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CHAPTER 4 - FOUNDATIONS OF DECISION MAKING
LEARNING OUTCOMES
After reading this chapter, students should be able to:
Describe the steps in the decision-making process.
Identify the assumptions of the rational decision-making model.
Explain the limits to rationality.
Define certainty, risk, and uncertainty as they relate to decision making.
Describe the actions of the bounded-rational decision maker.
Identify the two types of decision problems and the two types of decisions that are used to solve them.
Define heuristics and explain how they affect the decision-making process.
Identify four decision-making styles
Describe the advantages and disadvantages of group decisions.
Explain three techniques for improving group decision making.
Opening Vignette
SUMMARY
Coke versus Pepsi; these two companies have battled for dominance in the soft-drink market for decades. Because stakes are so high, information on the competition is critical. The extent to which executives from these two companies are willing to go to make their company number one may surprise you. In early 2006, Pepsi executives received a letter on Coca-Cola letterhead that asked for $10,000. In exchange, Pepsi would receive trade secrets on the recipe for Coke products as well as a sample of a new product Coke was about to launch in the marketplace. Only about five people in Coca-Cola have knowledge of that recipe; if Pepsi were to have knowledge of that recipe, Coke would be significantly affected.
Instead of making the decision to spend the $10,000 and gain the secrets, Pepsi executives contacted the FBI. One Pepsi spokesperson stated “competition must be fierce---but it also must be fair and legal.” The FBI determined that the threat was real, and found that one of executive’s assistants at coke had stolen the recipe. She and two accomplices were seen on hidden camera copying information and removing a sample of Coke’s new product from the premises. FBI agents posed
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