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“Decision theory represents a general approach to decision making” (Stevenson, 2020). However, why is decision theory important to operations? As we learned in chapter 5, the decision theory can be utilized in several ways in making decisions like capacity planning, equipment selection as well as location planning to name a few. There is a process that one must follow in order to discern which is the better decision. Taking into consideration the state of nature, alternatives, payoff, likelihood, and decision criterion will help the decision maker select the optimal decision. However, there are some things that are unseen and cannot be considered. For example, the decision tree is often used in the healthcare setting in the form of diagnostic and treatment options. Unforeseen circumstances in this case can be an allergic reaction a patient experiences from a treatment that has never occurred before. The doctor didn’t make the wrong decision and the patient followed the treatment plan accordingly but still ended up experiencing a reaction due to the patient’s body not reacting like it should have. While unforeseen circumstances rarely occur but mistakes still happen, it is usually due to one of the steps missed in the decision process. Luckily, not all managers experience this, however there are other factors they must contend with. For example, bounded rationality and suboptimization.
When a problem arises that is complex, most managers will simplify the problem in order to make a decision, however, some managers don’t utilize the information they have correctly. Throughout the article, Managers’ beliefs about marketing research and information use in decisions in context of the bounded-rationality theory, the author discusses how information is available from marketing research, but managers are not using this information to help make decisions. “Using information from marketing research in decisions, as well as undertaking the sequence of steps to ensure the valid decision-making process, seems to be a huge problem for managers.” (Tarka, 2017) The reason for this seems to be a disconnect between departments, the attitudes of the employees and management, lack of organizational culture, etc. Bound rationality by definition is, “the limitations on decision making caused by costs, human abilities, time, technology, and availability of information.” (Stevenson, 2020)
The article discussed is researched based off the bounded rationality decision theory. There’s evidence in the article that while technology doesn’t seem to be a limitation, but how it is used and the people acting negatively. The most common issue found was that managers were not willing to take on the analytical work that required using the marketing research to make a decision. When not doing the work to make a good decision, this can lead to mistakes that could have been avoided. Taking into consideration that managers are people and with people comes their beliefs, ego, and decision making style that can be other issues.
Stevenson, W. J. (2020). Operations Management (14th ed.) [E-book]. McGraw Hill.
Tarka, P. (2017). Managers’ beliefs about marketing research and information use in decisions in context of the bounded-rationality theory. Management Decision, 55(5), 987-1005. https://doi.org/10.1108/MD-04-2016-0234 (Links to an external site.)
In this paper, the author conducts a study about the way managers make decisions and how they do not use information already provided correctly. The study was conducted via a survey that was posted on LinkedIn and Golden Line. Results show that managers and decision makers prefer to make decisions non-analytically.
Borgonovo, E., Cappelli, V., Maccheroni, F., & Marinacci, M. (2018). Risk analysis and decision theory: A bridge. European Journal of Operational Research, 264(1), 280-293. https://doi.org/10.1016/j.ejor.2017.06.059 (Links to an external site.)
This article discusses how the risk-triplet is one of the important factors in operational risk analysis. The authors attempt to bridge risk analysis and decision theory. According to the article the framework for risk analysis is similar to decision theory. The authors discuss decision theory and decision analysis framework and then go onto explain the risk analysis setup. With the two disciplines bridged, this will allow the transfer of information and ideas from one to the other.
Arpetti, J., & Delmastro, M. (2021). The privacy paradox: A challenge to decision theory? Economia e Politica Industriale, 48(4), 505-525. https://doi.org/10.1007/s40812-021-00192-z (Links to an external site.)
This article discusses privacy and decision theory. With ever changing technology and new apps being created, there’s the risk of an app gathering information without someone’s knowledge. The authors conduct an empirical study that researches an individual’s decision making of their privacy. The data found that while there are copious amounts of literature available, people still don’t realize their privacy is being invaded.