Review the decision-making models described in this chapter. Which model do you think is closest to what managers do when they make decisions? Why?

DECISION-MAKING MODELS

Problem-solving and decision-making processes can follow several models. Each model describes variations in the decision process and includes different assumptions. These assumptions imply that the models apply to different types of decisions in modern organizations.

The Rational Model

The rational model of decision making has its roots in the classical economic theory of the firm and statistical decision making. According to this model, a decision maker approaches a decision problem in the following way:

1. The decision maker has a goal she wants to maximize or minimize. That goal can be profit, revenue, market share, cost, and so on.

2. The decision maker knows all alternatives and their results. She has complete information about each alternative. The decision maker is also fully knowledgeable about the degree of risk and uncertainty associated with each alternative.

3. The decision maker uses some function to give a preference ordering to the alternatives under consideration. The decision maker knows that function at the beginning of the decision process.

4. The decision maker applies the preference ordering function to the set of alternatives and chooses the alternative that maximizes the goal. 

The rational model sees decision making as proceeding sequentially from beginning to end. This model does not have dynamic properties such as revising the goal or extending the search for new alternatives.