Session 2 - Decision Making

Ethics is an applied discipline. Gaining more insight into decision making processes can be useful to remove some assumptions. For example, organizational decisions are often portrayed as rational, driven by cost and benefit criteria. On closer examination, these decisions can often be better understood in terms of other themes: culture, power, politics, tradition, symbolism, habit etc. We may have similar delusions about the way we make choices, for example that we weigh up all the evidence before making a reasoned judgment, and are impassive to prejudice or bias.

This document provides an overview and analysis of some key themes relating to decision-making. Often the way in which decision-making processes are represented is inaccurate and misleading. To illustrate this, we will look at a brief history of the literature on decision-making, and examine evidence that suggests the predominant, ‘rational choice’ or ‘economic’ accounts are flawed. We will then look at an alternative account of the decision-making process, ‘Image Theory’, which is arguably more useful in describing the character of most of our decisions.

Taking a decision making perspective on business ethics is warranted, because unlike other philosophical pursuits, ethics is an inherently practical discipline. If we have more insight into how decisions are typically made, we have a better basis for assessing the ethical merit of a particular course of action. First though, we shall look at some examples of typical business decisions.

Promotion, induction, relocation, training and development provision, redundancy, inward investment, managing groups and teams, managing individuals, signalling culture/image, choosing what is valued, choices within procedural frameworks (discipline and grievance, reward and appraisal), construction of ‘deviance’, choice of norms, control and compliance methods.

Recruitment/selection, relationship with supply chain (purchasing / invoicing; manufacturers, customers) advertising, promotion, emphasis on quality, importance of corporate image, other relationships (stakeholders, shareholders), choice of adhering to standards (accounting standards, quality, fiduciary responsibility, legal requirements)

In addition to this, it is important to remember that some decisions are made individually, whereas others are made in groups. Decisions may be time pressured or otherwise constrained by resources, cultural norms or other boundary conditions. Often, there may not be an ideal solution. Less obviously perhaps, it is not always easy to determine when, or whether a decision needs to be made at all.

There are many, many ways to understand how people make choices. This document briefly explains and contextualises some of the most influential ideas, rather than putting forward a fully comprehensive ‘literature review’. Initially, it is useful to sketch some of the broad theoretical approaches we might use if we were interested in explaining decision making.

 We could try to model individual psychological factors (values / attitudes / beliefs / traits / drives / goals) that we think will influence behaviour. A famous example of this type of profiling – sometimes called psychographics - is the VALS (Values and Lifestyles) program developed by SRI International (so called because it was originally founded as the Stamford Research Institute in 1946). VALS splits people into 8 types of consumer: ‘fulfilleds’, ‘believers’ (these two are principle oriented), ‘actualizers’, ‘achievers’, ‘strivers’, ‘strugglers’ (these four are status oriented), ‘experiencers’ and ‘makers’ (the last two are action oriented). These categories were used to great effect in the election campaigns of both Thatcher and Reagan, to align political rhetoric to meet the wants of key voter groups.

 From a motivational perspective we might understand choice in terms of:

1. ‘Needs’. Maslow’s hierarchy suggests we have different types of need: physiological / survival needs, security needs, social needs, personal needs (prestige, respect), self-actualization needs – i.e. personal fulfilment.

2. ‘Hygiene / motivator factors’. Herzberg’s 2-factor theory of motivation suggests that some things can never be motivating, though their absence is demotivating – these are referred to as hygiene factors; some non-essential factors (camaraderie) can be motivators.

3. Other motivational theories e.g. Adams’ equity theory, or Locke’s goal theory.

 To analyse choice in detail we could try to uncover the heuristics (learned rules) people use in navigating the typically complex social world. This can also be thought of as trying to analyse a type of learning – see next.

 From a learning perspective we might understand choice in terms of:

1. ‘Classical’ conditioning (think Pavlov’s dogs)

2. Behavioural learning (one shorthand mnemonic for this is the SOR - Stimulus > Organism > Response model, but it also involves analysing behavioural cues and drives).

3. Cognitive learning (connecting ideas and solving problems, or observing behaviours and drawing inferences).

4. Learning heuristically (through trial and error) and incorporating schemas (rules) or habits into everyday situations can help because these things reduce complexity (this is one way in which consumer brands work – by hooking to routines / schemas designed to save time, reduce clutter and reduce risk).

 Choice might be explained partly in terms of the influence of external factors (the local environment / community, or more widely still social class / culture) or the influence of others (peers / family / opinion leaders / word of mouth).

 More fundamentally, our interpretation is influenced by how we construe people: are they actors living out a script; can they be understood purely in terms of their roles; are they best understood in terms of Freud’s ego, super-ego (conscience) and id (basic drives); are they merely workers?

Decision making is studied in many fields: international relations, psychology, business, economics, statistics, political science, public policy, probability theory etc. Examples of problems that are studied include: international conflict resolution, environmental risk assessment and management, organizational behaviour, consumer behaviour, public policy formulation, clinical judgment, ethical decision making. Sometimes people explicitly refer to behavioural decision theories. These are more closely geared towards describing what actually happens in a given context, rather than deriving absolute theories of human decision making, such as rational choice theories.

Though there is a vast literature on decision making, I suggest it can be useful to think of two perspectives on how people take decisions: firstly, there are rational choice models of the decision making process (sometimes called ‘economic’ / ‘utility maximising’ / ‘subjective expected utility’ or SEU models); then there are the others, which we could loosely think of as behavioural. If we understand the principles behind the first sort, which I will refer to here collectively as rational choice theories (RCT), we will understand their principal advantages and problems. Then in turn we are better placed to understand alternative accounts of decision making.

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RCT is a summary term for the most popular ways to explain individual action in a range of settings. A basic premise of these theories is that individuals act to maximise their utility (this is not quite the same as happiness, but it is pretty close – utility is often modelled in terms of pay or a monetary figure), and so it has close ties to Utilitarian ethical systems. At its heart, RCT suggests that faced with a given number of options, a person (people are assumed to be rational individuals) will do what they believe is likely to have the best overall outcome for them. From this premise follows a powerful way to explain the behaviour of people in many different settings, e.g. labour markets, elections, superstores, the stock market. Note that being able to provide an explanation for something is not the same as actually explaining it, nor does it mean that the explanation is valid.

From this simple premise follow several implications, and a series of problems.

RCT models need to explain three stages of the decision.

First the individual needs to collect information, to generate a range of options. However this incurs cost, and so uncertainty creeps in. When is the optimal time at which to stop gathering information? There is no hard and fast rule for this if we accept that people cannot generally have perfect information (as outlined in more detail below).

Second, the individual needs to evaluate these different options. This process is shaped by the individual’s beliefs, and based on the information they have available. This is another source of uncertainty.

Third, the individual chooses the best way to obtain their goal, given their beliefs.

Here are some problems with RCT:

 In everyday life we never face decisions with perfect information. This introduces a key source of complexity - risk. Risk aversion even plays a part in many of our most banal decisions.

 A further source of everyday complexity is the environment we each have to negotiate. Faced with an overwhelming number of potential choices, no-one has time to weigh up the pros and cons of each and every one.

 A related point is that it is not really possible to choose between many of these types of options (e.g. picking between 2 near identical options), so there must be a non-rational basis for some decisions – even if it is the psychological equivalent of flipping a coin.

 When people weigh up the pros and cons of a particular option, they often stop deliberating when they have found ‘enough’ support, rather than carrying on to assess whether there is also a case to be made against. For example, we might find sufficient support for the idea of going to the pub, and select this option (stop deliberating) before genuinely weighing up all the cons. This intrinsically human characteristic is at odds with the RCT ideal of dispassionately weighing up a choice.

 Many of our decision are not one-off, isolated choices, but part of the ongoing narrative of our lives. In this sense, we do not make decisions in a purely ‘rational’ manner, but do so in light of other choices we have already made, or are yet to make.

 We may also persist in pursuing an irrational course of action, because we have already invested in it, a phenomenon sometimes known as ‘escalation’. On a grander scale, this is often a feature of projects that go spectacularly wrong, such as the Millennium Dome.

 Similarly, we may choose in light of other decisions we have already made to preserve consistency, and to reduce ‘cognitive dissonance’ (such as insisting that you do like something you bought, because it is less painful to believe that than to admit to yourself that you got ‘ripped off’).

 To paraphrase the philosopher Hume, reason is very often the ‘slave of the passions’. There is commonsense value in holding on to the idea that we make some choices because they ‘feel right’, or ‘on impulse’. For some of these decisions we may take delight in their non-rational character. They may be a minor act of rebellion.

 Many of our actions are carried out by virtue of habit, tradition, custom, or duty. They are not calculated, but determined by ‘social norms’, which have themselves evolved in archetypically non-rational ways and involve ritual, culture or superstition.

 RCT has sometimes been called a ‘normative’ way of looking at the decision process. That is to say, that rather than actually describing what is going on when we make a decision, critics of RCT say it describes what some theorists think ought to be going on when we make a decision.

Before we look at one alternative to RCT, it is worth briefly qualifying some of these problems. RCT is an attempt to explain human behaviour in all its instances. Given the size of this task and the relative simplicity of RCT, it is unsurprising that it has flaws. Proponents of RCT could provide answers to many of these objections, though in my opinion they would not necessarily be satisfactory ones. They could also point to this being a fairly crude outline. Also, the aim of any theory or model is to balance parsimony with explanatory power – RCT is certainly parsimonious. It is my opinion that RCT has its uses, but given this context for decision making - consumer behaviour - we need an alternative way of understanding the decision making process.

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Image Theory focuses on goals and incorporates heuristics (‘rules of thumb’, or schema), values and other intrinsically non-rational elements. In addition, Image Theory incorporates elements of RCT when modelling some types of decision. In this sense it is not really an ‘alternative’ to RCT (but incorporates it), because they are not mutually exclusive.

However, within Image Theory, RCT is only occasionally seen as offering an accurate and valid view of the decision process. Some decisions will be adequately described by this sequence:

collect information > generate alternatives > weigh up alternatives > choose one > act

Most though are better understood in terms of intuitive elements, learned rules based on past experience and personal principles, or values. This applies even to the ones that are typically understood to be rational (perhaps because they are important and infrequent) such as choosing a job, buying a house or car. If we accept that the ‘crunch’ decisions are often made on a non-rational basis it is a short step to understanding our day-to-day (time pressured, more frequent, less significant etc.) choices are similarly non-rational.

Central to understanding Image Theory is the emphasis on intuitive elements within the decision making process. Each of us feels the need for our decisions to ‘fit’ with internal values, goals and strategies (these are cognitive structures called ‘images’). Decision-making typically involves ‘screening’ of options, and most decisions are decisions not to do something, i.e. rejections. This makes sense if we think of the vast demands made on us in coping with the everyday. It will be beneficial in the long run to ignore most things and enjoy a kind of inertial drift, otherwise we would never get anything done, but would instead spend our time being distracted, weighing up alternatives for each possible decision we had to take.

The other, less frequent type of decision we make is the adoption decision. On some occasions one option will survive the screening process and on these instances, we test the option against our sets of images, i.e. our internal values, goals and strategies. If this is compatible (the option ‘fits’), then we adopt the decision (i.e. do something).

On the rare occasions that more than one option survives screening, then a test of ‘profitability’ establishes the best alternative. We then test the surviving option against our sets of images, and if it is compatible, we adopt it. This last, least frequent scenario is somewhat analogous to RCT (weighing up alternatives). Although including a notion of profitability and weighing up of alternatives constitutes an explicit acknowledgement that some decisions are ‘rational’, Image Theory stresses first and foremost the non-rational character of most decisions.

To summarise then, following Image Theory:

 On most occasions, when confronted with a potential course of action, we screen it out.

 Less frequently, we find that a potential course of action survives this screening process, in which case, if it ‘fits’ with our images we adopt it.

 Still less frequently, more than one potential course of action survives the screening process. In these cases, we pick the most profitable course of action. If this ‘fits’ with our images we adopt it.

Some problems with Image Theory are that:

 It is less parsimonious than RCT.

 Some of the terms are quite hard to pin down.

 It is not as widely known or accepted as RCT, so using it as a theoretical basis will mean needing to persuade one’s audience!

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This is a list of sources to some important papers / books in this field. I have tried to group it into meaningful categories and selected those that are relevant to this document. Please note, this is only included for interest and I do not recommend people track any of these down unless they develop a particular interest in decision making for this, or other modules.

In General:

Beach L. R. (1990) Image Theory: decision making in personal and organizational contexts, Wiley, Chichester Langley A., Mintzberg H., Pitcher P., Posada E. and Saint-Macary J. (1995) ‘Opening Up Decision Making: the view from the black stool’, Organization Science, 6(3): 260-279
Zey M. (Ed) (1992) Decision Making: alternatives to rational choice models, Sage, London

Emotions in Decision Making:
Elster, J. (1999). Strong feelings: Emotion, addiction, and human behavior. Cambridge, MA: MIT Press.
Frank, R. H. (1988). Passions within Reason: The strategic role of the emotions. New York: Norton.

Risk Perception:
Highhouse, S., & Yüce, P. (1996). Perspectives, perceptions, and risk-taking behavior. Organizational Behavior and Human Decision Processes, 65: 159-167.

Escalation:
Garland, H. (1990). Throwing good money after bad: The effect of sunk costs on the decision to escalate commitment to an ongoing project. Journal of Applied Psychology, 75: 728-731.

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