Samuelson & Marks, Question 4 page 17, questions a through d.
Listed here are several examples of bad, or at least questionable, decisions. Evaluate the decision maker’s approach or logic. In which of the six decision steps might the decision maker have gone wrong?
(a) Mr. and Mrs. A recently bought a house, the very first one they viewed.
(b) Firm B has invested five years and $6 million in developing a new product. Even now, it is not clear whether the product can compete profitably in the market. Nonetheless, top management decides to commercialize it so that the development cost will not be wasted.
(c) You are traveling on a highway with two traffic lanes in each direction. Usually traffic flows smoothly, but tonight traffic moving in your direction is backed up for half a mile. After crawling for 15 minutes, you reach the source of the tie-up: a mattress is lying on the road, blocking one lane. Like other motorists before you, you shrug and drive on.
(d) The sedative thalidomide was withdrawn from drug markets in 1962 only after it was found to be the cause of over 8,000 birth defects worldwide. (An exception was the United States, where the use of thalidomide was severely restricted).
Complete this essay in a Microsoft Word document, with a minimum of 300 words, APA formatted and then submit it as Assignment 2 by midnight, Day 7.
The SIX decision steps:
STEP 1: Define the problem
What is the problem the manager faces? Who is the decision maker? What is the decision setting or context, and how does it influence managerial objectives or options?
STEP 2: Determine the objective
What is the decision maker’s goal? How should the decision maker value out-comes with respect to this goal?
STEP 3: Explore the Alternatives
What are the alternatives courses of action? What are the variables under the decision maker’s control? What constraints limit the choice of options?
STEP 4: Predict the consequences
What are the consequences of each alternative action? Should conditions change, how would this affect outcomes? If outcomes are uncertain, what is the likelihood of each?
STEP 5: Make a choice
After all the analysis is done, what is the preferred course of action?
STEP 6: Perform Sensitivity Analysis
What features of the problem determine the optimal choice action?
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