Supervisors:
Prof. Annika Wolf
Author:
Akthar, Zaid (Matr. No.: 6491198)
30.05.2018
Strategic Decision Making in Management
Simulation Games to understand Strategic Decision Making
Table of Contents
Executive Summary 3
Chapter 1: Introduction 4
1.1 Decision Making 4
1.2 Simulation Games 6
Teaching in Simulation Game 6
Simulation games as a means of Research 6
Chapter 2: Factors Affecting the Decision Making (Pre-requisite) 7
2.1 Key Concepts 7
2.2 Skill Requisite 7
Chapter 3: Factors affecting Decision Making 8
3.1 Administrative Factors: 8
3.2 Time 8
3.2.1 Laboratory Studies of Time Pressure 8
3.2.2 Time Pressure as a contextual Factor 9
3.2.3 Time Pressure and Effects 10
3.2.4 Impact of Time on decision effectiveness 10
Individual differences 10
Maximizer/Satisfiers 10
Need for Cognition 11
3.2.5 Time pressure and Simulation game 11
3.3. Group Versus Individual Decision Making 12
3.4 Importance of Feedback 13
3.4.1 Feedback from System 13
3.4.2 Feedback from reflection and Group assessment 13
Citation 15
Executive Summary
The paper discusses the process of decision making in a simulation and understanding how individuals make decisions in the simulation games and their learning from it which can be reflected upon that of the real world.
The paper can be understood in three stages. The first, introduces the concept of a decision making, its process and then goes on to discuss the concept of simulation game by breaking the two words and then explaining how individuals behave in the two environments. It then focuses on the concept of Simulation games (holistically) and explains it uses. It focuses on the environment of the simulation games and tries to understand the implementations of the tool in different scenarios.
The second part goes into the main study of the paper which reflects the process of decision making with in a game by taking into account the various factors and their influence in the decision making process. The first part of the factors includes the pre-requisite factors of the simulation games which involves that from the part of the administrator.
The third part involves the study of the factors and the environment of the decision-making process and how it influences it. The factors and the environment are taken into account as in Simulation game these are the key changes that changes the way participants behave and interact with each other. In the several factors that have been described, the focus of the study is on the factor of time.
Study of influence of time pressure on decision making and on simulation game is the main focus of the paper. This involves the way individuals behave under time pressure. How different individuals behave and react to this pressure. The different effects of time pressure- general and individual. The paper the compares this to the effects of time on a business simulation game. It was observed that induvial behaved differently even though they were part of the same team. Each had different approaches to the process of decision making. Some focused more on strategy and risk taking while some wanted to play safe and were risk averse with the limited time in hand.
The paper then discusses the other factors that influence decision making, like individual decision making vs team decision making and influence of feedback- both from the system and at an individual level.
The task is the following, overarching question: Are simulation games a meaningful learning tool for decision-making processes?
You should briefly introduce the use of simulation games and illuminate the different aspects of decision making, then select an aspect of decision-making, scientifically investigate / prove (theoretically) and then put into relation to the simulation game, i. how did the simulation game lure this aspect and how did you experience it (practically).
Chapter 1: Introduction
1.1 Decision Making
Decision making is one of the most vital component for success, yet it is rarely taught or considered as a skill. Individuals often require making difficult tradeoffs amount the set of options in their hand. Rather than assessing each alternative or set of options carefully to make the best choice, they resort to common and ineffective strategies letting others or time decide for them or giving up to the status quo or procrastinating.
The decision-making process is different for different individuals. Not only is it subjected to individuals but more importantly to situations as well. Some decisions are of lesser significance and require less details to make a decision. On the other hand, there are some decisions which are of higher significance involving higher stakes and require individuals to be detailed in terms of alternatives. Thereby, requiring a thorough investigation. In both the cases, the process rather remains similar but the question of going through all the steps are chosen. To understand the process of decision making, we refer to the one from the classic book Smart Choices.
The author outlines the following eight step approach to making best decisions possible:
1. Define the decision problem: How a particular problem is framed. A poorly framed problem can set an individual towards a certain path which may not be the best solution. This involves the function of understanding and framing the need in a precise manner.
2. Clarify Objectives: This step involves laying down the objectives, or the standard against which the various alternatives would be selected from and the basis of measurement. It is important at this stage to list down the various objectives one has so as to have all the factors weighed equally and to avoid overemphasis of one over another. These are the goals that would direct the decision-making process.
3. Create Alternatives: This involve the range of options from which a decision has to be made. This is one of the most crucial steps, as people tend to not invest enough time to look for all the possible scenarios. Individuals should try and create as many alternatives as possible at this stage to have as many options as possible.
4. Describe the consequences of each alternative: Individuals must evaluate the different alternatives that they had chosen earlier and try to assess the consequences for each of them. They should evaluate whether the different alternative help meet their initial objectives or not.
5. Make Tradeoffs: It often happens that certain alternatives help meet only certain objectives. At this stage, decision makers have to make trade-offs, that is determining which objectives have relatively greater importance to the decision maker than the other.
6. Consider Uncertainties: Even though individual know about the consequences for each alternative, there are still certain level of uncertainty involved with each scenario. Deciding these uncertainties are more difficult, but individuals could also benefit from the systematic risk as these uncertainties can be positive or negative. The ideals is to try and predict or reduce these uncertainties as much as possible.
7. Account for Risk Tolerance: Individuals should know their ability of risk tolerance before choosing any alternatives. This is mainly refers to the uncertainties involved with each alternatives. Individuals make decisions based on how heavily he/she weighs the downside of the consequences against the upside.
8. Coordinate Linked decisions: Decisions are linked when present choice leads to set of certain set of alternatives for the future. In this scenario, decision makers should plan ahead and map out decision-learn sequence that depicts movement from current decisions to future decisions.
1.2 Simulation Games
The lack of a clear definition of simulations and games may result in what some scholars refer to as 'terminological ambiguity' The concept of a “simulation” goes beyond the dictionary definition which tells that participants stimulate by way of mimicking, playing or acting and that event is more of a pretence than reality. Simulations on the other hand are interactive events in which the environment is stimulated that of a board room, market place or a company but the behaviour of the participants are real. The real power of simulation lies in the reality of the communication skills, the analysis of the environment, interpretation of the given information and the decision making itself. Participants adopt a functional or professional role and not merely play or act it, otherwise it would be more of an act or drama. Individuals retain their personalities and take on different tasks, roles, duties or responsibilities. Its different from games where participants have the role of a player and try to win, simulation require a ‘professional behaviour’, including professional ethics.
Simulation games aim to incorporate the concepts of a simulation along with imbibing the characteristics of a game. It is an effective tool as it involves the challenges and formal approaches of a simulation along with having the objective to win and overcoming challenges as a player. This is useful specially in a classroom environment where students can overcome the formal environment of a simulation by way of playing it as a game. The scope of taking risks and learning from making mistakes is rather higher, though it would depend on individual’s approach towards the simulation game.
Teaching in Simulation Game
Simulation games allow for an easy transfer of knowledge between theory and practice. Such a case is particularly true for educational courses based on simulation games. Players have to deal with certain external factors such as the length of the game, the technology applied in the game and the round in the game and Internal factors such as the mood of the players, the number of players, the attitude of the facilitator and technical problems that could affect the game. These outcomes affect not only the way the game is played but also the outcome of the game and the teaching process involved.
Simulation games as a means of Research
Simulation games used as a way of research serves as a bridge between life case studies, which are taken in context of realities, and more universal methods like surveys and interviews. One has control over the choice of participants of experiments, select people from specific groups, or have the highest diversity in the sample size for instance, in terms of positions or functional areas or industries which is relatable to the background of the participants in the experiments. The highest level of control in the course of simulation games, the possibility of selecting a different participants, manipulation of the individual variables of the game makes it possible to conduct laboratory-experiment type research, even though participants consider in to be more of a life-case study. Therefore, the results are more “natural” and the continuous repetition of simulation games makes it possible to draw more conclusions from the data achieved, which would also inculcate the different backgrounds of the participants allowing for a general conclusion.
Chapter 2: Factors Affecting the Decision Making (Pre-requisite)
2.1 Key Concepts
Participants in simulation games should have clear understanding of the key concepts used in a decision-making process prior to start of the simulation game. Decision making in a simulation game is based on analytical and critical thinking. It involves analyses of data, interpretation of results, logical thinking and rendering judgements about an appropriate action. These situational questions require a clear understanding of the problems which can only happen when one knows the underlying concepts. For instance, when playing a financial Simulation game, it is essential to know the concepts of financial ratios and financial variables to understand the effects of various inputs in the game.
Critical concepts used in the decision-making process of a simulation game should be taught explicitly prior to the start of the game. The complexity of the game and the situational hurdle of events tend to distract participants from acquiring the conceptual background during the game play.
With a strong focus on the concept learning the outcome of the game play can be significantly changed and the likelihood of transfer to real-life context is enhanced.
2.2 Skill Requisite
Participants in a simulation game should be able to demonstrate an acceptable level of competence in performing skills which are prerequisite to learning a decision-making procedure. Learning a decision-making process is more of an organizing previously learned skills with the use of new conceptual framework rather than learning new skills itself. It is essential that participants possess the necessary prerequisite. Skills such as negotiating, computing, bargaining, participating in group discussion are basic and underlying skills which are required in most Simulation games in general.
Chapter 3: Factors affecting Decision Making
3.1 Administrative Factors:
These are the factors which are imposed by the administration of the game which can provide or restrict opportunities for players in a simulation game. Such factors greatly affect the decision making and the participation in the activities of the games.
Time allotment for games activities can vary. The conditions under which the players play the simulation games greatly affect what the players observe and the way they encounter the challenges. The number of participants in the game and the way they are grouped together affect the way they interact and process of decision making.
3.2 Time
In dynamic situations decisions have to be made in real time (Brehmer, 1992). When one is dealing with a dynamic situation the decision maker has to not only decide which information to select or how to integrate it but also has to decide on when to select the information and how much time to be spent on it. This could be the time spent on information search and information integration.
Time management is essential when system performance could result in some negative consequences and when time is dealt with inefficiently, in such situations time pressure tends to eventually occur.(1)
In fast changing and critical situations time will be severely limited and the players in a simulation game has to adjust their decision strategy in order to utilise the time effectively and achieve the best results at the same time.
To overcome a situation of time pressure and constraint, one way could allot the time to various decision phases. By having a strategic approach to the amount of time in hand, decision makers in a simulation game can an action plan by allotting specific amount of time to a specific part of the decision area and by having deadlines for each. This allows the decision maker to make decision within the limited amount of time by which the decision makers only focus on specific information search and integration. Even though this allows only a limited time for each part for information utilisation but it allows one to distribute the time over the whole decision making spectrum.
The most logical solution to tackle time constraint is by increasing the overall information processing speed. However, the extent to which the time pressure can be overcome by increasing the speed is limited by the processing capacity and under severe levels of time pressure, a change has to be made o another decision making strategy (Payne et al., 1988)
3.2.1 Laboratory Studies of Time Pressure
Time pressure affects performance on many cognitive tasks. There are two primary reasons for this: Stress aroused by time pressure which distracts individuals leaving fewer processing resources to complete the task in hand and the need to monitor the passage of time as the mental resources, which are available for the completion of the task, of an individual are reduced due to passage of time. There are also positive impact of time pressure on productivity. It can beneficial by energizing individuals to initiate certain actions that otherwise would have been neglected and may even increase the individual interest and involvement in the activity. These general trends are rather consistent with the findings of most researches on effects of time on decision making.
3.2.2 Time Pressure as a contextual Factor
Time is one of the most crucial factors that affect decision making. There are many contextual factors, such as the importance and complexity of the decision to be made or the accountability of the decision maker for the outcome, which influences the cognitive strategy affecting decision making. Time pressure restricts the time available to search for and evaluate all the alternatives or relevant information required to make a decision. Maule & Mockey (1993) suggest that strategy changes can be described at two levels: Macro level and Macro level.
Macro-strategy changes involve a change in decision rule, usually from compensatory to non-compensatory rule (Payne et al 1993; Weenig & Maarleveld, 2002). Compensatory rule involves assessing all available options thoroughly and then choosing the best option amongst the alternatives. The ration model involves the maximizing subjective utility.
Non-compensatory rules involve assessing a subset of the available options in a rather simpler way, making choice of the reasonable one first. Taking the best option on the basis of attributes and then going into detail with that. It is often a better option to go for non-complimentary rule when time is a constraint. However, when time is available it is better to have several options rather han detailed knowledge of a few of them.
Micro-strategy changes involve smaller changes in cognitive processing. Two of the most about how individuals adapt to information overload in a short time is through filtering and acceleration. Filtering involves processing information of high importance and ignoring the ones of low importance. Individuals under time pressure filter by focus on negative information and neglecting positive information. An opposing approach is by focusing on positive information and using that as the basis of filtering. Individuals focus on different aspects positive or negative and take decisions on the basis of these to adapt to time pressure. Acceleration involves speeding through the cognitive processes to achieve as well as possible in the limited time. Several studies show that people often adapt to time pressure by acceleration. Acceleration is a general mode of adapting by working harder. This example is particularly true for workplaces where individuals try to work over night to finish the task in hand before the deadline.
3.2.3 Time Pressure and Effects
Time pressure also leads to changes in an individual’s affective state. Most laboratories studies report feelings of time pressure as a manipulation and investigate the nature of affective changes and their impacts on decision making.
A study by Maule et al (2000) investigates the how use of deadlines and changed states of individuals making choices changes across a set of hypothetical everyday risk situations.
Findings showed that individuals with a deadline condition felt more time pressured, more anxious and more energetic at the same time. It leads to greater task involvement and the need to work harder. A similar study by Thayer, 1989 shows that brief periods of increased workload are known to make individuals more energetic. Increased anxiety is related to the pressure of making quick decisions as imposed by the deadline. However, individuals may not always more energetic, particularly if the decision situation stretches over a longer time, as relatively longer periods of hard work results to a reduction in productivity and energy levels.
3.2.4 Impact of Time on decision effectiveness
Individual differences
Decision making process is not the same for all individuals under time pressure. Some behave differently than under depending on their ability to work under stress, their confidence level, their experiences and background. For simplicity, we categories the behavior of individuals into two pressured situations.
Maximizer/Satisfiers
The main idea behind maximizers and satisfiers are the way individuals behave under time pressure and the focus of each individuals with the constraints. Maximisers are those who try to assess all the options possible and then choose the best among them. Satisficers are those who evaluate a more limited range of alternatives and choose the first one that seems most satisfactory. These propensities lead maximizers to evaluate several options, process more information and spend more time reviewing options when making a decision in comparison to satisficers. Even though, each try their best to ascertain the environment of decision making in their own way, maximizers are generally less satisfied with decision outcomes and regret their decisions more than satisficers even when they experience better outcomes. Also, maximizers tend to feel the time pressure more than satisifcers and are challenged by the constraint more and this may lead them to feel higher levels of negative affect alongside a preference for mocro strategies that sustain relatively high levels of processing, for instance, acceleration rather than filtering.
Need for Cognition
The need for cognition scale measures an individual’s ability to enjoy effortful cognitive activity. There is a greater propensity for low Need for Cognition (NFC) individuals to fall out of psychological judgement errors such as the framing bias under time pressure i.e., less tendency for trivial changes of a decision problem to affect choice behavior. Studies show that low NFC individuals performed worse on low stake (risk) tasks than high NFC participants because they place more importance on gains rather than losses. Although there are no fixed studies the behavior of individuals under the influence of time. However, it is assumed that high NFC decision makers prefer micro-strategies that maintain cognitive processing at a relatively high level, accelerating rather than filtering for instance.
3.2.5 Time pressure and Simulation game
The influence of time pressure and its effects on decision making process in a simulation game is similar to that in general. The business simulation game played at the University of Goethe in April-May 2018 comprised of 3 teams divided of 4 participants each. The study of the effect of one the teams highlighted that the effects of time allotted to each round had a major influence on the decision-making process. Figure 1 and 2 represent the amount of time provided for each round. There are the following observations about the challenges of decision making over the rounds.
The average time required for making a consensual and confident decisions for each round for the team was about 60 minutes. In the first round it was difficult to make decisions as the teams were not familiar with the system. It is a factor of knowledge of the key concepts and skill recognition for each factor of decision making. Therefore, even an hour was difficult to make a decision within the time frame. It was observed that decision making was also easier in the later rounds than initial due to the effect of the learning curve and familiarity with the system, team and process.
Our focus would be in round six and seven, as the rest of the rounds had just enough or more time to experience a normal decision-making process. In the round 6, involved a higher level of uncertainty as this round involved making a decision within 30 or 60 minutes with the deadline being at either time. The team being conservative, tried to play a strategy within 30 minutes. In this round the team had some one participant who was a maximiser and risk taking and wanted to change the strategy. The individual observed the positive sides of the newly proposed strategy and the negative of the strategy used in previous rounds. The rest of the team on the other side were satisficers and under the time pressure wanted to carry on with the team existing strategy. This lead to a prolonged discussion and the decision-making process which was initially discussed upon could not be followed. It lead them to play the strategy from the previous rounds rather ineffectively without incorporating the changes of the new market conditions.
In round 7, the team was given 40 minutes to make a decision. In this round, as the time was more than that of the previous, the team was more relaxed than earlier and ended up not utilizing the time from the first minute. There was an urge of panic as the team started making decisions by distributing the tasks and making individual decision. This deemed to be ineffective as each decision was dependent on another. Time pressure lead to the team change its process to adapt to the stress. Even though there was more time than previous round, the team could not utilize this and had a slow start in getting involved into the decisions.
In both these rounds, we observed that there were certain maximizers in the team, who wanted to change strategy and observe alternatives while others wanted to simply carry on the already observed path as satisficers. The need for accelerating was required in both the round. However, the team realized this only later as their behavior was influenced by the additional time provided, even though it was as little as ten minutes. It was also observed that certain participants were more detailed on their decision-making process than others even under less time and enjoyed their decisions less than others while others had less were less different in ups or down.
3.3. Group Versus Individual Decision Making
The process of decision making works different when made individually than by in group. Whether the choice of such a factor is effective or not is dependent mainly on the kind of situation one is in. Decision making process in groups is more complex than by individual. In groups, decision making tend to be more accurate and adequate than any of the members alone. The way a decision is made by individual is greatly influenced by the back ground, knowledge, risk appetite and style of decision making by the individual. The decision-making process in groups, balances out the characteristics of one member from another and tends to lead to a more adequate decision making. Even though such a statement is dependent on the involvement and participation of every member in the group in the decision-making process.
An important aspect in group decision making is that of group shift and the use of influence by one member to favor the individual’s positions. It can be argued that it has both positive and negative impact on the group. It is positive as it requires one member to convince and make the other members of the group visualize one’s position to believe in and make decision. On the other hand, if exercised excessively it could lead to one member forcing their decisions behind the mask of a group decisions.
3.4 Importance of Feedback
The possibility to receive feedback from the system and by the administrator broadens the range of decision strategies and understanding of the game that can be used to solve the decision problems, particularly the strategies that are action-oriented. If the players of the simulation game observe that their decisions lead to predictable outcomes, then they are likely to follow the systematic processes in the game that enables them to achieve optimal results. This is mainly done in two ways:
3.4.1 Feedback from System
Simulation games involves certain level of assumptions and hypothesis to be made by players. This reflects the factor of uncertainty involved in the real life. By way of this, players in the game try to work out the different possible scenarios that could probably happen in the next stage of a game. For instance, in management games such as CESIM, we see that the forecast of demand and market share requires certain level of estimation and assumption based on the forecasted reports available. Players require to make assumption on the trends and get a system feedback in the next stage whether such predictions are close to the actual conditions of the stage. Similarly, system feedback allows for players to analyze their current progress and allows them to also observe the different trends in the game which would help them to adjust their decisions accordingly. It is close to what we experience in the real world, where the future is uncertain, and decisions are made based on forecasts and past data.
Feedback always help individuals, whether it is in a game or real life, to understand the effects of their decisions based on the given data. They learn from the mistakes and improve on strategies by observing the effects in the feedback.
Participants would be directed to observe the simulated phenomenon intensively, to hypothesize its characteristics, and to test those hypotheses over time, thereby encouraging them to learn from the gaming experience of the simulation more effectively.
3.4.2 Feedback from reflection and Group assessment
Feedback is not limited to that from the system but also includes the feedback from the administrator, from within the group and self-reflection. It is always helpful if the administrator provides feedback on a played strategy and the process of decision making. This helps to change the course or the process of the decision making. However, the other two are more crucial and most effective as it is closer to the real life situation where individuals have to make decisions on their own and have to self-reflect and analyze their decisions. Making records of every strategy is one way to have an overview of the development of the strategy during the stages of the game. This allows the participants, whether in a group or individually to reflect on the different strategies that have played over the different stages. Having records of the decision making in every stage helps to have a deeper understanding on how the process of decision making is performed in every stage. As one observes these records, he/she may find that every round is also influenced by the conditions (that of the given time, communication, mood of players, the stage of the game, competitiveness) and this helps to analyze the different decision made and the changes in the process of the decision making with the changes in the environment of the game play.
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