Business Decision Analytics

Decision Analytics
Owen Seamons
Your Learning Facilitator
Owen Seamons
[email protected]
Class Discussion on Assessment One
Assessment 1
Due end of next week
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Assessment 1 Checklist
See bottom of Assessment section in Blackboard
Assessment One
1. Identify your decision preferences and
2. Determine ways of bringing flexibility to your decision style.
3. Construct a personal diary listing of how you made the decision on the
topic given to you by your facilitator;
reflect on those decisions
4. Complete the survey instrument that is on Blackboard; reviewand
analyse the results received in the
logic, intuitive and balance results
5. Work with a mentor-buddy in giving-gaining feedback on ways to
address type differences, bringing
balance to own-others’ decision
6. Map out a development plan lto offset the biases and blind spots that
you identify in your decision making personality.
Losses Loom Larger Than Gains **
Losses loom larger than gains”
Doesn’t make economic sense (not rational) but makes
psychological sense

Welcome Module Two of MGT 602
Module Two Covers:
Use of bounded rationality in
decisions making
Strengths and Weaknesses of the
rational processing model.
Strengths and weaknesses in use of
the dial processing model
Making sense of the neuro
mythology of Decision making
Strengths and weaknesses in use of
the Naturalistic Decision model
Evaluate and use a range of
decision making tools
Identify own decision-making styles
and contrast with others’ styles
Determine levels of rationality and
intuition in own decisions
Compare, contrast, critically
evaluate sources of data,
information and knowledge
Identify key influencers on decisionmaking over differing contexts
Recent escalation in rates of connectivity and information
have increased information processing demands
Associated high level expectations on managers to work
quickly in making high quality decisions, yielding positive
outcomes for the enterprise, and stakeholders
Changing environmental demands require more than linear,
rational approaches to processing by managers in their
decision making
Strong requirement for use of both rational and intuitive
processing and consideration of decisional implications on
others in meeting ethical, sustainable demands on managers

The Rational Decision Maker
Traditional view of decision making:
objective, logical and ‘rational’ approach to:
identify facts of the case,
frame the problem,
investigate possible solutions,
implement the ‘optimum’(?) solution, and
Justify the decision, with appeal to logic and rationality.
Forming Rational Judgements
Use of formal logic:
The syllogism [
from Greek
syllogismos- inference, conclusion]
A Ↄ B = If we have A,
then we have B
B Ↄ C = If we have B,
then we have C
C Ↄ D = If we have C,
then we have D
A D = We have A,
and therefore we have D
All students at this university
are netball players
All netball players at this
university are female
Maria is a female student at
Therefore, Maria is a netball
A valid and rational argument:
2 premises – > conclusion
Expected Utility
a predicted utility value for one of several
options, calculated as the sum of the utility of
every possible outcome each multiplied by the
probability of its occurrence.
(in game theory or economics) a measure of
that which is sought to be maximized in any
situation involving a choice.
Decision Tree Analysis
A decision tree is a decision support tool that
uses a
tree-like graph or model of decisions
and their possible consequences, including
chance event outcomes, resource costs, and
utility. It is one way to display an algorithm
that only contains conditional control
Decision Tree Analysis
Problem alternatives can be evaluated using probabilities of
occurrence, utilities of outcomes
Decision Node
Decision Node
Decision Node
Decision Node
High Growth
No Growth
Not Merge
No Growth
Merge Outcome= 0.7+ 0.06 = 0.76
Not Merge Outcome= 0.3 + 0.08 = 0.38
U=1.0 Expected
Utility =0.7x 1.0 =
U=0.2 Expected Utility
= 0.3 x 0.2 =
U= 0.2 Expected Utility
=0.4 X 0.2 =
U= 0.5 Expected Utility
=0.6 x 0.5=
In Module Two We’ll be Working on:
Discussions to help in final preparation of assessment
one. Assessment due for completion, submission in
week four
Work through earning activities covering:
Satisficing by using bounded rationality
Understanding the limitations of rational processing
Applying the Dual Processing Model (DPM)
Understanding and applying the Naturalistic Decision
Model (NDM)

Facts of Life
You’ll almost always have to give up something to get something.
Purposefully choosing and embracing one trade-off over another
provides a framework to make better – and less stress-filled –
Reaching a decision will ordinarily involve making trade-offs among
the objectives relating to a decision – a difficult and poorly understood
aspect of decision-making.
Research conducted over the past quarter century has demonstrated
conclusively that people have a poor understanding of how they make
such trade-offs.
What is important is to recognize that every time you make a
decision, you are also making a trade-off.
Make your decision and
choose your trade-off consciously, with your objective in mind, rather
than solely by instinct.

Rational Decision Making Model
The Rational Choice Model (RCM)
RCM Advantages:
Consistency of decision making; useful across situations; rigorous
training tool, transparent to the problem solver
RCM Can be justified on basis of:
RCMs seek to maximise outcomes
Workplace environments are (supposed to be) ‘objective’ in
Organisation planning frameworks tend to be highly structured
Emotion can be discounted through use of computers, flow
charts, decision trees, other decision aids

The Rational Model
Single processing mode, logic, long favoured by business,
government, academe
No longer robust enough to meet complexities of 21st
Managers learn to process information , make decision
using linear, deductive forms of rational processing
The Rational Model makes use of a process of deduction
in reasoning out and reaching a rational, logical solution
Long considered that managers, professional are
inherently rational decision makers seeking to maximise
decisional outcomes

Important Ingredients of the Rational
Rational processes are widely used and based on objective
goals and care in types of information collected, forms of
analysis used and methods of judgement employed
The importance of employing objective cause-effect
relationships on planning, budgeting and control processes
Greater value placed on objective data capture and analysis
free of emotionality
Hard , explicit data, (numbers?) form the basis to the rational

Advantages in Using The Rational
Decision Model (RDM)
Offers consistency and discipline in decision making
Can be used as a decision aid across a wide array of
applications, situations
Can provide a rigorous training tool for workplaces
Offers transparency for the problem solver, decision
Objectivity in use enables high level trust in processing
and evaluation methodologies
Capacity can be expanded through use of computers
Advantages in Using the Tools of Rational
Sophisticated processing and analysis is possible using
the ‘hard tools’ of management science and operations
research by way of:
Linear programming, choice modelling, choice
analytics, predictive analytics, econometric modelling,
distribution system optimisation
May not be useful where hard data is lacking or where
data are highly ambiguous *
Discussion-Using the RDM in the
What are the strengths and weaknesses of the model?
Could sole use of the one mode of processing outlined in
the video work across all situations at work? Why or
Why not?
Identify three situations at work where the RDM may
not be suitable; may not work?
How suitable would the model be in managing people?


3/6/2023 3/6/2023
Personal Decision-Making Blind

What are Blind Spots?
What are Blind Spots?
The bias blind spot is the cognitive bias of
recognizing the impact of biases on the
judgment of others, while failing to see the
impact of biases on one’s own judgment.

Blind Spots
Bias blind spots may be caused by a variety of other
biases and self-deceptions.
Self-enhancement biases may play a role, in that
people are motivated to view themselves in a
positive light. Biases are generally seen as
[5] so people tend to think of their own
perceptions and judgments as being rational,
accurate, and free of bias. The self-enhancement
bias also applies when analyzing our own decisions,
in that people are likely to think of themselves as
better decision-makers than others.
People also tend to believe they are aware of “how” and
“why” they make their decisions, and therefore conclude
that bias did not play a role. Many of our decisions are
formed from biases and cognitive shortcuts, which are
unconscious processes. By definition, people are unaware
unconscious processes, and therefore cannot see their
influence in the decision making process.
When made aware of various biases acting on our
perception, decisions, or judgments, research has shown
that we are still unable to control them. This contributes to
the bias blind spot in that even if one is told that they are
biased, they are unable to alter their biased perception. *
3/6/2023 3/6/2023
Behavioural Economics and Human
Factors in Decision-making

Decoy Options
Can introducing a third decoy option make
you more likely to choose the option; I
secretly want you to choose?
• •
Decoy third option: $125 for print only
Irrational Value Assessment:
$45 bottle of wine got a significantly higher rating than the $5
bottle, although they were the exact same wine!

A group of researchers offered participants of a study a choice between
purchasing a
Hershey’s Kisses chocolate for 1-cent ($0.01) or Lindt Lindor
chocolate truffle for 15 cents ($0.15).
The participants, recognizing this, as a good deal since the price
differential in a supermarket would be larger than 14 cents between the
two options, overwhelmingly
chose the latter.
However, when the price of both was reduced by 1 cent, thus making
Kisses free and the Lindt Lindor for $0.14, the preference completely
reversed with an overwhelming majority choosing Kisses!

Online Question
What is Behavioural Economics?
What is Bounded Rationality?
Behavioural Economics
Behavioural economics layers
psychology over economic theory
to add a human element to the
rational economic decision-making
that humans undertake. Hence we
will not necessarily make the
‘best’ rational economic decision
because we will have a personal
bias towards a different outcome. **
Bounded Rationality
Model based on three
assumptions surrounding the
constraints confronting decision
The limited amount and
unreliability of information
Humans’ incapacity to evaluate,
process large amounts of
Limited time available to
managers for processing

Bounded Rationality
The core assumption of behavioural economics is based on the
bounded (limited) rationality of individuals in general and of
markets in particular, which is opposed to the central
presumption of mainstream economics, that of rational choice
Bounded rationality should not be confused with irrationality.

Bounded Rationality Decision Model (BDM)
at Work
BDM proposes managers making decisions under
constraints of time, capacity and reliability of data,
making those decisions boundedly rational in nature
Managers ‘ decision making is limited by the type and
amount of information available to them
Choice making is guided by the need to merely satisfy the
situational demands (think of ‘satisficing as doing the
next best thing)
Managers’ cognitive computational capacities extremely
limited (seven bits +/- in cognitive processing capacity)

Advantages of the BDM
Informs understanding and acceptance of limitations to
human information processing capacity in decision
Introduces the notion of pattern recognition associated
with the use of intuition
Through the notion of ‘satisficing’ brings flexibility and
speed to the decision making process
Read Akinci & Saddler Smith (2012), particularly pp. 6-9 for
a timeline on the emergence of heuristics and use of
intuition in a world dominated by linear, logical processing

Review and Discussion on Bounded Rationality
View the video: Economics is Everywhere
Form into groups to discuss the following:
What is Simon referring to when talking about managers
Could satisficing have relevance to your work, life? How?
What are the strengths, weaknesses of this apparently basic
decision making model?
How might you use the BDM model in managing others in
your workplace? Examples?

The Rational Decision Maker
The traditional view of decision making is cast around use of
an objective, logical and rational approach to decisions
The rational manager identifies the facts of the case,
formulates the problem, assembles possible solutions and
implements the optimum solution to the problem
Care needs to be exercised in the selection and use of words
in forming premises and reaching objective solutions
Conclusions have to be reached rationally and made
understandable for others
A close connection can be found between mangers’ use of
language and the logic of discourse

The Balanced –Wise Decision Maker
Balanced decision-making is:
Wise decision making –
called for when there is an
ethical or
moral dimension to the problem.
More than logic-based; more than
intuition-gut feel.
Managers bring opposing points of view
to mind and balance these views in
forming judgements and making

System One Thinking
Produces the fast, intuitive reactions and
instantaneous decisions that govern most of
our lives
see that an object is at a greater distance than another
complete the phrase “war and …”
solve 2+2=?
read a text on a billboard
connect the description ‘quiet and structured person with an eye for
details’ to a specific job
Daniel Kahneman (25 October 2011). Thinking, Fast and Slow. Macmillan.
System Two Thinking
Is the deliberate type of thinking involved in focus,
deliberation, reasoning or analysis – such as
calculating a complex math problem, exercising selfcontrol, or performing a demanding physical task.
brace yourself before the start of a sprint
point your attention towards someone at a loud party
dig into your memory to recognize a sound
sustain a higher than normal walking rate
determine the appropriateness of a behavior in a social setting
give someone your phone number
A Balanced Approach?
High levels of connectivity today – more
reflective (balanced) approach to
decision making is required
To balance potential conflict between
logical and intuitive modes of
To take account of, reflect on, other
points of view and consider
implications of your decisions on others
Emergence of world’s learned
experience tending towards ‘Wise
Decision Making’. Some way to go yet!

Challenges in Balanced (Wise ) Decision Making
Can be challenging in an unbalanced world
Considerable slowing in decision making when
reflecting on the implications of own decisions on
May not be acceptable to organisation despite the
Careful consideration of others may be unacceptable
due to
inconsistency with organisation’s timing,
Review Reading Dhami & Thomson (2012)
The Dual Processing Model
The BDM brought an understanding of human decision makers’
processing limitations to a world stressing the importance of using
analytic, deliberative forms of logical cognition
Uses of alternative forms of emotional, intuitive processing strongly
asserted to be biased, flawed and error prone
Movement towards a dual usage of logic and intuition introduced the
Dual Processing Model (DPM) with humans having two minds in one
Two contrasting approaches to processing, System One (automatic,
fast and intuitive) and System Two (analytical, rule-based and slow)in
one model of processing
Later neurological research confirmed two forms of intuition at work.
One emotion –based the other learned experience-based

The System One-System Two Dual Model
Research by Kahneman-Tversky strongly supported a logical
approach to decision making. Explored many biases in use of
emotion-based intuition when decision making
Later research led to development of the System One System
Two Model stressing the importance of System Two use over
System One given One’s wide array of biases and heuristics *
Akinici & Saddler Smith (2012) criticise Kahneman’s treatment
of biases. Describing the research as overly simplistic due to a
very narrow focus on intuition. Two types of intuition evident
and research failed to take account of experience-based
intuition over emotion-based intuition

The Dual Processing Model (this time without
considering biases)
A model making a
shared use of logic
and intuition, or a
working in the middle
ground between logic
an intuition in
processing a task
A combined use of
the logic/analytical
and the
processing in making
Hammond, 1980
Cognitive Continuum Theory
(Hammond, 2000)
Using Cognitive Continuum Theory (Hammond, 2000),
managers can match their decision processing to the
demands of the task at hand. Where some tasks are more
structured, then an analytical approach can be taken but
where more unstructured then a more automatic mode is
called for. A mix of both modes can fit other task situations
An applied model allowing the appropriate mode, log,
intuition or a blend of the two modes to be applied to meet
the demands of the task **
Logical-Intuitive Continuum of Decision
Awareness of Cognitive Activity: High
Metaphors: Verbal, Quantitative
Speed of Cognitive Processing: Slow
Confidence in Judgements: High
Awareness of Cognitive Activity: Low
Metaphors: Pictorial, Qualitative
Speed of Cognitive Processing: High
Confidence in Judgements: Low
Logic Intuitive
Read and discuss the relevance of Cognitive Continuum Theory to 21st century workplaces :
Dhami, M.K & Thomson, M.E. (2012). On the Relevance of Cognitive Continuum Theory and
Quasi rationality for Understanding Management Judgement and Decision Making.
European Management Journal, 30, 316-326.

Naturalistic Decision Making. Klein’s Recognition
Primed Decision Model (RPD)
RPD, an applied model more concerned with how people
make decisions in workplaces rather than how students make
decisions in laboratories
Based on field research into working decisions made by
firefighters, intensive care nurses and airline crews
RPD model makes use of expertise-based intuition in
situational analysis prior to decision making.
Useful in unstructured situations, that are complex, uncertain
and unique to the decision maker. Situations that hold large
amounts of ambiguous data and cannot be addressed through
the use of logic or rational processing

RPD Using Own Experience
RPD model provides managers with an experience –based
intuitive approach with insights into how to make good use of
‘gut feel’ and when to use a dual analytical-intuitive approach
to information processing, decision making
Model allows the decision maker to seek cues from novel data
which are in accord with earlier experience. Where
cues/experience are not congruent further searches are
required to construct narratives to overcome background
noise blocking interpretations
Concepts are formed, redefined, and adjustments made in
mental maps to take account of situational differences

Applying the RPD to Complex
Workplace Environments
View the Lootok (2017) video on the RPD to gain an in-depth
understanding of the model **
After viewing the video address the following:
Identify the inherent advantages in use of the RPD
How might you apply the RPD usefully in your workplace?
Would you regard RPD as a fast or as a slow decision
making process?

The Neuro Myth Model
Sperry developed this decision making model in the 1990’s. Model
based on individual preferences in information processing
operating according to brain hemispherical use
Model suggested that more analytical ( digital processing) was a
function of the left brain hemisphere while more emotion-based (
analogue processing) was a function of the right brain hemisphere
Strong belief in use of the split brain model led to an award of a
Nobel Prize to Sperry and a persistent belief in efficacy in use of
the model in processing, making decisions
Recent research has contested the veracity of claims by those
who developed and promoted use of the model

Testing the Neuro Myth
Work by Lieberman (2007) informed researchers of the
role of an X-Based section of the brain related to affectbased (emotional) decision making and a C-based section
related to the making of more logical-analytical type
More recent research into neural geography has further
disputed claims made by the left-right brain proponents
Neuro scientists suggest references to left-right
differences should be avoided and discounted as neuro

Neuro Myths
1. Some of us are ‘left-brained’ and some are ‘right-brained,’ and
this helps explain differences in how we learn.
FALSE. The left and right hemispheres of the brain work together.
There is not strong evidence that people’s learning differs in
important ways based on one hemisphere being more dominant
than the other.
2. Brain development has finished by the time children reach
FALSE. Brain development continues well into adolescence and
adulthood, especially the development of the frontal lobes, which
are important for
3. Learning is due to the addition of new cells to the brain.
FALSE. Learning arises from changes in the connections between
brain cells.

4. Mental capacity is hereditary and cannot be changed by
environment or experience.
FALSE. Mental abilities do have a genetic component, but they are
also heavily influenced by environmental factors, and rely on
adequate experience in order to develop.
5. We only use 10 percent of our brain.
FALSE. A healthy person uses 100 percent of his or her brain.
6. When we sleep, the brain shuts down.
FALSE. Patterns of brain activity shift when we go to sleep, but the
brain is active 24 hours a day, whether we are
sleeping or awake.
7. Listening to classical music increases children’s reasoning ability.
FALSE. There is little consistent evidence that classical music (the socalled “Mozart effect”) has an impact on children’s reasoning ability at
any age.

Class Discussion Session
View and discuss the video on left-right brain thinking:
Discuss the usefulness of the left-right, split brain model for
managers working in complex , uncertain environments
Read through the Akinici & Saddler Smith (2012) paper. Pay
particular attention to pp. 32-48 which describes the
development of thought informing managers on best
approaches to making decisions across different situations
Discuss the relative merits/weaknesses of the split brain
model in a 21
st century workplace compared with other
models covered

Overview Session
Read and discuss Gary Klein’s (2009) use of naturalistic
decision making in his use of the RPD Model
Discuss Gallagher’s (2014) RDM Model
Revise Akinici & Saddler Smith’s (2012) paper on the
development of theories on decision making
Discuss the application of Simon’s Bounded Rationality
Review, discuss Daniel Kahneman’s thinking fastthinking slow in System One-System Two thinking.
Identify the implications for errors, biases in use of
System One
Review applications of the dual processing model
evident in Hammond’s cognitive Continuum Model