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THEORY OF DECISION MAKING PROCESS


Studying the decision-making process is today one of the most popular research areas in management and management in general. Since the process of making decisions of an interdisciplinary character, theoretical studies in this field have been dispersed through several scientific disciplines, such as mathematics, statistics, operational research economics, psychology and sociology. What characterizes the study and development of these disciplines is the conflict of outcome. In addition, two theoretical directions were drawn from the point of view of decision-making. One of them is marked as rational, normative, or "closed", and is aimed at regulating rational decision-making procedures. The other is marked as a behaviorist, descriptive or "open", interested in ways people really make decisions, whether that is rational or not. Although there is a lot of variation within these two approaches, we can distinguish two theories that are their best representatives. These are the firm's theory and behavioral theory. The characteristic of normative decision theory is to define a process by which an ideally rational, super intelligent individual will make decisions. They are completely ignored by the problems faced by an individual when making decisions. Since the assumption of this theory is the ability to identify all possible options, this is the basic characteristic of this decision-making system closeness, deterministic decision-making, and a rational decisionmaking approach. Decisions that have been made in this way are routine decisions. Deciding on these characteristics can be performed with the help of relevant information and software, or with the help of a particular mathematical model. The validity of a decision is evaluated on the basis of the validity of the assumptions of the variable sizes in the model or of their reflection of the real world. In order for the mathematical model to faithfully reflect the nature of the problem, all coefficients, parameters, target function and system constraints need to be presented realistically. The main reasons for accepting the normative decision theory are: a) It has been shown that individuals are motivated to be effective in achieving their goals, especially when they can learn from their own experience.


Therefore, it is logical to describe the process of decision making as a process of maximization. b) Competition favors the rational behavior of individuals and organizations. Optimal decisions increase the chances of survival in a competitive environment, and only a small number of individuals realize rationality in the entire market. The firm's theory as a representative of the normative decision theory examines how the firm can achieve the maximum net income at given prices and a certain function of production, assuming that the firm operates in the market of perfect competition. Profit maximization is achieved by optimum mix of input and output. The later development of the firm's theory included the imperfect state of the market (monopoly and oligopoly) but with the preservation of basic theoretical settings. Critics of the firm's theory relied primarily on the premise on the perfect information of the decision maker. That is, the decision maker knows all the alternatives when solving a particular problem, but also the outcomes of each of the options. Theoreticians consider that the decision maker, considering the level of knowledge of the situation in which he finds, decides in the conditions of uncertainty, risk and certainty, and the theory of the firm presupposes that he always decides in the conditions of certainty! Another criticism is the determination of the function of the company's target. It is unrealistic to take the maximum profit for the target function. Before we could say there is a set of goals. Descriptive theory emerged as an attempt to answer many questions related to the character of real decision-making situations. Unlike normative theory where the best way to make decisions is prescribed, the descriptive theory is concerned with how the decision-making process takes place, how the decision maker behaves during each phase, collecting facts, learning and changing perceptions. The basic characteristics of the descriptive theory are that it is highly empirical, that it belongs to social sciences that study individual behavior without attempting to evaluate, alter or influence it. The decision-making process emphasizes the impact of individuals, their cultures, personal traits, perceptions and roles in the organization as determinants of their personal behavior as well as their role as members of a particular group.


Individuals are interconnected in formal and informal groups, depending on the position they occupy in the organizational structure of the enterprise, as well as personal affinities, so belonging to a particular group is another basis of their behavior in the decision-making process. The behavioral behavior of a company, as a representative of the behavioral theoretical direction of the decision-making process, stems from the fact that the company is faced with a series of constraints such as uncertainty of the environment and insufficient information processing capacity. According to this theory, an enterprise is an adaptively rational system with the following characteristics: a) There are numerous system states and the enterprise at any given time prefers one state to another; b) There are external sources of interference that cannot be controlled; c) There are numerous internal decision-making variables, which are managed in accordance with decision-making rules; d) The combination of external interference and decision variables changes the state of the system. So if a state of the system is defined, then on the basis of external interference and decision we can define the new state of the system; e) It is more likely to use the decision-making rules that have led to the preference in the past from the decision-making rules that have resulted in unwanted state. Decision-making takes place by solving a number of problems, with three principles being respected: 1. Avoiding uncertainty; 2. Maintaining the rules of decision making and 3. Using simple rules. Descriptive decision making theory, although it provides a major contribution to the study of the decision-making process, has numerous limitations. The limitations are primarily related to the fact that this theory focuses too much attention on what is happening in the decision-making reality, and not enough about how this process should take place. It is difficult to define a goal that would reflect the multivariate nature of company goals. There is also the problem of insufficient attention needed to define an appropriate information gathering system. In recent years, research efforts have focused on overcoming the differences between normative and descriptive decision making theory and establishing aÂ


unique theory for studying the decision-making process. The new theoretical direction in this area is called a perspective decision making theory. The prospective decision-making theory is focused on seeking answers to the question of what one needs to do to make a better choice. It explores the ways in which an individual chooses to make decisions, but not as an ideal, mythical way of thinking, but rather adapted to real people. The difference between normative, descriptive and perspective can be explained also through the criterion of assessing their validity. Normative models are evaluated based on theoretical adequacy. Descriptive models are evaluated from the standpoint of empirical validity. Perspective models are evaluated from the point of view of ability to really help in making quality decisions. REFERENCES Simon, H. A. (1979). Rational decision making in business organizations, American Economic Review, 69(4), 493–513. Simon, H. A. (1977). The new science of management decision, 2nd Edition, Englewood Cliffs (NJ): Prentice Hall. Kreitner, R. & Kinicki, A. (2001). Organizational behavior, 5th Edition, Burr Ridge (IL): Irwin McGraw Hill. Courtney, J. F. (2001). Decision-making and knowledge management in inquiring organizations: Toward a new decision-making paradigm for DSS, Decision Support Systems, 31, 17–38.

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