6-6 The administrative model .Administrative model of decision making: Challenged the classical assumptions that managers have and process all the information As a result, decision making is risky Bounded rationality. There is a large number of alternatives and information is vast so that managers cannot consider it all a Decisions are limited by people's cognitive abilities Incomplete information: most managers do not see all alternatives and decide based on incomplete information. " win/MeGraw-HHill CThe McGraw-Hill Companies, Inc, 2000
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 6-6 The Administrative Model ⚫Administrative Model of decision making: Challenged the classical assumptions that managers have and process all the information. ◼ As a result, decision making is risky. Bounded rationality:There is a large number of alternatives and information is vast so that managers cannot consider it all. ◼ Decisions are limited by people’s cognitive abilities. Incomplete information: most managers do not see all alternatives and decide based on incomplete information
6-7 Why Information is Incomplete Figure 6.2 Uncertainty Ambiguous risk Information Incomplete Information Time constraints information costs " win/MeGraw-HHill CThe McGraw-Hill Companies, Inc, 2000
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 6-7 Why Information is Incomplete Uncertainty & risk Ambiguous Information Time constraints & information costs Incomplete Information Figure 6.2
6-8 Incomplete Information Factors iNcomplete information exists due to many ssues Risk: managers know a given outcome can fail or succeed and probabilities can be assigned Uncertainty: probabilities cannot be given for outcomes and the future is unknown Many decision outcomes are not known such as a new product introduction Ambiguous information: information whose meaning is not clear o Information can be interpreted in different ways " win/MeGraw-HHill CThe McGraw-Hill Companies, Inc, 2000
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 6-8 Incomplete Information Factors ⚫Incomplete information exists due to many issues: ◼ Risk: managers know a given outcome can fail or succeed and probabilities can be assigned. ◼ Uncertainty: probabilities cannot be given for outcomes and the future is unknown. ◆ Many decision outcomes are not known such as a new product introduction. ◼ Ambiguous information: information whose meaning is not clear. ◆ Information can be interpreted in different ways
6-9 Incomplete Information Factors tIme constraints and information costs: Managers do not have the time or money to search for all alternatives This leads the manager to again decide based on incomplete information sAtisficing: Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision This is the response of managers when dealing with incomplete information Managers assume that the limited options they examine represent all options " win/MeGraw-HHill CThe McGraw-Hill Companies, Inc, 2000
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 6-9 Incomplete Information Factors ⚫Time constraints and Information costs: Managers do not have the time or money to search for all alternatives. ◼ This leads the manager to again decide based on incomplete information. ⚫Satisficing: Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision. ◼ This is the response of managers when dealing with incomplete information. ◼ Managers assume that the limited options they examine represent all options