40) According to the concept of bounded rationality, managers make decisions rationally, but are limited by their ability to process information. Answer: TRUE 41) The phenomenon of escalation of commitment refers to an increased commitment to a previous decision despite evidence that it may have been wrong. Answer: TRUE 42) Intuitive decision making complements rational decision making but not bounded rational decision making. Answer: FALSE 43) Briefly, discuss the assumptions of rationality and the validity of those assumptions. Answer: A decision maker who is perfectly rational is fully objective and logical. The problem faced is clear and unambiguous. The decision maker has a clear and specific goal. He is aware of all possible alternatives and consequences. Making decisions consistently leads to selecting the alternative that maximizes the likelihood of achieving that goal. These assumptions apply to any decision – personal or managerial. For managerial decision making, an additional assumption is that decisions are made in the best interests of the organization. However, most of these assumptions of rationality are not very realistic. 44) What is meant by bounded rationality and satisficing? Answer: Despite the unrealistic assumptions of perfect rationality, managers are expected to be rational when making decisions. It is understood that "good" decision makers are supposed to do certain things and exhibit good decision-making behaviors as they identify problems, consider alternatives, gather information, and act decisively but prudently. When they do so, they show others that they are competent and that their decisions are the result of intelligent deliberation. However, a more realistic approach to describing how managers make decisions is the concept of "bounded rationality." According to this concept, managers make decisions rationally, but are limited by their ability to process information. Because they cannot possibly analyze all information on all alternatives, managers "satisfice," rather than maximize. That is, they accept solutions that are "good enough." Thus, they become rational within the limits of their ability to process information. 45) What is intuitive decision-making? How does intuition affect the process of making a decision? Answer: Intuitive decision making is the process of making decisions on the basis of experience, feelings, and accumulated judgment. Intuitive decision making can complement both rational and bounded rational decision making. A manager who has had experience with a similar type of problem or situation often acts quickly with limited information because of that past experience. Managers who experienced intense feelings and emotions when making decisions actually achieved higher decision-making performance, especially when they understood their feelings as they were making decisions. 46) ________ are straightforward, familiar, and easily defined. A) Programmed problems B) Structured problems C) Non-structured problems D) Nonprogrammed problems Answer: B 47) Garrett looked at the list of orders for the coming week and made out the production schedule. He has done this so many times he could do it in his sleep. This situation represents ________. A) a structured problem B) an unstructured problem C) a linear problem D) a programmed problem Answer: A 48) Structured problems align well with which type of decisions? A) programmed B) analogous C) organic D) nonlinear Answer: A 49) A(n) ________ decision is a repetitive decision that can be handled by a routine approach. A) nonprogrammed B) structured C) unstructured D) programmed Answer: D 50) Harriet's machine has stopped working again. She consulted the operator's manual troubleshooting guide to find a solution. Harriet used ________. A) a programmed decision B) a non-programmed decision C) a structured decision D) a non-structured decision Answer: A 51) A procedure ________. A) is an explicit statement that tells a manager what can or cannot be done B) is a series of sequential steps a manager uses to respond to a structured problem C) is used mainly for unstructured, rather than structured, problems D) is subject to the interpretation of the decision maker Answer: B 52) One of the workers in Henry's department submitted his two weeks' notice so Henry needs to hire a replacement. The HR department issued a set of instructions Henry must follow to initiate the search for candidates. In other words, there is a ________ Henry must follow. A) policy B) practice C) procedure D) program Answer: C 53) A(n) ________ is an explicit statement that tells a manager what can or cannot be done. A) agenda B) objective C) rule D) solution Answer: C 54) "All employees must be at their work stations and ready to work by the time the buzzer sounds." This is an example of ________. A) a policy B) a procedure C) a practice D) a rule Answer: D 55) A policy ________. A) typically serves as a guideline for decision making by setting general parameters B) specifically states what should or should not be done C) is a series of sequential steps a manager uses to respond to a structured problem D) is used when dealing with unstructured problems and non-programmed decisions Answer: A 56) "We expect to maintain the highest standards of quality in our workmanship." This is an example of ________. A) a procedure B) a rule C) a policy D) a practice Answer: C 57) A(n) ________ typically contains an ambiguous term that leaves interpretation up to the decision maker. A) rule B) procedure C) edict D) policy Answer: D 58) "Smoking and the consumption of alcohol are strictly prohibited inside the work premises." This is most likely an example of a(n) ________. A) rule B) objective C) procedure D) policy Answer: A 59) Unstructured problems ________. A) refer to the usual problems faced by organizations B) are generally solved using procedures, rules, and policies C) are accompanied by ambiguous or incomplete information D) do not require the decision maker to go through an involved decision process Answer: C 60) After nearly 30 years of growth, sales at Ida's company have begun to decline. None of the managers have been able to determine the cause. Some say the entire economy is in recession; others blame a change in suppliers; still others say the work ethic among employees just isn't what it used to be. This is an example of ________. A) a structured problem B) an unstructured problem C) a programmed problem D) a non-programmed problem Answer: B 61) Nonprogrammed decisions ________. A) involve standardized solutions B) are usually made by lower-level managers C) are associated with clear and specific goals D) are unique and nonrecurring Answer: D 62) When problems are ________, managers must rely on ________ in order to develop unique solutions. A) structured; nonprogrammed decision making B) structured; pure intuition C) unstructured; nonprogrammed decision making D) unstructured; programmed decision making Answer: C 63) Lower-level managers typically confront ________. A) unstructured problems B) new and unusual problems C) programmed decisions D) nonprogrammed decisions Answer: C 64) Ian is a plant manager in a multi-site corporation. He often deals with situations involving new customers and new products. These are often ________. A) non-linear problems and risky decisions B) structured problems and programmed decisions C) uncertain problems and linear decisions D) unstructured problems and unprogrammed decisions Answer: D 65) ________ is a situation where a manager has the ability to make accurate decisions because the outcome of every alternative is known. A) Certainty B) Risk C) Bureaucracy D) Contingency Answer: A 66) It is time for Jane to order aluminum tubing again. She typically orders from one of three vendors. She knows the price, delivery time, and quality of each vendor. In this situation, Jane has ________. A) certainty B) uncertainty C) risk D) structure Answer: A 67) The manager of an apparel store estimates how much to order for the current spring season based on last spring's sales figures. The store manager is operating under which of the following decision-making conditions? A) uncertainty B) risk C) structure D) certainty Answer: B 68) ________ is a situation in which a decision maker cannot make reasonable probability estimates. A) Necessity B) Risk C) Uncertainty D) Certainty Answer: C 69) In the late 1970s, Apple launched the Apple computer for individual use. It was a radical concept; there was no precedent for this type of product. Under these circumstances, Apple faced a situation of ________. A) certainty B) uncertainty C) risk D) necessity Answer: B 70) Which of the following best describes the psychological orientation of an individual making a "maximax" choice? A) optimist B) cynic C) pessimist D) defeatist Answer: A 71) James has calculated the possible profits from three different scenarios for the expansion of his recreation park, each for a different amount of advertising and promotion. He has chosen to implement the scenario that offers the greatest profit. James has decided to ________. A) maximax B) maximin C) minimax D) minimin Answer: A 72) What is the psychological orientation of a decision maker who makes a "maximin" choice? A) optimist B) realist C) pessimist D) idealist Answer: C 73) Depending on the weather and the amount of advertising, Kyle has developed six scenarios for his summer profits from his lawn care business. His business has failed to reach his expectations in the past, so he fears the worst. Kyle will likely choose the option that ________. A) maximizes the maximum possible payoff B) maximizes the minimum possible payoff C) minimizes the maximum regret D) minimizes the minimum losses Answer: B 74) A programmed decision is a repetitive decision that can be handled by a routine approach. Answer: TRUE 75) Rules and procedures are the same. Answer: FALSE 76) A policy is an explicit statement that tells a manager what can or cannot be done. Answer: FALSE 77) Nonprogrammed decision making relies on procedures, rules, and policies. Answer: FALSE 78) Risk is the condition in which a decision maker is able to estimate the likelihood of certain outcomes. Answer: TRUE 79) Discuss structured problems, programmed decisions, unstructured problems, and nonprogrammed decisions. Answer: Some problems are straightforward. The decision maker's goal is clear, the problem is familiar, and information about the problem is easily defined and complete. Hence, these are called structured problems. For instance, when a server spills a drink on a customer's coat the customer is upset and the manager needs to do something. Because it is not an unusual occurrence, there is some standardized routine for handling it. For example, the manager offers to have the coat cleaned at the restaurant's expense. This is called a programmed decision, a repetitive decision that can be handled by a routine approach. Because the problem is structured, the manager does not have to go to the trouble and expense of going through an involved decision process. Not all the problems managers face can be solved using programmed decisions. Many organizational situations involve unstructured problems, which are problems that are new or unusual and for which information is ambiguous or incomplete. Whether to build a new manufacturing facility in China is an example of an unstructured problem. When problems are unstructured, managers rely on nonprogrammed decision making in order to develop unique solutions. Nonprogrammed decisions are unique and nonrecurring and involve custom-made solutions. Lower-level managers mostly rely on programmed decisions because they confront familiar and repetitive problems. As managers move up the organizational hierarchy, the problems they confront become more unstructured. However, few managerial decisions in the real world are either fully programmed or nonprogrammed. Most fall somewhere in between. 80) Discuss the three types of programmed decisions that a manager depends on to resolve structured problems. Answer: Usually a manager relies on one of three types of programmed decisions to counter structured problems: procedure, rule, or policy. A procedure is a series of sequential steps a manager uses to respond to a structured problem. Identifying the problem is a bit difficult. Once it is clear, so is the procedure. For instance, a purchasing manager receives a request from a warehouse manager for 15 PDA handhelds for the inventory clerks. The purchasing manager knows how to make this decision by following the established purchasing procedure. A rule is an explicit statement that tells a manager what can or cannot be done. Rules are frequently used because they are simple to follow and ensure consistency. For example, rules about lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and fairly. The third type of programmed decisions is a policy, which is a guideline for making a decision. In contrast to a rule, a policy establishes general parameters for the decision maker rather than specifically stating what should or should not be done. Policies typically contain an ambiguous term that leaves interpretation up to the decision maker. 81) Discuss the three different decision-making conditions that managers usually face. Answer: When making decisions, managers usually face three different conditions: certainty, risk, and uncertainty. a. Certainty - The ideal situation for making decisions is one of certainty, which is a situation where a manager can make accurate decisions because the outcome of every alternative is known. b. Risk - These are conditions in which the decision maker is able to estimate the likelihood of certain outcomes. Under risk, managers have historical data from past personal experiences or secondary information that lets them assign probabilities to different alternatives. c. Uncertainty - This is a situation in which a decision maker has neither certainty nor reasonable probability estimates available. Under these conditions, the choice of alternative is influenced by the limited amount of available information and by the psychological orientation of the decision maker. An optimistic manager follows a maximax choice (maximizing the maximum possible payoff); a pessimist follows a maximin choice (maximizing the minimum possible payoff); and a manager who desires to minimize his maximum "regret" opts for a minimax choice.