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Decision Making

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Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job,, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:

EQUIPMENT FAVORABLE MARKET ($) UNFAVORABLE MARKET ($)
Sub 100 300,000 -200,000
Oiler J 250,000 -100,000
Texan 75,000 -18,000

For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is un-favorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.

Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?

The Lubricant is an expensive oil newsletter to which many oil giants subscribe, including Ken Brown. In the last issues, the letter described how the demand for oil products would be extremely high. Apparently, the American consumer will continue to use oil products even if the price of these products doubles. Indeed, one of the articles in the Lubricant states that the chances of a favorable market for oil products was 70%, while the chance of an unfavorable market was only 30%. Ken would like to use these probabilities in determining the best decision.

A) What decision model should be used?
B) What is the optimal decision?
C) Ken believes that the $300,000 figure for the Sub 100 with a favorable market is too high. How much lower would this figure have to be for Ken to change his decision made in part (b)?

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Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information from problem 3.-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?

A pessimistic decision maker will use the Maximin decision rule to make a decision. He would consider the worst consequences of each possible course of action and will select the one that has the least worst consequence.
The worst consequence here is when the market is unfavorable.
Equipment Unfavorable Market
Sub 100 (200,000)
Oiler J (100,000)
Texan (18,000)

The maximum payoff for the Brown oil when we are ...

Solution Summary

Solution determines the optimal decision in the given scenarios.

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See Also This Related BrainMass Solution

Decision Making Process: Individual Vs Group

(Scenario) The CEO of your company has been extremely frustrated with what has been occurring within the organization lately. In a recent managers meeting he exclaimed,

"Everyone around this place just follows the status quo. No one ever has any unique ideas on how we can make this organization better. You just sit here and wait for me to give you directions on what to do. Then you follow those directions word-for-word without asking any questions or making any improvements. We need to change this attitude and change it quickly."

He then pointed out each of your group members stated, "I'm assigning you all to a working group. Your goal is to help me fix this problem. I want you to work together, do some research, and come up with concrete ideas and suggestions to fix this problem."

Your group must do analysis, have discussions (either via the small group chat or discussion board) and come to a consensus to prepare a report (paper) that addresses the following:

Part 1 - Define the term "group" after discussion with your fellow team members. Avoid repeating a dictionary definition. For this scenario what would constitute a "group"?

Part 2 - Are there any differences in how individuals and groups make decisions? If so what are they?

Part 3 - Identify the applicable decision concepts (theories, principles, paradoxes, etc.) from our learning all semester (not just the group decision concepts identified in Unit 5) that your group believes will best explain what is occurring within the organization. Be sure your group provides rational to support each of the concepts your group identifies.

Study Material The Psychology of Judgment and Decision making(Plous) Chapter 17-18 and earlier theories and thoughts concerning Decision Making concepts.

Part 4 - Identify at least three (3) recommendations (from your group to the CEO) that will help him improve or overcome the current decision making conditions within the organization.

thank you for your insight and professional thoughts.
very important group assignment. Best Regards

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