Decision Making in Conditions of Certainty, Risk and Uncertainty

In a modern world producing surplus of information and at the same time information deficits, making personal decisions, especially institutional ones, becomes exceptionally complicated and demanding. It is mainly about the fact that even the best and most efficient intellect of a given decision maker can be (and usually is) highly insufficient. It is necessary to use the array of decision-making instruments, which draw on such sciences as psychology, sociology, political science, economics, law, and others. On the one hand, it is about diagnosing and pointing out how a given fragment of reality works, on the other hand—about its descriptive and normative definition (Woz´niak 2013). “Subject making a decision can make it only when he is able to determine a set of variations, from which he will choose another variant—decision, the so-called set of permissible variants including awareness of circumstances and conditions restricting it (.. .), have the ability to differentiate among the variants and freedom to choose the one he decided on” (Woz´niak 2013, p. 10, translated). At the same time it has been proven that managers familiar with making strategic decisions asked for it—to spend small amount of energy for brain work in opposition to inexperienced people, who perceive the problem of strategic choices as difficult, and their brain needs much more energy to initiate work (Prentice 2007).

On the one hand, the decision maker has less and less possibilities of making a decision in conditions of certainty, thus it is deterministic. The undertaken actions simply do not have to lead to a specified and planned result. On the other hand, it is difficult to make clearly evaluative and normative judgements within optimal choice, even with the use of dedicated operational and systemic research. As a result, when it is known, which decision to make, the decision-making issues occur in terms of costs, gains, loses, opportunities or threats related to that choice.

Probabilistic decisions, that are made in conditions of risk, are characterised with high uncertainty. It is, however, possible to estimate the probability of occurrence of specific events. This facilitates making the right decision, however does not guarantee certainty of such approach. In this system, decisions should be made by the principle of expected utility, rather than the principle of expected value (Tyszka 2010).

Finally, when decisions are made in conditions of complete or partial uncertainty, we can talk about the unpredictability of considered activities. Decisions made in this domain are discussed in a broad context of game theory—if they relate to any opponent (Tyszka 2010).

Very large part of decisions may regard many goals, which from the point of view of optimisation are desired, and sometimes necessary. Then decision maker is forced to use or not heuristics of compensation. In compensation approach, the options listed lower in terms of an attribute “are compensated by good results in terms of other features (.. .). In case of non-compensative strategy such concession would not be possible” (Goodwin and Wright 2011, p. 33, translated).

In the process of decision making, the decision maker has the individual ability to perceive the reality, which is pointed out by the representatives of behavioural economics, in particular psychological and experimental economics. To cognitive predispositions related to perception of reality belong (Polowczyk 2012):

(a) framing (so-called context effect)—inappropriate context of realisation of a problem, e.g. too wide or too narrow,

(b) anchoring fallacy—tendency to subconsciously adopt the output suggestions, so-called anchor,

(c) availability fallacy—selective use of memory; using those informational signals, which are encoded in memory; this fallacy may be caused on purpose or unconsciously by very frequent repetition of the same communicate in mass media, which results in greater sensitivity of memory to these and not other information,

(d) halo effect—seeing one positive feature (of person, phenomenon, thing) causes tendency to positively evaluate its other attributes or features,

(e) self-perception theory—people recognise themselves on the basis of observing own behaviours and retrospection. This way they form habits necessary for new situations,

(f) illusion of truth—natural tendency to accept more understandable statements as true, even though they can be false. On the other hand, frequent repetition of false statements in understandable language leads to considering them as true even by the recipient, who initially believed the communicate to be false,

(g) superstitions—belief in superstitions, magical numbers, etc.,

(h) the curse of knowledge—limited thinking, not accepting that others can have and use different knowledge,

(i) false consensus—convinced that others think as we do (while it is quite the opposite).

On the other hand, decision makers of the public sphere of management, in decision-making process often choose consultations and solutions (dispersing liability). Thus, are more inclined to act if the decision-making process has undergone a commonly used practice of consultation—they consider deciding to be less risky then. They then avoid making decisions based on both analytical practices (which may come as a surprise, if those practices are not accompanied by speculations) and controversial decisions, qualifying them as more risky (Nutt 2006). Such calculation is a rational action from the point of view if own interest, directed at maintaining the managerial position and anti-developmental from the point of view of the organisation or even society within organisation of state.

Fig. 2.4 Model of ethical behaviour, decision-making and accompanyin emotions. Source: A. Barraquier 2011, Ethical behaviour in practice: decision outcomes and strategic implications, “British Journal of Management”, Vol. 22, Issue Supplement, March, p. S39

Making decisions, especially in relation to public sector, always or almost always may require ethical reflection, on condition that the decision maker is familiar with such values and thus he is convinced about necessity of moral identification of content of a given decision. If this condition is fulfilled, then on the basis of own knowledge, experience and personal beliefs the decision maker intuitively makes a judgement and sets direction for specific decision making process. He analyses various weights of relative conditions, evaluating between ethics and common good and the profit and economic (Barraquier 2011) efficiency of the functioning of the organization, sometimes being considered in the context of subjective personal benefits. Where ethicality of behaviour in a given organisation is usually identified with moral evaluation of actions of general management, its leaders and employees (Cremer et al. 2011).

Worthy of attention in this context is the proposed by A. Barraquier foursegment model of strategic consequences resulting from making decisions in conditions of uncertainty with various levels of congruence or adherence to profitability. It consists of four profiles: fraud, crisis, innovations and survival (Barraquier 2011) (Fig. 2.4).

In the presented model of choice between ethics and gain, fraud does not seem to be a decisive choice. If a given organisation is not able to assign required resources to realise specified tasks, the managers in order to execute them work in higher stress, which causes conflict situations, evokes a sense of helplessness and even rebellion. It results from the fact, that the made decisions do not guarantee gain, even though they could have. Situation is dramatically different, when managers prove themselves creative and implement new projects (Barraquier 2011). Another element of the model in public organisations can be the adoption of focused on survival and inertial attitudes, where the main frustration can be uncertainty related to change of the general manager of the institution or state, which may naturally seek personnel changes at different positions.

 
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