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When faced with the uncertainty, people, in general, and decision

By Ellen Pierce,2014-04-21 22:27
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When faced with the uncertainty, people, in general, and decision

    DECISION-MAKING PROCESS

    IN THE CONTEXT OF

    REGULATORY FOCUS

    THEORY

    Author:

    Liviu Florea, PhD Student

    University of Missouri Columbia

    417 Cornell Hall, Columbia MO

    ph.: (573) 882-5845

    e-mail: lcff3a@mizzou.edu

Original Paper for

    Strategic Management International Management Track

    ABSTRACT

    This paper proposes a model for decision-making process, which is

    partially based on a theory previously developed in electrical engineering

    and social psychology, regulatory focus theory. The proposed model is

    especially effective in decision-making situations characterized by

    uncertainty. Regulatory focus theory is a process, information, and

    efficiency theory that view the end-states of the decisional process, i.e.,

    what the decision-maker wants to accomplish, as guides and determinants

    of the entire decision-making process. Regulatory focus theory assumes

    that, at the beginning of the decision-making process, individuals make

    mental representations of an end-state that will result from adopting a

    certain decision. Thereafter, during decisional process, these

    representations determine decision-maker’s actions that can be more or

    less offensive and aggressive, according to the positive or negative aspects

    of the end-state. The application of the model in the area of strategic

    issues diagnosis is suggested, as an example.

    The present paper proposes an intentional and focus-oriented model of the decision-making process, using an independent principle of motivation, “regulatory focus. The author

    suggests that this approach, partially based on regulatory focus theory, is a tool that can help decision-makers to cope more effectively with the negative effects of uncertainty. The regulatory focus theory (Higgins, 1998) assumes that each decisional process can be managed in a goal-directed manner. The theory relates the type of goals previously assumed by the decision-makers with the nature of the end-states of decisional process: positive, achievement-oriented end-states are related with approach goals, whereas negative, failure-prevention end-states are related with avoidance goals. Moreover, the theory suggests that decision-makers’ temporary focus or

    strategic approach is induced by the type of their goals: a promotion focus derives from the

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    application of approach goals and a prevention focus is determined by avoidance goals. Nature of end-state, type of goals, and focus or strategic approach represents the core of the proposed model for decisional process.

    The origins of regulatory focus theory can be traced back to personality and social psychology theories and to the electrical engineering theory of signal detection. Social psychology models (e.g., Weary and Edwards, 1996) have focused on desirable and undesirable end-states, the predecessors of these states, and behavioral consequences of action under the different end-states. Signal detection theory was developed in the early 1950s by Wesley Peterson and Theodore Birdsall, in the field of electrical engineering, and applied by Wilson Tanner and John Swets in psychology (McNicol, 1972, Swets1996). It is a theory about the ways in which choices are made and may be used in practical settings to assist in making decisions about the occurrence of a particular event or the existence of a particular decision.

    The proposed model includes the decisional situation, as a predictor of the type of goal and of the nature of end-state, in addition to the core elements suggested by regulatory focus theory. There are two broad groups of factors that account for any decisional situation: psychological characteristics of decision-makers and observable characteristics of the context in which decisions are made. They both lead decision-makers to rely on relevant experiences, make assumptions, form perceptions and expectations regarding strategic approach to the decision-making process. Accordingly, decisional situation can lead decision-makers to adopt one of the two natures of the end-state: an achievement-oriented or a failure-prevention end-state.

    Beside decisional situation, behavioral outcomes of the strategic approach are added to the core part of the model, which emerged from regulatory focus theory. By identifying one of the two general behaviors that correspond to the two strategic approaches, an observer of the

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    decision-making process can become aware about nature of end-state, type of goal, and strategic approach that have been salient in the decisional process. It would, also, give the opportunity to predict with more accuracy the characteristics of the decision that are probable to be reached, which should be in accord with the specific approach of the decisional process. Moreover, a strategic approach can be induced situationally, through the way in which the decisional situation is framed, the nature of the end-state is suggested, and the type of goals is implied, leading to the display of desired behaviors and, accordingly, the potential accomplishment of desired and previously-specified type of outcomes.

    The theory is discussed in the context of strategic issue diagnosis (SID), a closely-related concept to strategic decision making, that deals with the early phases of the strategic decision making process, including identification of issues and the assessment of the characteristics of issues. Strategic issue diagnosis (SID) is important for all developments in the organization, as a conscious process oriented toward defining the framework for the subsequent decision-making processes. Following Ansoff (1980), strategic issues are defined as events, emerging developments or trends that in the judgment of strategic decision-makers are likely to have a significant impact on the organization’s present or future strategies. Strategic issue diagnosis is not only an antecedent of the strategic process, but it is, according to some researches (Dutton, 1993, Dutton & Jackson, 1987), more important than the selection of objectives and the actual formulation of the strategy. In support of this opinion, many authors consider that “solving“ a strategic management problem by choosing a particular strategy is much less problematic than choosing the correct formulation of the strategic issue in the first place (Mason & Mitroff, 1981). Implementing the right strategic “solution” to the wrong question is seen as more problematic

    and likely to get an organization into difficulty than is implementing an imperfect strategic

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    solution to the right question. In conclusion, SID is a continuous, recursive, self-regulatory process that determines how the organization is going to act in order to achieve performance and react to the context in which it competes.

Model

    Summarizing the assertions of regulatory focus theory and the two additional variables suggested by the author (decisional situation and behavioral outcomes of the strategic approach), the model from Figure 1 describes the sequence of events that leads to a certain decision, and in particular to a certain approach of the strategic issue diagnosis process. The initial decisional environment and the context under which a decision-maker diagnoses the strategic issues guide the entire decision-making process and direct its outcomes. Analyzing the context and the environment, a decision-maker develops perceptions about situations and makes choices concerning the nature of the end-state.

    Based on the nature of perceived end-state, the type of goals and the outcomes (evaluations, strategic issues, objectives, and behaviors) become salient and come forth. As portrayed in Figure 1, the perceived nature of the end-state and the goal that are established in accord with the nature lead to a promotion or a prevention approach. Each of the two approaches has specific behavioral effects: promotion focus is associated with an exhaustive and constructive analysis, whereas prevention focus is characterized as more defensive.

    In conclusion, what the model proposes is that decision-makers’ “need for cognitive

    closure” (Kruglanski, 1996), defined as human desire for a firm answer and an aversion to ambiguity, leads decision-makers to find any, nonspecific, answer in order to avoid confusion, uncertainty, and ambiguity. Regulatory focus theory emerges as a solution for general human

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    overt aversion of uncertainty with its negative corollary in a context in which a “cognitive closure”, i.e., a decision made, is compulsory and essential.

    FIGURE 1

    Sequence of Events in Regulatory Focus Theory

    Decisional Perceived nature CorrespondinglyStrategic process Behavioral

    environment of the end-state -established goal approach outcomes

     Proactive,

    aggressive, Decisional Positive Approach, Promotion “in-state” situations that (achievement-ideal-type focus approach, result as a oriented) end-goal extensive, combination of state exhaustive the context and

     search for of decision-

    information makers

     characteristics,

    e.g., how the Reactive,

     decisional defensive

    environment is Negative Avoidance, approach, Prevention perceived by (failure-“ought-to”-prototypical focus decision-prevention) type goal of biases,

     end-state makers limited

    search for

     information

Background and theoretical justification for the theory

    Uncertainty, and its correlates, time pressure and delaying, are a common place in decisions made by organizations. Delaying leads directly to increases in time pressure which in turn leads to simplification, so that time pressure fairly fully mediates the effects of delaying on simplification. Kahneman and Tversky (1984) stated that simplification is based on using

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    judgmental heuristics, in order to develop rules to help deal with uncertain judgment situations and transform complex problems into more approachable ones. Delaying is an alternative, since a traditional way to avoid decisional errors is to simply wait to see how events unfold (“wait and see” decision strategy), or to imitate others (“me too” decision strategy) (Bourgeois & Eisenhardt, 1987). In this context, imitation may serve to expanding the volume of information gathered before making a decision, through the incorporation of others’ similar experiences. Although it may lead to delaying the decision, imitation is not a form of delay, but rather a form of remedy to difficult decision-making under uncertainty.

    Delaying or postponing a problem might be correlated with the problem’s simplification,

    acting as an antecedent and a predictor of the actual simplification process. In this case, the search may be problematic, constrained, and lead to a decision that is either satisficing or delayed. Simplification is not only a consequence of bounded rationality and analytical failure, but most often is determined by time pressure that forces decision-makers into a convenient decision, such is a simplified one. Time pressure can be a direct consequence of delaying or postponing and has a negative impact on the use of information and performance in decision-making process (Molloy & Schwenk, 1995). Mintzberg (1976) differentiated between “crisis”

    and “problem” decisions, along the time dimension and argued that crisis decisions are subject to greater time pressures. When decision-making has been consistently avoided and the search for alternatives that do not have negative outcomes continued, the decision-maker reached a dilemma, defined by Simon (1987) as a choice between undesirables, something to be avoided or evaded.

    Uncertainty in decision-making contexts is characterized as the inability to assign probabilities to outcomes, which stems from uncertainty about alternative courses of action,

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    potential outcomes, or outcome payoffs (Conrath, 1967). Uncertainty in the decision-making process leads to perceived difficulties in closing the process and to stressful situations, characterized by the salience of emotions and nonproductive behaviors. Stress is a powerful force that can divert behavior from the urgings of reason, by encouraging blame-avoiding behavior as opposed to problem-solving behavior (Simon, 1987). Decision-makers under stress and affected by negative emotions, such as embarrassment and anxiety, may prefer to adopt, according to Simon (1987), behaviors that produce temporary personal comfort at the expense of bad long-run consequences for the organization. Together, time pressure, crisis, stress, and their ensuing negative affective states (embarrassment, anxiety) may be considered present together at the same time and treated as one larger latent construct. This implies that simplification is a likely result of crisis, stress, and negative affective states and that delaying is a likely antecedent.

    Weary and Edwards (1996) suggest that a strong belief in one’s inability to understand and therefore control outcomes, i.e., uncertainty in conjunction with lack of control, may lead to helplessness and a reduction of effort, rather than the increased motivation to ascertain contingencies. Under these circumstances, uncertainty resolution becomes a must in the decision-making process. Weary and Edwards (1996) suggest that goal representation and action plan can act as uncertainty restraining factors, which are not akin to self-actualization or mastery but rather instrumental: goal instrumentation is defined as a mental picture of a desired states, while action plans involve a deliberate search for and use of social information in order to reduce uncertainty. The effort toward uncertainty resolution is not simply a more vigilant search for and processing of information in support of accurate decision-making, but more an instrumental way of approaching decision-making process based on an initial diagnostic and a subsequent goal

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representation. Decision-makers’ own intention and focus guide the instrumental way in which

    they approach the decisional process.

Model Development and Propositions

Premises

    With the aim of circumventing the negative effects of uncertainty, the author proposes a different train of thought in the decision-making process. Recognizing the facts that decision-makers act in complex decisional environments that are difficult to be entirely comprehended and that decisions are strongly influenced by psychological characteristics of the decision-makers, this approach takes into consideration decision-makers’ instrumental intention.

    Psychological characteristics of decision-makers include their cognitive base, values, beliefs, attitudes, and personality, and lead them to mold perceptions.

    The approach considers decision-makers’ characteristics and decisional context as givens

    in the decision-making process, though not entirely specified as a result of bounded rationality. The approach argues for the role of decision-makers’ intention and focus on decisional process.

    Decision-makers’ focus can be pre-established at the beginning of the decisional process and

    used as a red thread during all phases of the process.

    Regulatory focus theory assumes that both, decisional context and decision-makers’

    characteristics, form decisional situations. Decision-makers construct decisional situation from the knowledge available at a certain point in time and from the perceived characteristics of decisional environment.

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Proposition 1:

    Decision-makers assess the on-hand problems in the early stages of the decisional process, based on decisional environment and in accord with their own characteristics.

Framing

    The way decision-makers perceive and evaluate decisional situations is not always objective and rational. Limitations of the human nature, as well as difficulties emerging from uncertainty, lead to a rather realistic and limited decision-making process. The framing of an issue, rather than its actual content, often determines whether it is seen as a “foolish risk,” especially in the absence of objective standards (Tversky & Kahneman, 1981). It is proposed that issue framing has two important benefits: psychological, associated with reducing uncertainty and symbolic, associated with directing decision-makers’ actions and behaviors.

    The framing is an effect of the interpretation of the decisional situation, which is defined as the process of translating events, of developing models for understanding, of bringing out meaning, and of assembling conceptual schemes (Daft & Weick, 1984). Situation’s framing

    gives decision-makers a prospect and sets their expectations. Decision-makers’ intention and

    focus are instrumental, rather than specific to each decision. Focus has to do with how decision-makers approach decisional process and frame decisional situation, rather than what specific outcome they try to achieve.

    The model form Figure 1 suggests that the way in which a situation is framed will determine decision-makers subsequent behaviors. It focuses on the impact that the decisional situation has on the initial framing of the decisional process and on the perceived nature of the end-state, without considering the focus on a specific decision. The model assumes that decision-

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