MGMT3130JudgmentandDecision

MakinginOrganizations
UNIT1.2
DECISIONSINVOLVING
MULTIPLEOBJECTIVES

Wherearewenow?
Decision
Analysis
Problem
definition

Heuristics
andBiases

Choiceand
Preference

Applications

Twosystemsof
thinking

Prospecttheory

Performance
appraisal

Escalation of
commitment

Motivating
employeesby
money?Or?

Timeand
preferences

Whypeople
becomebad
apples?

Ismorechoice
alwaysbetter?

Goinggreen

Availability
heuristic
Decisionsinvolving
multipleobjectives

Decisionmaking
underuncertainty

Representativeness
heuristic
Anchoringand
adjustment
Embodied
cognition

Collectingmore
information

Bounded
awareness

UNIT1.2
DECISIONSINVOLVINGMULTIPLEOBJECTIVES

Howpeopleusuallydealwithdecisionsthatinvolvemultiple
objectives?
Lexicographicchoice
Semilexicographicchoice
Eliminationbyaspects
Sequentialdecisionmaking:Satisficing
Usingdecisionanalysistodealwithmultipleobjectivesand
tradeoff:
SimpleMultiAttributeRatingTechnique(SMART)

Goodwin,P.andWright,G.(2009).DecisionAnalysisforManagementJudgment,4th Edition.UK:JohnWiley&Sons.
Chapters23.

Toevaluatealternatives,westartby
CONSTRUCTINGTHECONSEQUENCESTABLE
Alternatives
Objectives

Weneedtospecifyhowwelleachalternativemeetseachofourobjectives.
Someobjectivesinvolvenatural measurement
Maximizeprofit:$$$
MaximizeexposureofaTVad:Numberofpeoplesurveyedwhorecall
seeingthead
Someobjectivesinvolvesubjective measurement
Jobcandidate'sabilitytofacilitatecontributionsofteammembers:
Excellent,Good,Average,orPoor
(seenextslideforanexampleofmeasurementtool)
4

 Forexample:TheAssociationofAmericanCollegesandUniversities
usesthefollowingsubjectivecriteriatomeasurestudentsabilityto
facilitatecontributionofteammembers:
Excellent:Engagesteammembersinwaysthatfacilitatetheircontributions
tomeetingsbybothconstructivelybuildinguponorsynthesizingthe
contributionsofothersaswellasnoticingwhensomeoneisnot
participatingandinvitingthemtoengage.
Good:Engagesteammembersinwaysthatfacilitatetheircontributionsto
meetingsbyconstructivelybuildinguponorsynthesizingthecontributions
ofothers.
Average:Engagesteammembersinwaysthatfacilitatetheircontributions
tomeetingsbyrestatingtheviewsofotherteammembersand/orasking
questionsforclarification.
Poor:Engagesteammembersbytakingturnsandlisteningtoothers
withoutinterrupting.

Themeaningofeachcategory(e.g.excellent,poor)shouldbeclearly
described.
5

 Wecollectinformationontheconsequences(howwelleach
alternativemeetseachobjective),andputthisinformationintoa
moreusefulformat:Theconsequencestable.
Example:Choosingamongjoboffers
Salary $/monthly
Flexibilityofworkschedule Low,Moderate,High
Vacationtime #ofdays/year
Enjoyment Boring,Average,Great
JobA

JobB

JobC

JobD

JobE

Monthlysalary($)

16,000

19,200

15,200

11,400

11,400

Flexibilityofwork
schedule

Moderate

Low

Moderate

High

Low

14

12

15

10

10

Great

Average

Boring

Average

Boring

Vacation(days)
Enjoyment

DOMINANCEANDTRADEOFFS

Dominatedalternatives the
alternativesperformworsethanall
otheralternativesonallattributes(or
worseonsomeattributesandequally
wellontheremainingattributes);
eliminatethem!

(Better)
Alternative1
AttributeY

Agoodstartingplacewhenyoufinishyour
consequencestableistolookfor
Dominantalternative thealternative
thatperformsbetterthanallother
alternativesonallattributes (or
performsbetterthanotheroptionson
someattributesandperformsjustas
wellontheremainingattributes);thisis
yourbestchoice!

Alternative2

(Better)
AttributeX

(Better)

Whennoalternativedominates
theothers.
Youneedtodealwithtradeoffs.

AttributeY

Alternative1

Alternative2

(Better)
AttributeX

 Anydominantalternative?Anydominatedalternative?
JobA

JobB

JobC

JobD

JobE

Monthlysalary($)

16,000

19,200

15,200

11,400

11,400

Flexibilityofwork
schedule

Moderate

Low

Moderate

High

Low

14

12

15

10

10

Great

Average

Boring

Average

Boring

Vacation(days)
Enjoyment

Nowwehaveeliminatedthedominatedalternative.
Whatsnext?

WITHOUTEXPLICITLYHANDLINGTRADEOFFS,
howpeopleusuallydealwithdecisionsthatinvolvemultipleobjectives?
Decisionmakersoftenusethefollowingmethodstomakedecisions
involvingmultipleobjectives:
Lexicographicchoice
Semilexicographicchoice
Eliminationbyaspects
Sequentialdecisionmaking:Satisficing

10

LexicographicChoice
Steps:
1. Pickthemostimportantattribute.
2. Choosethealternativethathasthebestperformanceonthat
attribute.
3. Ifthereisatie,moveontothenextmostimportantattribute.

11

Supposeyourmostimportantattributeis#ofvacationdays,
2nd enjoyment,3rd flexibilityofworkschedule,and4th salary:
Usinglexicographicchoice,yourchoicewillbe:______________
JobA

JobB

JobC

JobD

Monthlysalary($)

16,000

19,200

15,200

11,400

Flexibilityofwork
schedule

Moderate

Low

Moderate

High

14

12

15

10

Great

Average

Boring

Average

Vacation(days)
Enjoyment

12

 Islexicographicchoiceagoodwaytomakedecisions?
Itsquickif therearefewties.
Itseasy,itonlyrequiresyoutorankyourattributes(e.g.Issalary
moreimportantthanvacationdays?).
BUTlexicographicchoiceisnoncompensatory:
Analternativespoorperformanceononeattributecannotbe
compensatedforbygoodperformanceonotherattributes.
E.g.Ifthemostimportantattributeissalaryandvacationdayscomes
next,then$10ksalaryand1vacationday isstillpreferred to$9,999
salaryand100vacationdays.
JobX

JobY

MonthlySalary

$10,000

$9,999

Vacation

1dayperyear

100daysperyear

13

SemilexicographicChoice
Thisdiffersslightlyfromlexicographicchoiceinthat,iftheperformance
ofalternativesonanattributeissimilar,thedecisionmakerconsiders
themtobetiedandmovesontothenextattribute.
Supposeyourmostimportantattributeis#ofvacationdays,
2nd enjoyment,3rd flexibilityofworkschedule,and4th salary.ANDyour
ruleis:ifdifferencein#ofvacationdaysislessthan2,choosethejob
withgreaterenjoyment.
Yourchoice:_______
JobA

JobB

JobC

JobD

Monthlysalary($)

16,000

19,200

15,200

11,400

Flexibilityofwork
schedule

Moderate

Low

Moderate

High

14

12

15

10

Great

Average

Boring

Average

Vacation(days)
Enjoyment

14

EliminationbyAspects
Steps:
1. Pickthemostimportantattribute.
2. Decideonacutoffpointforthatattribute.
3. Eliminateallalternativesthatdonotmeetthatcutoff.
4. Moveontothenextmostimportantattribute.

15

Supposeyourmostimportantattributeissalary(cutoff:$15,000)
2nd :vacation(cutoff:12days)
3rd :flexibilityofworkschedule(cutoff:moderate)
4th :enjoyment(cutoff:average)
Usingeliminationbyaspects,yourchoicewillbe:______________
JobA

JobB

JobC

JobD

Monthlysalary($)

16,000

19,200

15,200

11,400

Flexibilityofwork
schedule

Moderate

Low

Moderate

High

14

12

15

10

Great

Average

Boring

Average

Vacation(days)
Enjoyment

16

 Iseliminationbyaspectsagoodwaytomakedecisions?
Itsquickandeasy.
Itprotectsyoufrommistakenlyselectinginferioralternatives
becausealternativesthatdonotmeetthecutoffareremoved.
Itisalsoagoodstrategytonarrowdownahugenumberof
alternativestoafewfinaliststhatyoucanevaluateinmoredetail.
But,itsalsononcompensatory:
Onlyoneattributeisconsideredatatime,notexplicitlyhandling
tradeoffsamongattributes.

17

SequentialDecisionMaking:Satisficing
Thepreviousmethodsareintendedtodescribehowpeoplemakea
decisionwhentheyevaluateallalternativessimultaneously.
Insomesituations,however,decisionmakersevaluatealternatives
sequentially.
Peoplesatisfice,i.e.searchfornewalternativesuntiltheyfinda
satisfactoryalternativethatwillsuffice.
Thusthechosenoptionisjustgoodenough,maynotbethebest
availableoption.Thechoicealsodependsontheorderinwhichthe
alternativespresentthemselves.

18

HANDLINGTRADEOFFS:
SIMPLEMULTIATTRIBUTERATINGTECHNIQUE(SMART)
Steps:
1. Foreachattribute,assignsubjectivevalues(utilities)
toreflecttheperformanceofthealternativesonthatattribute.
2. Determineaweightforeachattribute.
3. Foreachalternative,computeaweightedutility.
Then,makeaprovisionaldecision.
4. Performsensitivityanalysis.
Letsillustratewithanexample.

19

Step1:Foreachattribute,assignsubjectivevalues(utilities)toreflect
thealternativesperformanceonthatattribute.
Foreachattribute,identifythemostpreferredlevelandassignita
utilityof 1,thenidentifytheleastpreferred level andassignita
utilityof0.
Examineeachintermediate levelandassignitautilityinbetween0
and1 sothatthespacebetweenutilitiesrepresentsthestrengthof
preferenceforoneattributeleveloveranother.
Mostpreferred

Leastpreferred

Flexibilityofwork
schedule

JobA

JobB

JobC

JobD

Moderate
(?)

Low
(0.0)

Moderate
(?)

High
(1.0)

Intermediatelevel
20

E.g.Iftheimprovementfrom

0.75
Utility

lowtomoderateisseenby
youtobe50%aspreferableas
theimprovementfromlowto
high,assignmoderateautility
of0.5.

0.5
0.25
0
Low

Moderate

High

Flexibility of work schedule

E.g.Iftheimprovementfrom

0.75
Utility

lowtomoderateisseenby
youtobe75%aspreferableas
theimprovementfromlowto
high,assignmoderateautility
of0.75.

0.5
0.25
0
Low

Rememberthatitistheinterval (or

Moderate

High

Flexibility of work schedule

improvement)betweentheattribute
levelsthatwecompare.
21

JobA

JobB

JobC

JobD

Monthlysalary($)

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)

22

Step2:Determineaweightforeachattribute.
Imaginetwohypotheticalalternatives:onewiththeworst
performanceonallattributes,anotherwiththebest.
Foreachattribute,considertheimportanceofthechangefrom
theworstleveltothebestlevel.
Fortheattributethatyouwouldmostliketomovefrom
theworstleveltothebestlevel,assign aweightof100.
Assignweightstotherestofattributesbasedontheirimportance
relativetothemostimportantchange.
Normalizetheweights.
The weights reflect the importance of
changes (or swings) not the
importance of attributes per se
23

JobA

JobB

JobC

JobD

Monthlysalary($)

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)

Hypothetical
worst
alternative

Hypothetical
best
alternative

Monthlysalary($)

11,400

19,200

Flexibilityofwork
schedule

Low

High

10

15

Boring

Great

Vacation(days)
Enjoyment

Swing
Weight

24

 Inthiscase,theswingfromBoringtoGreatenjoymentisconsidered

tobe50%asimportantastheswingfrom$11,400to$19,200monthly
salary.

Monthlysalary($)
Flexibilityofwork
schedule
Vacation(days)
Enjoyment

Hypothetical
worst
alternative

Hypothetical
best
alternative

Swing
Weight

Normalized
Weight

11,400

19,200

100

100/180=
0.556

Low

High

20

20/180=
0.111

10

15

10

10/180=
0.056

Boring

Great

50

50/180=
0.278

Total

180

25

Whyswingweights?
Supposethatthechoiceisbetweenjusttwojobsandthatweare
evaluatingtheseononlytwoattributes.
Ifweconsiderrelativeimportanceofattributes,say,youconsider
salarytobefivetimesmoreimportantthanvacationdays
JobX

JobY

MonthlySalary
(5)

$10,002
(1.0)

$10,000
(0.0)

Vacation
(1)

10daysperyear
(0.0)

20daysperyear
(1.0)

AggregatedutilityofJobX=5,thatofJobY=1;butsacrificing10days
ofvacationtogain$2soundsstrange.
Ifthealternativesperformverysimilarlyonaparticularattribute (i.e.
therangebetweenworstandbestissmall),thenthisattributeis
unlikelytobeimportantinthedecision,eventhoughthedecisionmaker
mayconsiderittobeanimportantattributeingeneral.
26

Step3:Foreachalternative,computeaweightedutility.Then,
makeaprovisionaldecision.
JobA

JobB

JobC

JobD

Monthlysalary($)
[0.556]

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule[0.111]

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)
[0.056]

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment
[0.278]

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)

Weighted utilityof
eachalternative

0.756

0.772

0.444

0.306

27

Step4:Performsensitivityanalysis.
EventhoughourSMARTapproachisverysystematic,itstilldepends
uponsubjectivejudgments.
Howgoodaretheintermediatelevelsofattributeperformance
(0 utility 1)
Howimportantaretheattributesinthedecision
(0 weight 100,beforenormalizing)
Thepurposeofsensitivityanalysisistodeterminehowsensitiveyour
choicesaretothejudgmentsthatyouvemade.Inotherwords,if
yourjudgmentsweresomewhatdifferent,wouldyouchoiceremain
thesame?
Onjudgmentsthatyouarenotveryconfidentabout,pleaseconduct
asensitivityanalysis.

28

Example:
Previously,weassignedtheenjoymentattributeaweightof50.
Willourchoiceremainthesameifthisattributeisweighteddifferently?
Whichalternativeisthebestwhenenjoyment hasaweightof0?
Whichalternativeisthebestwhenenjoyment hasaweightof100?
Hypothetical
worst
alternative

Hypothetical
best
alternative

Swing
Weight

Monthlysalary($)

11,400

19,200

100

Flexibilityofwork
schedule

Low

High

20

10

15

10

Boring

Great

50

Vacation(days)
Enjoyment

29

Whenenjoyment hasaweightof0:
JobA

JobB

JobC

JobD

Monthlysalary($)
[100/130 =0.77]

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule
[20/130 =0.15]

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)
[10/130 =0.08]

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment
[0/130 =0.00]

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)

Weighted utilityof
eachalternative

0.662

0.800

0.615

0.154

30

Whenenjoyment hasaweightof100:
JobA

JobB

JobC

JobD

Monthlysalary($)
[100/230 =0.43]

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule
[20/230 =0.09]

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)
[10/230 =0.04]

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment
[100/230 =0.43]

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)

Weighted utilityof
eachalternative

0.809

0.757

0.348

0.391

31

Ourchoiceissensitivetotheweightplacedonenjoyment.
ItcanbeseenthatJobBisthebestalternativeaslongastheweight
placedonenjoymentislessthan60.
WeightedutilityofAlternatives

0.9
0.8

JobB

0.8

0.7

JobA

0.662
0.615

0.6

0.809
0.757

0.5

JobC

0.4

0.391
0.348

0.3

JobD

0.2

0.154

0.1
0
0

10

20

30

40
50
60
WeightonEnjoyment

70

80

90

*YoumayrefertotheExcelfileonCanvasformoreinformationonhowtoconstructthisgraph.

100

32

 Carryingoutsensitivityanalysismightleaddecisionmakersto
reconsidersomeofthefigurestheysupplied.Butinmanycases,
sensitiveanalysisshowsthatourchoicesarestableoverarangeof
thosefigures.
Notethatsensitivityanalysisonlyallowsdecisionmakersto
investigatetheeffectofchangingone variable(valueorweight)at
atime.
Mustajoki etal.(2006)havedevelopedamodelingmethodto
simultaneouslyvaryweightsandvalues.Takealookonlyifyouare
interestedandgoodatmathematics.
Mustajoki,J.,Hamalainen,R.P.,andLindstedt,M.R.K.(2006).Usingintervalsforglobal
sensitivityandworstcaseanalysesinmultiattribute valuetrees.EuropeanJournalof
OperationalResearch,174,278292.

33

Inclassexercise:
Previously,weassignedmoderatelevelofflexibilityautilityof
0.5.
Isourchoicesensitivetotheutilityassignedtomoderate
flexibility?
Hints:Calculatetheweightedutilitiesofthealternativeswhen
moderateflexibilityisassigned0and1.
JobA

JobB

JobC

JobD

Monthlysalary($)
[0.556]

16,000
(0.7)

19,200
(1.0)

15,200
(0.6)

11,400
(0.0)

Flexibilityofwork
schedule[0.111]

Moderate
(0.5)

Low
(0.0)

Moderate
(0.5)

High
(1.0)

Vacation(days)
[0.056]

14
(0.6)

12
(0.4)

15
(1.0)

10
(0.0)

Enjoyment
[0.278]

Great
(1.0)

Average
(0.7)

Boring
(0.0)

Average
(0.7)
34

Youranswerhere:
Whenmoderateflexibilityhasautilityof0,theweightedutilitiesare:
JobA:______ JobB:______ JobC:______ JobD:______
Thusthechoiceshouldbe________.

Whenmoderateflexibilityhasautilityof1,theweightedutilitiesare:
JobA:______ JobB:______ JobC:______ JobD:______
Thusthechoiceshouldbe________.
Ourchoiceis(sensitive/insensitive)toutilityassignedtomoderate
flexibility.
35

Conflictsbetweenintuitiveandanalyticresults
Yourintuitivechoicemaybedifferentfromthatobtainedthrough
SMART.Thisconflictshouldbeexamined.
Thisconflictcouldbebecausetheproblemwastoolargeand
complexforyoutohandlewithoutusingDA,sothatyourtrue
preferenceswerenotreflectedinyourintuitivejudgment.
Researchhassuggestedthatthecorrelationbetweenpreference
derivedfromintuitivejudgmentandpreferencederivedfrom
SMARTdecreasesasthenumberofattributesintheproblemgets
larger.
Theconflictmayalsosuggestthatanimportantelementofthe
problemhasnotbeencapturedbytheanalysis(e.g.missingor
overlappingobjectives).

36

AnExampleofDecisionMakingUsingSMART

Trainingonresearch
(Proxy:Research ranking)
Trainingonteaching

Commutetimeandmeans

Doing a PhD in
Management

HKUST

HKU

HKBU

Ranked6

Ranked77

(1.0)

(0.3)

Notin thetop
100
(0.0)

Poor

Poor

Good

(0.0)

(0.0)

(1.0)

35 minutesby
taxi
(0.0)

5 minutesby
walk
(1.0)

20minutesby
taxi
(0.2)

Foreachattribute,
Themostpreferredlevelhasautilityof1
Theleastpreferredlevelhasautilityof0
Intermediateoneshaveautilityinbetween0and1
(i.e.0 utility 1)
37

Hypotheticalworst Hypotheticalbest
alternative
alternative
Trainingonresearch
(Proxy:Research ranking)
Trainingonteaching

Commutetimeandmeans

Swing Weight

Notin thetop100

Ranked6

100

Poor

Good

80

35minutesbytaxi

5minutesbywalk

20

Foreachattribute,decidehow importantitisforyouto
movefromtheworstoutcometothebestoutcome
Giveaweightof100tothemostimportantmove
Othermoves,giveaweightinbetween0and100
(i.e.0 weight 100)
38

Normalizetheweights

Trainingonresearch
(Proxy:Research ranking)

(0.5)

Trainingonteaching
(0.4)
Commutetimeandmeans
(0.1)
Weighted utility

HKUST

HKU

HKBU

Ranked6

Ranked77

(1.0)

(0.3)

Notin thetop
100
(0.0)

Poor

Poor

Good

(0.0)

(0.0)

(1.0)

35 minutesby
taxi
(0.0)

0.50

5 minutesby
walk
(1.0)

20minutesby
taxi
(0.2)

0.25

0.42

PickthealternativewiththeHIGHESTweighted
utilityastheprovisionalchoice

39

Sheisnotsosureabouttheweightshegavetoteachingrelatedtraining,
sosheconductsasensitivityanalysis.
SensitivityanalysisshowsthatHKUSTisthebestalternativeaslongasthe
weightplacedonTeachingrelatedtrainingislessthan96.

Weightedutilityofalternatives

0.90
0.80
0.70
0.60
0.50

HKUST

0.40

HKU

0.30

HKBU

0.20
0.10
0.00
0

10

20

30
40
50
60
70
80
Weightonteachingrelatedtraining

90

100

40

TimeforREFLECTION
Describeadecisionproblemthatyouretryingtosolve.
Howwouldyoucollectinformationabouttheconsequences?
Whatdecisionstrategywouldyouuse(lexicographicchoice,elimination
byaspects,SMART,etc.)?Why?

41

INTENDEDLEARNINGOUTCOMESFORUNIT1.2

Bynow,youshouldbeableto:
Applythefollowingdecisionstrategiesanddescribetheir
prosandcons
Lexicographicchoice
Semilexicographicchoice
Eliminationbyaspects
Sequentialdecisionmaking:Satisficing
PerformaSMARTdecisionanalysis(besurethatyou
understandeverystep)

42