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[Management Behavior] Chapter 5: Psychology of Management Decisions. Should I solve the problem with intuition or with thought?


Roughly speaking

  1. Chapter 5 of Management Action. Describes the psychology of business decisions. A familiar story about fast-slows of intuition and contemplation.
  2. Two ways to solve problems. Skip and thorough solutions.
  3. By modeling the issues, we will enable game theory formulation and computer support.


Chapter 5 of Management Action. How should we solve the challenges based on human limitations?


This is the fifth chapter of the Management Action series. All articles are below.


This time, just like in Chapter 4, we will focus on human limitations. However, this time we will further clarify the limitations of human ability and human bias in solving problems.


Behavioral economics has become popular recently. The trigger was undoubtedly "Fast & Throw" by Daniel Kahneman, a genius who won the Nobel Prize in Economics despite being a psychologist. This describes in detail the mechanisms of human cognition and decision-making from a psychological perspective, but please note that Simon has been presenting a similar model for a long time. After all, Simon is a modeling genius.


By the way, as those who have already read it have noticed, there is no diagram of management behavior at all. However, this is so difficult to understand that I have introduced it on my blog, supplementing diagrams and specific examples. There is a lot of information that is not posted on the blog, so please read it.



Skip-type solution through intuition and thorough type solution through contemplation


When solving a problem, we take the following steps:

  • Issues occurring
  • Issue focus (attention)
  • Extracting options
  • decision making
  • Action

When humans solve problems, they correspond with two patterns of skip and slow-cutting. Let's take a look at each one.



Skip type resolution


It is introduced as System 1 in "Fast & Throw". This involves intuitive decisions, adaptation by progressing regular tasks, and the habit of repeating regular tasks without being aware of them, focusing on the tasks first.



You can see from the diagram above, but there are plenty of skips. In other words, like a script built into humans, when it receives a response, it automatically makes decisions. Let's give specific examples starting from the focus of the task.


Stress refers to a physiological response, and examples include when you fall, inevitably putting your hands on the floor to avoid damage. Examples of adaptation include interview work in the Human Resources department. The interview work becomes tense on the first day you are assigned to the Human Resources Department, but gradually you will be able to take action as a standard task without any particular effort. Needless to say, examples of habits refer to actions that involve unconsciously picking up and opening a tube-shaped object when brushing your teeth. Since it is done automatically, there are occasional slips such as accidentally brushing your teeth with facial cleanser. For more information, please see Affordance article.


Slowly solve the type


"Fast & Throw" is System 2, but the meaning is a little different, and it refers to project-based problem solving. Consider all the complex factors and make decisions. Usually, many people decide on a large number of people, but this also refers to contemplation when making a serious decision by yourself.



It is easy to understand when you think about it carefully based on management decision-making. For example, let's consider a chain restaurant that runs hamburger shops to run a new yakiniku chain, so let's explain while looking at the above diagram.


When focusing on the issues, it is necessary to consider various factors, such as the location of the yakiniku chain, the prices, product lineup and purchasing issues. Limited rationality will be effective during this consideration.


Behavioral persistence bias refers to the possibility that, for example, a burger chain plan might be designed to open a yakiniku chain. They seem to be similar, but the rich ones that should be opening a store should be different. Opportunity costs are the possibility of losses that arise from not knowing which chances of success are best when considering whether to attack a yakiniku chain restaurant with a high-end line or a low-priced line or an all-you-can-eat line. If you were using a hamburger chain, you might want to go with a low-priced chain, but you might be able to secure a profit by moving on a fresher-fresh line. The inertia of work excitement is the fact that when you think about the plan to open a yakiniku chain, you end up forgetting to think about the product lineup, or you end up moving forward without taking into consideration the exterior and interior of the store.


Next, we will create a plan to expand the yakiniku chain to extract options. Substantive planning is a method of extracting the best options available from the beginning. When planning a store, we choose the only one that is the best and try to launch a yakiniku chain with a high-end line. Procedural planning is a more trial-and-error method of planning. Considering multiple possibilities, we extract options while providing a wide range of possibilities, such as doing this if it's a low-priced chain, doing this if the first store is successful, and doing this if it's a high-end route. It's hard to say that the former is better or the latter is better, but if it's a yakiniku chain, it's probably better to plan a procedural plan.



Formulation of tasks, game theory as examples


Research is underway to ensure that the tasks can be formulated. In economics, game theory is one of the successful theories that have been used as a formulation of tasks. A particularly famous example is The Prisoner's Dilemma. We will then decide on the best option while gazing at the decision-making of our competitors.

  • Expresses possible future actions as trees that divide from individual selected points. In other words, individuals will select the appropriate branches to take from their respective selection points.
  • In competitive situations, choose the option (called Minimax) that gives you the best results when faced with a competitor.
  • In competitive situations, for example, you may adopt mixed strategies (such as bluffing in poker) so that your opponent does not expect you to move.
  • In the event of a competition between three or more people, the choice may be made such as a united ties.
  • Suppose that when faced with uncertainty where only the probability distribution of the result is known, the decision maker has a radix utility function (a function that allows two or more variables to be matched under a particular situation. One apple is 2 utility, and one mandarin orange is 1 utility, and one apple is 1 happier, and one apple is 2 happier, and one apple is 2 happier, and one apple is 2 happier, and one mandarin orange is 2 happier, and one apple is 2 happier, and one option is maximizing the expected value.

What's great about formulating game theory is that it can now be expressed using mathematical formulas, and to put it more simply, it can be calculated using a computer. There is a real movement to formulate game theory and apply it to machine learning..


In another example, Monte Carlo simulation, which is also well-known for its application in financial engineering, is a typical example that cannot be calculated by humans but can be easily calculated by computers. This is actually used by Alpha Zero in Google's AI, and continues to reign as the world's strongest player in Go, Shogi and chess.


Although AI-based decision support is still in the early stages, it is believed that machine learning can overcome limited rationality in the form of detailed resolution and make decisions that overwhelm others in competitive states. We should pay attention to the feasibility of AI-based management decision-making, and we would like to continue learning personally.


Aside (Gonjicchi memo)


Notes are written for each chapter using iPad Pro and Apple Pencil. This time it's not an e-book, but it has around 550 pages, making it inconvenient to carry around. If you make a note of it on your tablet, you can do it on your smartphone when you review it later.