Course. Judgment and Decision Making
- Raise students’ awareness of perception, judgement and decision making.
- Familiarise students with various decision-making models and tools.
- Improve students’ decision-making skills.
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Judgment and Decision Making
Making judgment
Good judgment
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In their book Judgment: How Winning Leaders Make Great Calls (2007), Noel M. Tichy and Warren G. Bennis focus on judgment as a key leadership skill and explain why “a keen sense of judgment is what makes or breaks a leader,” with judgment being “the core of exemplary leadership” as “long-term success is the sole marker of good judgment.” They define judgment as “a contextually informed decision-making process encompassing three different domains: people, strategy, and crisis. Within each domain, leadership judgments follow a three-phase process: preparation, the call, and execution. Good leadership judgment is supported by contextual knowledge of one’s social network, organization, and stakeholders.” (Table 1)
Table 1. The three judgment domains: people, strategy and crisis
Source: Tichy, N., & Bennis, W. (2008). Judgment: How Winning Leaders Make Great Calls. [Concordville, PA]: Soundview Executive Book Summaries.
Andrew Likierman (2020) defines judgment as “the ability to combine personal qualities with relevant knowledge and experience to form opinions and make decisions”, arguing that good judgment helps us make better choices, both in the absence of sufficient information or an obvious path, and in cases of relevant data gathered and all pros and cons explained.
As for the elusive nature of good judgment, Likierman notes, “A lot of ink has been spilled in the effort to understand what good judgment consists of. Some experts define it as an acquired instinct or “gut feeling” that somehow combines deep experience with analytic skills at an unconscious level to produce an insight or recognize a pattern that others overlook.” But acknowledging what sound judgment is may still be far away from knowing how to develop a better sense of it.
As a result of his research, Likierman outlines six key elements of good judgment: learning, trust, experience, detachment, options, and delivery; and further discusses the skills that need to be developed to enhance each key element and ultimately provide better judgment. (Table 2)
Table 2. How to have better judgment
Source: Based on Likierman, A. (2020). The Elements of Good Judgment. Retrieved 9 November 2021, from https://hbr.org/2020/01/the-elements-of-good-judgment
The interdisciplinary theory of judgment and decision making has emerged as a result of the work done by psychologists, behavioral economists, and cognitive neuroscientists. For example, as illustrated in Table 2, the concept of bias, along with other psychological ideas, is a recurrent reference in the theory of judgment and decision making, indicating the close link between perception and judgment.
Example: Now a textbook example of good judgment (the story is also quoted by Likierman (Ibid.)), a Soviet military officer’s decision may well have prevented mass destruction in the cold war period. Lieutenant colonel Stanislav Petrov chose to follow his gut feeling, ignoring satellite data that suggested a 100 per cent probability of a missile attack. He decided to report the incident as a system malfunction instead. It transpired that satellites had read reflected sunlight as a missile attack.
Assignment:
Watch this video:
How does the female speaker’s non-verbal communication undermine her verbal message? Do you trust this person? In what way is your judgment influenced by this person’s body language?
Compare your ideas on the video with Trevor Noah’s comments in The Daily Show with Trevor Noah here:
The link between judgment and perception
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How you perceive the world is a reflection of what you think of yourself and others. How you perceive yourself and others is the foundation of your judgment and decision making. Knowing yourself better, recognizing your personal biases, acknowledging your comfort zone are the first and foremost steps on the road to your success story. Any of these tests might help you on the road of self-discovery:
- https://projects.fivethirtyeight.com/personality-quiz/;
- https://www.16personalities.com/personality-types.
The perceptual process illustrated in the following figure explains how we all perceive the same situation from a different vantage point, that is we “see” it differently:
Figure 1. The perceptual process
Source: Gibson, J., Ivancevich, J., Donnelly, J., & Konopaske, R. (2012). Organizations: Behavior, Structure, Processes. New York: McGraw-Hill, p. 94
Discussing perception in a strictly business setting, Gibson points out that “the way an employee sees a situation often has much greater meaning for understanding behaviour than does the situation itself.” (p. 94) Gibson further defines perception as involving “receiving stimuli, organising them, and translating or interpreting the organised stimuli to influence behaviour and form attitudes.” (p. 94). This kind of attitude might cause perceptions leading to communication failures because we all tend to “read” the behaviour of others in the context of the situation we find ourselves in. So much for perceptual differences leading to marital drama or conflict at work.
Example: Different perceptions of the same story.
You have applied for a job and you have been shortlisted for a series of interviews that you have attended and you think you have done a fairly good job but you are wondering why you still haven’t heard from the recruiting team. You decide to send an email inquiring if you are still considered for the position. You get a fairly formal reply and it seems that your email has been construed as suggesting that the recruiting team’s work is slow and ineffective. You are flabbergasted as you have never intended to be rude. You have just wanted to confirm your genuine enthusiasm about this job opening.
Biases
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Our perceptual biases may often lead to bad judgment if we tend to overlook them or we do not acknowledge them properly. Stereotyping people; ignoring data that may make us feel uncomfortable; thinking of ourselves as the benchmark in perceiving others; perceiving others through our own traits; our needs and emotions interfering with our perceptions – all these biases, among others, are worth exploring so that we can improve our sense of judgment.
Example: Corporate executives have been struggling for years to improve cross-cultural communication in English as the lingua franca of global business. For example, allegedly, guides have been compiled to illustrate what British native speakers really mean. Even The Economist joined the discussion:
https://www.economist.com/johnson/2011/05/27/this-may-interest-you
Such an approach may be subject to criticism for imposing misleading national stereotypes and overgeneralizations in our perception of others:
Assignment: Read the case study on cognitive biases in decision making (Case Study 1). Do you think you might have been applying mental accounting in your everyday decision making without realizing? Discuss these questions:
- How would you decide if you could really afford that small treat of a cookie (2 euros) every working day at a coffee shop?
- You have bought 100 shares of stock at $10 a share. Would you sell that stock when the price of stock fell, that is, would you sell the loser?
Refer to the suggested answers to the case. To what extent have you been influenced by mental accounting in your answers?
Types of decisions
Types of decisions
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“Sometimes you make the right decision, sometimes you make the decision right.”
Phillip C. McGraw
How do you know if you have made the right decision? How to make decisions the right way? In order to answer the first question, you need to know the different types of decisions and their specifics. The answer to the second question will unfold in the next unit “Decision making”.
The different decision types are based on specific criteria for categorization. One decision may fall within several groups if it meets the criteria. Figure 2 presents the framework for categorizing decisions.
Figure 2. Framework for categorizing decisions
Source: Adapted and extended from Serafimova, D. (2015). Teoria na upravlenieto [Management theory]. Varna: Univ. izd. Nauka i ikonomika.
The criterion “management level” is based on the position you have in the hierarchy of your organization. If you are a team leader/line manager, your decisions will be mostly operational. They will be focused on day-to-day activities (e.g. which client to call first; whether to send John or Fred to the negotiations with this new prospective partner). At a higher position (mostly department managers – marketing manager, production manager, etc.), you will make predominantly tactical decisions (e.g. how to organize the new marketing campaign; do you need additional marketing experts in your department?). The strategic decisions are reserved to the top management level – you are the CEO and you need to decide which market to penetrate, which technology to develop or where to build your Gigafactory!
Some of your decisions will be very specific (e.g. how to solve the problem with Mark always coming late for work) and they will influence only certain people/activities/departments of the organization, whereas others will be more general and will have an impact on the whole company (e.g. let’s introduce a QMS at our company; what changes should we make to the structure of the compensation packages of our employees?).
Another important criterion for the classification of decisions is time. Pay attention – it is not just time you need to make your decision (obviously this should not take forever). It is the period of time over which your decision will have influence that matters. In other words, how long will the effect of your decision last? Short-term decisions have a timeframe between a day and several months. An example of such a decision may be when one of your colleagues gets sick and you need to decide what to do in order to complete an urgent order – work overtime or find a replacement for the week. Medium-term decisions normally cover a period of one year, but the main factor is the length of the business cycle of your company. Therefore, for some companies, these decisions may cover six months (e.g. what marketing campaign to launch for your new smartphone) or two years (e.g. production decisions in a ship manufacturer). Long-term decisions have a timeframe of more than one year and their impact may even go beyond 5-10 years (e.g. what technology to use for expanding your mobile network in Canada).
The management cycle is known /to every manager and every single step of it is related to various decisions to be made: planning (what to do), organizing (how to do it, with what resources), motivating (what incentives to provide for your team), controlling (when to control, which will the critical points be) and changing (what to improve for the next cycle) decisions.
A very popular system for the classification of decisions is the one developed by Herbert Simon, dividing decisions into programmed and nonprogrammed ones. The first type is “determined by past experience as appropriate for a problem at hand” (Schermerhorn, Osborn & Hunt, 2002, p. 115). On the other hand, nonprogrammed decisions are “created to deal uniquely with a problem at hand”. The main differences between these two types of decisions are presented in Table 3.
Table 3. Comparison of programmed and nonprogrammed decisions
Source: Gibson, J., Ivancevich, J., Donnelly, J., & Konopaske, R. (2012). Organizations: Behavior, Structure, Processes. New York: McGraw-Hill, p. 465.
All decisions are made in different circumstances. A variety of factors influence the way you are going to make certain decisions. The probability of the problem is a critical criterion that distinguishes three types of decisions:
- made in complete certainty – all factors and their influence are known to you and you have all the necessary information (in reality this situation is very rare; an example may be a controlled environment for a laboratory experiment);
- made in a risk environment – you can measure the risks associated with different factors and you have an idea of the probability of the potential outcomes (how an increase in the product price will influence the company revenues);
- made in uncertainty – you do not have all the information and often it is very hard to estimate the risks; most of the decisions fall in this category which means it is very hard to make the best (or even the optimal) decision; in this case, you need to find a satisfying solution to your problem (how to deal with breach of internal information or how to retain your best expert).
Assignment: Read the Case S: Making Decisions the Right Way – Which Decision Type Should I Choose? (Case Study 2). Answer the included questions and explain how you have identified the type of the decision that you have made. How will changing the type of your decision (e.g., from short-term to long-term) influence the outcome of the situation?
All these decisions can be made alone (individually) by yourself or you can work together with a team in order to make a group decision which will take into account the opinions of the other people involved in the decision-making process. The next unit will walk you through the stages of this process.
Decision making
Decision making. Definitions. The brain, heart and gut part in the decision-making process
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The ability to make decisions is considered a vital life skill. Each day we take numerous decisions: 35,000, to be more exact (Kay, 2020).
Definition. A common definition of decision making is “a conscious process of making choices among one or more alternatives with the intention of moving toward some desired state of affairs”/ desired outcomes. (McShane and Von Glinow, 2010, p. 198)
The brain, heart and gut part in the decision-making process
How do we take decisions? It might seem to us that we take lots of decisions almost automatically, unconsciously or even pre-consciously. There is a growing body of literature that supports the idea that decision making involves not only cognition, but also emotion and intuition, indicating the role of head, heart and gut in decision making. (Soosalu, Henwood & Deo, 2019)
Furthermore, “interdependence of emotional and rational processes is powerfully presented in recent neurobiological studies which establish that emotion is essential in rational decision making”. (“Emotional Decision Making”, n.d.)
Some researchers distinguish between rational decisions, bounded rational decisions (good enough decisions), intuitive decisions (gut choice) and creative decisions. Indeed, emotions might shape the way we identify the problem, filter our preferences for alternatives and the process we follow to evaluate alternatives. We do rely on our emotions for guidance when making decisions. Furthermore, apart from emotions, it is our intuition that might play a major role in the decision-making process, i.e. our “ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning. Intuition is both an emotional experience and a rapid nonconscious analytic process that involves both pattern matching and action scripts”. (McShane and Von Glinow, 2010, p. 208)
Recent research indicates that gut feel (intuition) can in fact be useful, especially in highly uncertain circumstances where further data gathering and analysis won’t help you choose one way or another. (Huang, 2019)
Some practitioners suggest that you should lead with your gut and follow the data: “Effective decision-making doesn't have to be an either-or proposition. In fact, effective decision-making should lead with a hypothesis — or intuition — and then follow the data trail to reach the final decision.” (Melendez, 2020)
According to a Wall Street Journal article (Stoll, 2019) “most business leaders trust intuition over analytics.” The article goes on to discuss how a global CEO survey from KPMG showed that “just 35% of executives highly trust their organization's data” and that two-thirds “ignored insights provided by data analysis or computer models [...] because it contradicted their intuition.”
