Order 1373785: Organizational Behavior Research Paper

Hoang Anh (Tommy) Nguyen

ORGB 3201

Case Write Up #2

Human being are the most intelligent species on Earth with evolutionary mindset. We claim to have complex intellectual that could tackle any puzzles, yet we are also very perplex. We, humans are all the victims to some degree of cognitive bias that prejudice our decision-making processes. We often seek intuition rather than objective facts to confirm a theory or a hypothesis. Subsequently, it leads to a business fallout with mistaken belief and bad decision making.

The following case analysis will explain why people behave that way using both rational and bounded rational decision-making model. Based on the differences of the two models, the analysis will then evaluate whether data advances can help corporations reduce such cognitive bias.

Decision making, a process of generating and choosing from a set of alternatives to solve a problem, is a crucial skill that differentiate a great manager from the good managers. It plays important role within every organization. There are formal steps that need to be followed to ensure the quality of the decision. Theoretically, the steps include identify the problem, establish decision criteria, weigh decision, generate alternatives, evaluate alternatives, choose the best alternative to implement and evaluate the decision at last. This is the correct definition of ‘rational decision-making model’, assuming we have perfect information. The model leads individual to make the most optimal/best choice.

However, the world is very different from what we learn from textbooks. We, humans don’t usually maximize our option but tend to find the most satisfy solution. Rational decision theory only works when: ‘the problems are always clear and unambiguous, goal is well-defined to achieve, all alternatives and consequences are known, our preferences are clear and there are no time or cost constraints.’ ‘Bounded rational decision-making model’ states that in the real scenario, us, the consumers and businesses do not have such sufficient information to make fully-informed judgments. We are living under the conditions of scarcity and large uncertainty with limited information available. Therefore, we are not able to maximize our decisions like the ‘Rational decision theory’ said, but only to satisfy ourselves.

In today age of digital universe, the stream of information is becoming easier to access. According to the case, around 2.5 quintillion bytes of data are created every day, while 90% of the world’s data has been created in the last two years. People are wondering now that we have such enormous information, will we able to make true rational decision? The answer is yes to an extent. Big data does provide more information for mangers to make better decision, but it will reach a point where it becomes a ‘paradox of choices’, the more is less. Comment by Microsoft Office User: This is a good distinction to make about the usability of the data

Based on Simon, a Nobel Prize laureate, ‘human have a limited capability to process the vast amount of available information’. Our cognition has boundaries and limitation, therefore too much data inflow will only obstruct the human brain to make decision. For example, in the 2008 financial crash, Andrew Haldane explained that investors cannot interpret such complexity of CDO-squared derivatives that leads to not fully understand those financial products to make informed investments. Not to mention the fact that data are not always truly reflects reality. Information can be twisted and distorted on the internet and we can never testify them unless we collect it ourselves or we gather it from the source whom we trust. Comment by Microsoft Office User: Good supporting example

Human tends to shortcut due to limited information, but we also have to consider that our mind is often not fully equipped to evaluate all possible consequences of the decision. We make satisfy decision not just because we don’t have enough information, but also because our cognition is limited to a certain number of information input. The possible suggestion for companies to design their decision-making processes is to use a scientific system focusing on objective facts. Using mathematical models in the most systematic way to minimize faulty perception and brain’s limitations. The corporation should pay attention to facts, especially those that can translate into numbers. As our brain is at best when processing linear problems, hence, segregate the problem into linear problem can be another feasible solution.

We as human beings must recognize our bounded rationality and brain’s limitation to not overestimate our prediction abilities. We need to effectively handle our in-capabilities and adjust it to reduce cognitive bias and improve our overall decision-making. Otherwise, with only small fraction of information being known, we will all fall into the distortion of reality. Comment by Microsoft Office User: Good analysis. Nice flow of the paper and your discussion of how humans digest information was interesting Ps: 3.5 Sfp: 4 Eae: 3.5 SS: 3.5 G&S: 3.5 Seq: 4 CP: 4 11.5/12