individualsdescion making is very much important in organizations.but by way the individuals make decsions is largel affected by their perceptions. Top managers in an organization determine the goals of an organization.Middle level managers set the schedule.& non managerial employees decide that how much effort Is required to complete the task the given by the Boss.
We make a decision in the reaction of any problem.every decision requires us to understand that problem & then solved that problem.we receive the data from various sources,& then we decide which data is relevant to the descion& which are not.our perception wil answer the given question.& then we develop the altenatives& then evaluate the strength &weakneses.& then the perceptual process will affect the final process of decision.
Rtaionaldescion making depends on a number of assumptions:
That whether the desion maker has compeleted the information &whther he has choose the right option to solve the problem.most of the decions in real world doesn’t follow this model.people normally found an acceptable solution to a problem rather than an optimum one.; most significant descions are made by the proper judgement .
Most people solve the difficult problem by reducing it into simpler problem so that they can easily understand that. Because human mind cant s solve the complex problems with full rationality so they take the help from the bounded rationality .Many problems also don’t have a optimal solution because they are very complicated for a common man to undertsnd himself. So they go for the satisfactory solution.satisfying is not always the bad idea but if we use rational model in the real world we need to gather a wide variety of information & then compute & calculate the values across the sensible criteria.Also, this process is very time consuming & will cost a lot of money.A fully rationale model cant be as accurate as the best guess.
intuition is the least rational way of making the decisions. It is basically an unconscious process.so its mostly enages our emotions.it is the most complex & depends on the years of experience.in the late century many experts believe it to be irrational but that’s no longer the case.
Overconfidence bias occurs when you are more confidence than you should given the factse.g if we are 100percent confident about our success then it will be true to an extent of 70 to 80 percent.
Anchoring bias is an individuas ability to depend too much on an initial piece of information in decision making process.
Confirmation bias is the individuals ability to search , understand, ; recall information that confirms their existing belifes.e.g if a person belives that right handed person are more intelgent than left handed person so whenever he meet a person who is right handed ;intellignt as well so he will pay a greater importance on this evidence that supports what he already believe
Availabilitybias is an individuals ability to give their judgemnets in the information available to them e.g many people think smoking is injurious to heath by looking at the cigarettes.
Escalation of commitment refers to when ann individual faces more negative outcomes for decision he take as compared to positive outcomes.e.g if some person is in a relationship , ; his relation is not going well but still they want to marry eachother because they think that they have invested a lot in their relationship.
Randomness error in which individuals belive that they have a control over their destiny.Risk aversion is an assumption in finance in which investor will choose less risky alternative.e.g people buy insurance on the valuable aasets.so that if they buy a car ; if any damage oocur to it they can get the payment back if they insured their car.
Hindsight bias refers to as tendency of people to overestimate their abilty to predict the outcome.g a person says that I already knew it when an outcome or any evnt occurs.
Frome the all the discussion we conclude that how the indiduals ; organizations make the finnacal descions.Overconfidence is not the only decision error subjected in the case of financialcrisis. Investors normally avoid negative information about investments. Lenders may overlooked problems with borrowers’ when making loans, . Once a loan has been paid off, lenders alsoignore the negative effects of debt. Studies have found that people are more willing to buy & spend more money when they are confident as compared to when they are not confident.As their confidence level decreses it lead to economical crisis .