Executive Functions and Decision Making: A Managerial Review

Vol 25, No 4; Article by Sanjeev Swami; December 2013

This paper provides a managerial overview of the topic of decision making under the broad area of executive functions. We first provide a brief idea about executive functions. The general components of executive functions have been identified as: working memory and recall;  activation, arousal, and effort; controlling emotions; internalising language; taking an issue apart, analysing the pieces, reconstituting and organising the pieces into new ideas; shifting, inhibiting; organising/planning ahead; and monitoring. Then, some pertinent definitions and theories of decision making are discussed. Specifically, the following theories of decision making have been explained: (i) subjective expected utility (SEU) theory (ii) complex decisions: multi-attribute utility theory (MAUT) and (iii) prospect theory.  We then provide a brief overview of cognitive biases, systematic errors, and the use of heuristics in decision making. We discuss two heuristics, namely, representativeness heuristic, and availability heuristic. Some practical aspects are covered in the next section using the relevant aspects of both the science and art of executive decision making. A reference framework by Schoemaker and Russo (1993), namely, pyramid of decision approaches, has been referred to here by enlisting four approaches: intuition, rules, importance weighting, and value analysis.  To illustrate the use of heuristics, we also discuss briefly a complex and realistic case study in the retail sector. We conclude with a few specific observations in this area, such as, (i) unconscious decision making (ii) multiple criteria (iii) optimists versus pessimists and (iv) group decision making.