Decision making is part of the management process. Before making decisions, certain variables are assigned to the various possible alternatives to assess their advantages. However, our decisions are far from being as rational as we think, and as classical economic theory suggests. This fact has far-reaching consequences - not only for strategic business areas such as the finance function and the management consulting function.
How decisions are made, how they can be improved, and the methods involved are described in this essay. The essay is divided into two main parts. The first part includes a theoretical discussion of the process of decision making and provides an introduction to the concept of different approaches of the decision-making process in light of economic theories. The second part reflects the strategic approach to decision-making. It will be explained how neuroscience can be used and how basic management tools can be exploited; these will be explained at the example of the swot analysis. In the end, there will be a summary with a conclusion of this scientific essay.
Table of Contents
1 Introduction
2 Decision making
2.1 Decision making in the classic economic theory
2.2 Behavioural economics
2.3 Heuristic and bias
3 Strategic decision making
3.1 Using heuristic and bias for strategic decision making
3.1.1 Debiasing
3.1.2 Nudging
3.2 Decision making with management tools – SWOT analysis
4 Conclusion
Objectives and Topics
This essay examines the nature of strategic decision-making processes within companies, highlighting the limitations of classical economic theory and the impact of cognitive distortions on management decisions. The primary research goal is to demonstrate how behavioural economic methods and management tools can be employed to improve decision quality and reduce the effects of human fallibility.
- Theoretical foundations of decision-making models
- Cognitive biases and their influence on strategic outcomes
- Application of debiasing and nudging techniques in a business environment
- Strategic use of SWOT analysis for complex problem-solving
Excerpt from the Book
2.1 Decision making in the classic economic theory
The theory of rational choice implies that individual actions are based on rational or reasonable decisions, and that individual actions can explain social phenomena. Social phenomena are not merely understood as a result of the wishes, plans of individuals or a group of individuals. The key to understanding the theory lies in the concept of rational humans, also known as the homo oeconomicus. It is based on the assumption that people only make logical and objective decisions to achieve an optimal result. Consequently, decisions are always made in such a way that there is no better solution than the chosen one. Precisely, the decision-making process is shown in Figure 1 below. If a problem occurs, it is identified, categorised and weighted according to influence. In the next step, an alternative is brought up. The alternative is also weighted and evaluated in the same way. Now a comparison can be made, and the better decision can be chosen. This concept can also be used in a business context to maxims the outcome of huge decisions. The downside of this model is that specific facts are not observed. A manager or person never has the full utility of all available influences and options, so decisions cannot just be weighted, and a personal preference cannot just be left out.
Chapter Summaries
1 Introduction: Provides an overview of the management process and defines the paper's aim to bridge theoretical decision-making models with practical, strategic management approaches.
2 Decision making: Explores the contrast between the rational homo oeconomicus model of classical economics and the reality of irrational decision-making influenced by behavioural factors.
3 Strategic decision making: Details how cognitive biases can be managed through specific interventions like debiasing and nudging, and discusses the role of SWOT analysis in structured strategic planning.
4 Conclusion: Summarizes the necessity of rationalizing decision-making processes by understanding human heuristics to improve overall corporate performance.
Keywords
Strategic decision making, behavioural economics, homo oeconomicus, heuristics, bias, debiasing, nudging, SWOT analysis, rational choice, cognitive distortion, management process, planning fallacy, optimism bias, status-quo bias.
Frequently Asked Questions
What is the primary focus of this scientific essay?
The essay explores the gap between theoretical rational decision-making and the actual, often biased, decision-making processes in a business context, offering solutions to improve these outcomes.
What are the central themes discussed in the text?
The core themes include classical economic theory, behavioural economics, cognitive distortions, and the practical application of management tools like SWOT analysis.
What is the main objective of the author?
The goal is to explain how decision-makers can identify and overcome their internal cognitive limitations to make more informed and effective strategic choices.
Which scientific methods are primarily utilized?
The work utilizes a literature-based theoretical analysis, incorporating concepts from neuroscience and behavioural economics to evaluate corporate decision-making tools.
What content is covered in the main section of the paper?
The main section investigates decision-making models, the nature of heuristics and bias, and practical methods like debiasing, nudging, and SWOT analysis for strategic improvement.
Which keywords best characterize this work?
Key terms include strategic decision making, behavioural economics, cognitive bias, nudging, debiasing, and SWOT analysis.
How does the author define the "homo oeconomicus"?
The author describes it as the concept of a rational human who makes exclusively logical and objective decisions to achieve the most optimal result possible.
What is the role of a "devil’s advocate" in the context of debiasing?
It is a technique where an individual is assigned to challenge the consensus, helping to uncover hidden weaknesses and ensure a more balanced evaluation of business plans.
- Quote paper
- Anonym (Author), 2020, Strategic Decision Making. Debiasing, Nudging and SWOT Analysis, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/1026089
