Impact of information on decision-making

Impact of information on decision-making
See also
Decision making Selection process in conditions of certainty and uncertainty Functions of research Descriptive model Decision process models Rational decision making Economic feasibility SWOT analysis Simulation scenarios

The quantity and quality of the information affects the efficiency and rationality of decisions. Choosing appropriate criteria for the selection of options (making a decision) is one of the fundamental problems of decision theory. One of the first selection criteria was established by the mainstream quantitative approach (operations research) and is on the search for the optimal solution, best under given circumstances.

The decision making process can be described as a process of transformation of information. Therefore, when considering the decision managers must take into account the issues of information processes, or more broadly, information and analysis of decision-making. This approach leads to following interpretation of the decision:

• Information is a kind of material for decision
• Any decision is also information for subsequent decisions
• The decision is information that causes action taken by subordinates or decisions of other managers.

Most of the information needed for managers is used to plan and control operations and to realization of their responsibility. Depending on the level in the hierarchy nature of the information needed by managers differs. Top management takes strategic decisions on major long-term perspective, and also formulate general objectives of the organization. At this level most useful information is obtained from the environment, and partly from inside information. Middle management makes tactical decisions and implements the policy set by the chief executives. They need internal and external information for both control and planning. Lower-level management (operational) mainly deals with current affairs, and therefore requires detailed inside information. Because the decision-making is a process of information processing, managers can be regarded as entities selecting and processing the information to make a decision.

Role of information in management

• The information is necessary for the effective leadership, in particular, the control function
• The quality of information affects the efficiency of decision making
• Lack of information can lead to serious problems and prevent the success of the organization
• IT tools should be used as supporting of the work of managers in organizations.

Information and decision criteria

H. Simon defines concept. of limited rationality, it occurs when the decision maker is seeking to achieve "satisfaction", and not "maximize" or "optimize". "Satisfaction" means the acceptance of satisfactory result, achieving "satisfactory" result ends the collection of information process, and leads directly to generate solutions. In a strict sense, the optimal solutions, can be calculated only for problems of a quantitative nature. They are related to the local extremes of functions describing the decision problem. In any other case, to use the term "optimal" is only a metaphor.

Rationality of decision

In theory and practice, the decision also uses the concept of a rational solution. Rationality is treated as a feature of conscious action involving the adjustment of the intended purpose, as well as the conditions for its implementation. There are two basic types of rationality - methodological and substantive rationality.

Action is rational if it is methodologically suited to the knowledge of fact, recognized as objective truth and therefore constituting the basis for the search for solutions for decision-making. In other words, we can say that the action is based on the subjective knowledge of reality.

Substantive rationality means that the operation is tailored to the objective truth, that is, in fact, the existing measures, the conditions and relationships that exist between them. In economics, the decision is rational if it leads to maximizing results in relation to the effort. In other terms, the economic rationality of the decision maker, involves striving to maximize the utility function of the chosen options.

All of these demands on the selection criteria are based on the assumption that the decision-making manager has the ability to assemble and process of all information related to the decision-making problem. Modern information systems allow for the collection of large amounts of data, but the real decision-making situations are more complex than even the most complex models. Therefore, decision makers rarely can follow demands for optimization, or even rationality. One can only speak of bounded rationality. The only options that can be sought in the decision making process are satisfactory solutions. Both of these concepts have been introduced to the theory and practice of decision by H. Simon [1991], for which he was awarded the 1978 Nobel Prize in economics.

Examples of impact of information on decision-making

• In organizations, the availability of accurate and up-to-date information is vital for decision-making. Having access to the right information at the right time can help managers make faster and more informed decisions, resulting in improved efficiency and performance. For example, a business may use market research to gain insights into consumer trends, which can help inform decisions about product development and pricing.
• In the medical field, access to accurate and comprehensive patient information is crucial for making informed clinical decisions. A patient's medical history, symptoms, and test results can provide valuable insights into their diagnosis and treatment. By having access to a patient's complete medical history, doctors and nurses can better assess the patient's condition and make informed decisions.
• In the financial sector, having access to accurate and timely information is essential for making sound investment decisions. By staying up-to-date on market trends and economic news, investors can be better informed about the potential risks and rewards of their investment decisions. For example, investors can use stock market data to assess the performance of a company's stock over time and make informed decisions about when to buy or sell.

Advantages of information availability on decision-making

• The availability of information can help to make decisions more efficient, as it allows for a more informed choice. With access to quality data, decision makers can identify patterns, trends, and correlations, to better understand the current state of affairs. This can lead to more rational decisions as the risks, rewards, and potential outcomes can be more accurately evaluated.
• Information can also provide decision makers with a greater scope of options to choose from. It can help to identify alternative solutions to a problem, or ways to improve existing solutions. By having more options, the decision maker can find the best possible choice for their needs.
• Access to the right kind of information can provide decision makers with a better understanding of the consequences of their decisions. By having knowledge of the potential outcomes of their choices, decision makers can make decisions with a greater degree of confidence.
• Information can also help decision makers to be more consistent in their decision-making. By having access to updated information, decision makers can ensure their decisions are in line with current trends, best practices, and regulations.

Limitations of information on decision-making

The limitations of the impact of information on decision-making include:

• Unreliable or incomplete information – If the information available is incomplete or incorrect, it can lead to an incorrect decision.
• Bias – People can be biased in the decisions they make, either consciously or unconsciously. They may have preconceived notions or opinions that influence the way they interpret and use the information they receive.
• Overconfidence – People may become overconfident in their decisions, believing they have the right answer even when they are presented with contradictory evidence.
• Lack of expertise – If the decision-makers are not knowledgeable in the relevant subject matter, they may be unable to adequately evaluate the information they receive and make the right decision.
• Limited time – People may not have enough time to consider all the available information and make an informed decision.
• External influences – External factors such as politics, economics, and social pressures can have an influence on the decision-making process.

Other approaches related to decision-making

Introduction: Besides the mainstream quantitative approach, there are many other approaches related to the impact of information on decision-making.

• Behavioral Decision Theory: This approach looks at the decision-making process from a psychological point of view, considering variables such as cognitive biases and emotional influences on decisions. It aims to understand how people make decisions and how they can be improved.
• Heuristics: Heuristics are rules of thumb used to quickly and intuitively make decisions. These rules are based on experience and can be used to reduce decision-making time and complexity.
• Decision Analysis: This approach uses a structured approach to making decisions by breaking down the decision into components and analyzing the options in terms of their expected outcomes.
• Bayesian Decision Theory: This approach uses probability theory to make decisions by incorporating prior information and updating it as new information is gathered.
• Multi-Criteria Decision Making: This approach uses a set of criteria to evaluate and compare options in order to make a decision.

Summary: There are many approaches related to the impact of information on decision-making, such as behavioral decision theory, heuristics, decision analysis, Bayesian decision theory, and multi-criteria decision making. Each approach has its own strengths and weaknesses, but they all aim to improve decision-making by taking into account different variables and contexts.

References

• McLeod, R., & Schell, G. (2001). Management Information Systems 8/e. Chapter-17" Marketing Information System" published in.
• Newell, A., & Simon, H. A. (1972). Human problem solving (Vol. 104, No. 9). Englewood Cliffs, NJ: Prentice-Hall.
• O'Brien, J., Marakas, G. M., Hills, T. M. G., & Lalit, M. R. (2006). Management information systems.
• Simon, H. A. (1971). Designing organizations for an information-rich world. Computers, communication, and the public interest, 37, 40-41.
• Simon, H. A. (1978). Information-processing theory of human problem solving. Handbook of learning and cognitive processes, 5, 271-295.