see attached
MGT 3303, Managerial Decision Making 1
Course Learning Outcomes for Unit III
Upon completion of this unit, students should be able to:
2. Examine the rational decision-making process.
2.1 Explain how bounded awareness improves the decision-making process.
2.2 Articulate how the framing concept affects decisions.
2.3 Exemplify boundaries and framing in a specific company.
Reading Assignment
Chapter 4: Bounded Awareness
Chapter 5: Framing and the Reversal of Preferences
Unit Lesson
Understanding Bounded Awareness
Most everyone today has heard of Bernie Madoff and his Ponzi scheme. If not, you will read about it in
Chapter 4 of the textbook. There was plenty of evidence and hints that something was not quite adding up,
but everyone from the investors and fund managers to government regulators and even investment bankers
bought into his scheme while lacking the motivation to see the evidence that was quite clear (Bazerman &
Moore, 2013). All of them ignored the hints and evidence because of their internal motivations. They were
bounded by their pursuit of great returns for their investments.
This unit is about our systematic and predictable failures to notice critical information that is readily available
to discover. We have already studied how we rely on our decision-making heuristics in the decision-making
process. We will now study how we limit our search for information to simplify complex decisions. We start
this process at birth and continue until we die, refining the process along the way. We start prioritizing
information by subconsciously sifting through what is relevant and what is not. We start early by learning to
communicate with those around us, by progressing through school, by getting jobs, and by socializing.
Prioritizing in this context of decision-making refers to differentiating between relevant information versus
meaningless information. We cannot pay attention to every fact or piece of information, so we develop a way
to store, organize, and retrieve the useful information and ignore the rest. This filtering process may eliminate
key pieces of information and may have consequences in our perceptions and in our decisions (Bazerman &
Moore, 2013).
We covered in Unit II how our biases affect our thinking in a predictable way. Boundaries, as used in this
course, are simply the limitations in our mind when we make decisions based on information we are aware of
at the time of the decision. The textbook states the following information.
People have bounded awareness that prevents them from noticing or focusing on useful,
observable, and relevant data. According to Bazerman and Chugh, our minds are constantly
making choices about what to pay attention to and what to ignore, but our information filters
make some predictable mistakes. Bounded awareness often leads people to ignore
accessible, perceivable, and important information, while paying attention to other equally
accessible but irrelevant information. (Bazerman & Moore, 2013, p. 63)
This simply says that due to bounded awareness, we make decisions but leave out useful and relevant
information. The nine-dot illustration on page 64 of the textbook is a classic example. Although the solution is
UNIT III STUDY GUIDE
Awareness of Boundaries and
Framing in Decision-Making
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simple, it is eliminated from our minds by our limitations or boundaries. The assumptions we make are the
critical barriers to being a creative decision maker. Assumptions in decision-making refer to the information
we allow to flow into our brains, readily retain, and later use for processing a decision. This process creates a
tendency to allow false perceived boundaries to interfere in our decision-making.
Decision Blindness
People generally focus on a specific task and may miss obvious information that they see, but do not process
or store. We do not want to admit that we might have missed something so obvious because it violates our
own assumptions about our visual awareness. This concept is referred to as inattentional blindness.
Bazerman and Moore (2013) point out that people sometimes miss what they are looking for, even if it is right
in front of them. This phenomenon can lead to decision makers overlooking vast amounts of information
readily available to them.
There is another type of decision blindness referred to as change blindness. This occurs when people fail to
see changes in the environment around them. This happens more often than one might think. People may
perceive a change in their environment but somehow screen it out subconsciously (Bazerman & Moore,
2013). This is even more pronounced if the change occurs gradually over time. One example is ethical
changes. When we take (what seems to be) minor steps toward change in our ethics, it becomes easier to
justify or rationalize doing things that were considered to be unethical at some point in time.
There are studies that confirm that people are willing to accept small lapses of ethics if they gradually occur
over time rather than in one major step (Bazerman & Moore, 2013). To keep this from happening, we need to
stay vigilant and recognize when our moral compass shows we are off course and adjust immediately back to
the high ground of our moral or ethical standings. Since we are human beings, we should assume we are
prone to ethical lapses (Bazerman & Moore, 2013). Therefore, we must actively search for clues that show us
when we have started sliding down this slippery ethical slope.
Focalism and the Focusing Illusion
The description of focalism is the tendency to focus too much on a particular event and not enough on other
events that are happening simultaneously. When this occurs, we tend to overestimate how much time we will
spend thinking about the focal event and how long our emotions will be affected by the focal event (Bazerman
& Moore, 2013). To counter this dilemma, we need to make sure we allow ourselves to broaden our
perspective and to keep an open mind associated with this event.
The definition of the focusing illusion is when people make decisions based on limited information and tend to
overvalue readily available information about the decision and undervalue other information just outside their
readily available information. When decision makers get caught in the focusing illusion fallacy (whether
independently or in a group), they will err by limiting their analysis to the readily available information instead
of requesting additional data, which, if they were to obtain, would ultimately provide for better decisions
(Bazerman & Moore, 2013).
Bounded Awareness in Groups and Strategic Settings
We have focused on bounded awareness for individual decisions, and now we turn to the concept of bounded
awareness involving groups. As members of a group discuss and share information, the data that they hear
and retain will have a key influence on the final decisions made by the group. However, if individuals mentally
consider information but do not mention or discuss that information, it will have little or no effect on the final
decision. What is suggested here is that groups are bounded by what is discussed and are made aware of
regarding the decision, whereas individuals are bounded by their limited mental awareness of information
about the decision they are making. A key advantage of groups over individuals is that there is more
information available to the group than is available to a single individual in the decision-making process
(Bazerman & Moore, 2013). The group will tend to focus on information they already possess rather than any
information not shared, thus leaving out information known by only one person but not shared with the group.
The reason groups are brought together is to share information, but many times, they end up spending more
time on knowledge they already have without allowing new information to be introduced. To overcome this
tendency, we need to use strategies that encourage members to introduce and share new information.
Groups should be comprised of diverse members, each with unique strengths and talents, and all members
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should be prompted to provide input and brainstorm to introduce new ideas and participate in the debate. The
idea is to maximize the potential of the group by eliciting unshared information from individual members and
creating an environment that overcomes the bounded awareness issue (Bazerman & Moore, 2013). Business
leaders would be wise to establish teams or groups to consider key decisions so that collective information
could be gathered, discussed, debated, and synthesized to develop good decisions.
In the textbook, there are several examples that further explain and clarify bounded awareness. The
multiparty ultimatum games, the Monty Hall game, the acquiring-a-company problem, and auctions all help us
understand bounded awareness. Each of these scenarios is geared to help us realize that strategic settings
are important to our decision-making. In all of these scenarios, it is important to understand the rules (or
strategies) associated with the various decisions we are requested to make. Often, there are slight variations
of the rules, and if we are not careful to differentiate those slight variations, then we can make bad decisions.
There is also a term called winner’s curse. This
comes about when a person has made a decision
and then wins a prize/wins the bid or buys an item,
but then he or she wonders whether the decision he
or she made was a good one. The person is
plagued by thoughts like “Could I have done better?”
“Was I a sucker on that deal?” “Did I pay too much?”
These types of thoughts after a decision refer to the
winner’s curse. This is a result of a type of bounded
awareness where a lack of information or
information left out during the decision-making
process keeps plaguing the individual in the
afterthought process.
All of the problems discussed are examples that
emphasize the need to understand the rules of the
game and how decisions made by others may be
out of focus for the decision maker. Knowing the
rules and understanding the basis of decisions by
others is critical when negotiating a deal (Bazerman
& Moore, 2013).
According to Bazerman and Moore (2013), people are not sensitive enough to the quality of their competition
and, because of this bounded awareness, make poor assessments regarding how well they can compete with
their competition. This is called reference group neglect. Without a good comprehensive SWOT (strengths,
weaknesses, opportunities, and threats) analysis, companies may focus too much on their own strengths and
weaknesses and not enough on their competitors’ strengths and weaknesses. This can lead to decisions that
result in business failure, bankruptcy, loss of income, or other less-than-desirable outcomes.
Understanding Bounded Awareness of Others
We should understand our own bounded awareness, but equally important is that we understand the bounded
awareness of others. When making business decisions about our customers, we need to be careful to limit
the choices given to our customers. Do not assume that the more choices you have, the better. If you
overwhelm your customer, you may get no decision. Customers who feel overwhelmed with choices may
decide to avoid making a decision at all, which, in fact, is a decision not to purchase at this time (Bazerman &
Moore, 2013). Another example of this bounded awareness issue, made by investment companies, is called
choice overload in which there is an array of investment options, making it very difficult to choose one, and
the result is no choice is made at all. This means no savings for the potential investor and no commission for
the investment company (Bazerman & Moore, 2013). This same scenario applies to bank loans as well. When
there are too many options presented, it could result in information overload for the consumer and a
breakdown in the decision-making process to acquire a loan from that particular lending institution.
When we narrow our attention and focus, we are subject to bounded awareness in negotiations. Bounded
awareness and availability (discussed previously) overlap to some degree. These concepts really focus on
the theory that limited information is available to the decision maker and that there is more information to be
An example of the winner’s curse may occur at the farmer’s
market. If someone offers $6 for a dozen tomatoes, and the
seller readily accepts the offer, the buyer may worry that he
or she has paid too much, even though he or she was
previously OK with the offer.
(Natespics, 2009)
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discovered outside of our limited awareness (Bazerman & Moore, 2013). As you may recall, availability is a
general cognitive (or thinking) heuristic. This helps explain the tendency for decision makers to use readily
available information, such as vivid data, in their decision-making process. In contrast, bounded awareness
concerns data that is out of focus to the individual or group. The information is not considered because it was
not brought to light or brought into focus. If you are aware of these bounded awareness circumstances, you
can make adjustments to your situation or environment and avoid the pitfalls that contribute to poor decisions.
Framing and the Reversal of Preferences in Decision-Making
How information is presented or explained provides the frame in which we start our decision-making process.
One of the best things we can decide is how best to frame the information we want to present to our
audience. Framing can make a huge difference in the outcome for a particular scenario and be either very
beneficial or extremely detrimental. Bazerman and Moore (2013) present several different examples of this,
but the best one is the unusual Asian disease scenario (refer to page 82 in the textbook). The groups choose
vastly different outcomes based on how the information is presented or framed. The group essentially
reverses its preference based on the framing of the scenario.
People tend to treat the risks toward perceived gains differently than they do the risks toward perceived
losses. So, if we are able to frame the information presented in a positive manner leaning toward our desired
outcomes we stand to get more favorable results than we would otherwise. In this context, we consider
framing to refer to alternative descriptions of the same objective information that can alter a decision even
though the framing should have no effect in the rational decision-making process (Bazerman & Moore, 2013).
The gem of information to get from this study is that it is possible to change the frame of an objective problem
to get different results. So as rational decision makers we should vaccinate ourselves (understand framing) so
we will be immune to how choices are framed because we know that framing may alter our decision.
Click here to test your knowledge of concepts related to bounded awareness. Be sure you have reviewed
Chapter 4 before taking this quiz.
Framing and the Reversal of Preferences
The last part of this unit will cover a variety of ways that framing has an effect on our choices and can
unwittingly cause preference reversals. We tend to be risk averse when it comes to gains and questions that
are framed positively and we tend to be risk seeking regarding losses or when questions are framed
negatively (Bazerman & Moore, 2013). We all want to make good investment decisions with our limited
income. In this segment of the unit, we will study how investment firms frame choices that make it look like a
decision is good, but in reality, there are much better choices with higher returns and lower costs that could
have been presented. We will also discover how pseudocertainty may affect our judgment. Pseudocertainty
basically refers to people’s tendency to believe an outcome is certain when, in essence, it is uncertain
(Bazerman & Moore, 2013).
Framing can also make us purchase more insurance than what we actually need. We tend to buy insurance
to protect us against risk, but it also can help eliminate the worry of the uncertainty of a potential loss. This
theory also applies to extended warranties. Framing may affect the way we evaluate the quality of a
transaction. The textbook covers two basic types of transactions in decision-making—acquisition utility and
transactional utility. The value you place on an item is referred to as the acquisition utility. The quality of the
deal you made versus what the cost of the item should have been is referred to as the transactional utility
(Bazerman & Moore, 2013).
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Ownership makes us vested and, therefore, may
create a framework for placing a value on an
item higher than for a non-owner. Homeowners
generally think their home is worth more than
what most buyers think it is worth. The same
can be said for used vehicles sold. If we are
attached to an item, the value increases.
When we store information, we have filing
cabinets or storage bins in our brains, which are
referred to in this context as accounts that we
mentally open and put information in for later
retrieval. How this mental account information is
stored and retrieved may affect how we frame
our decisions. The textbook explains that we
apply different rules to different mental accounts
and that choices we make can also affect our
satisfaction with those choices. Losses and
gains are handled differently by our mental
accounts. Losses can affect us far more
negatively than gains can affect us positively.
We should also consider how calling something a bonus versus a rebate can alter how we view (or frame) the
information. These terms can create very different mental states. Individuals tend to associate the term bonus
with spending and the term rebate with saving; people also assume bonus means surplus cash whereas
rebate is just a return of your own money (Bazerman & Moore, 2013). Finally, we should evaluate how we
look at options of a decision when we view the options separately or simultaneously.
Click here to test your knowledge of concepts related to framing and the reversal of preferences. Be sure you
have reviewed Chapter 5 before taking this quiz.
All of our studies and examples illustrate the significance of understanding the importance of boundaries and
the power of framing and how important it is to know how they can affect us. The effect of boundaries and the
relevance of framing is a significant part of understanding the decision-making process. We have introduced
and discussed boundaries and framing and how they can affect decisions. You should now be prepared to
make better decisions with a fuller awareness of how boundaries and framing can affect your decision.
References
Abrams, W. (n.d.). Old rusty pickup truck [Image]. Dreamstime.
Bazerman, M. H., & Moore, D. A. (2013). Judgment in managerial decision making (8th ed.). Wiley.
Natespics. (2009). Money at the farmers market [Photograph]. Dreamstime.
How much is this truck worth? That depends on the framework of
the owner based on his attachment. To you, it might be an old,
rusty truck of little value, but it was handed down to the owner by
his grandfather, making it invaluable.
(Abrams, n.d.)
