

level or action goals.

Difference between Closed and Open decision models.

1. An aspiration level replaces predetermined goals.

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2. All alternatives and outcomes are not predetermined; the relationship between

alternatives and outcomes are determined.3. The ordering of all alternatives is replaced by a search routine, which considers

fewer than all alternatives.

4. The individual does not maximise but seeks to find a solution to satisfy anaspiration level.

In a single choice situation, the open models offer a deeper description n ofthe choice process than closed decision models.

2. Multiple choice open model : -

This model is a hierarchy of single-decisions, where each successivedecision is an attempt to improve the outcome in light of new information gained

in the previous decisions. It provides a highly relative simulation of human

problem - solving.

The key element in multiple-choice open models the attainment discrepancy or

the difference between the levels of aspiration and achievement.

In outcome is identified at aspiration level, which can be satisfactory

(unsatisfactory) successful (unsuccessful) according to the magnitude of theattainment discrepancy. In this mode only significant discrepancies (plus or minus)

are considered.

Stage 1 Stage 2

1. Aspiration 1. Aspiration level

level (upward adjustment)

2. Search for limited 2. Search for limited No. of alternatives Attainment Attainment No. of alternatives

Discrepancy discrepancy (smaller range)

3. Searches for Satisfactory 3. Search for Satisfactory

Solution. Solution.

Stage 3

1. Aspiration level]

(Downward adjustment)2. Search for limited No.of alternatives

(larger range)

Attainment

Discrepancy.3. Search for Satisfactory

Solutions.

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The attainment discrepancy controls to reach a stable solution in open

models. In the above fig: it is explicitly assumed that a plus discrepancy increasesthe level of aspiration and decreases the range of search for solutions.

A negative discrepancy decreases the level of aspirations and broadens the range ofsearch. The decision and aspiration level fluctuates between positions of minimum

and maximum potential.

This model is an adaptive one, where decision maker reacts to the outcome by

adjusting his goals (aspiration level) and hence his definition is of an acceptable

outcome.

Limitations of open decision model: -

It is difficult to discover and measure attributes of complex choice situations.

II. Utility of decision Support Systems :-

The advancement in computer technology have witnessed development of DSS(Decision Support Systems). In a DSS, a system is developed to Aid Management in

improving its decision making. The presence of such a system often implies the use

of computer to assist the managers in decision making for semi-structured problems.

DSS is interactive and allows the manager the use of what if questions, so that

a manager can try for different decisions. Its emphasis is an effectiveness of decision

making rather than efficiency.

Break-even analysis, profitability decisions, decision tables, expected values,

decision trees etc are all typical DSS models.