Decision making is a very important process in any kind of setup. It is through decision making that the organization forges forth with its plans. However the more broad the decision to be made the need to have as much information to do this so that the decision being made is an informed decision. Decision makers therefore have to contend with a number of issues such as personal motivation and emotions while making these decisions. In so doing different there could occur different outcomes from the same situation in which case two different people were the decision makers at varying times. Sub optimal thinkers will normally compromise unnecessarily and always settle for the second best. While this is the case we can be able to understand if they are charged with decision making then they may settle for what is not necessarily the best option. The banking industry is slowly picking up from the after shocks of the global economic crunch. The decision makers at the helm at some of these banks are under pressure to make decisions that could help revive the industry once again. Arriving at an option like diversifying services, and which services to choose from is one of the major decisions to be made. Asset management or stock broking for example would be other diverse services apart from the traditional banking services.
Some banks have settled for sub optimal decisions as regards these two products. A bank with a strong and vibrant housing mortgage policy settling for stock broking to diversify is sub optimal, in this case asset management would have been a better option because the bank has a strong housing mortgage policy hence many of its customers can as well benefit from the asset management services it engages in. when critically evaluating a decision like this one we can understand that possibly personal interest on the part of the decision makers resulted in the choice of this option over the other which would have been the better option. We also notice a likely compromise of the companyâ€™s strategy, resources, opportunities and growth which is typical of a sub optimal thinking organization.
Unit IV Q2
Corporate entities have discovered ways of generating a share of their capital by offering a stake of their company to be bought and financed by the general public. In so doing companyâ€™s have to strive to build a desired public reputation and financially sound track record to ensure that their stakes remain high. Stock markets are where these stakes are bought and sold. The volatile economic situation that has resulted from the recent global financial instability has jolted the stock markets. This is so because the companies boasting high profits and returns have began to experience the ripple effect of this financial melt down. Further still some of these companies may be relying on other companies which were also affected and therefore the overall effect boomerangs back to them.
The financial situations are now being closely monitored by many companies than never before especially for those enlisted on the stock markets. The aim of this is to have favorable trading on the stock market and avoid or minimize any financial losses that may result. Hyperbolic discounting tries to explain a wide range of anomalies related to human activities. The variation in patience over the life cycle is a clear reason why sometimes more often than not we end up making erratic decisions in life. This may be as a result of other underlying factors which will come up when an assessment has been clearly carried out. For example the economic instability being witnessed in the global financial market has led to hyperbolic discounting even in the area of stock trading.
With speculations arising here and there we see stock traders making decisions which seem to be driven by impatience. While the stock market may be slowly recovering there are still evident signs of an erratic global economic trend which makes the stock traders somewhat impatient. The fact that profits are not quickly forth coming and market stability is taking longer to be realized, most decisions on the stock market are exhibiting hyperbolic discounting.
Unit IV Q3
Following the global financial instability the federal government devised a way in which they would inject $700 billions from the reserve to financial institutions that were affected or were quickly having their credibility eroded. The initial plan dubbed Troubled Asset Relief Program indicated that this money would buy what the economists called toxic assets thereby relieving the banksâ€™ balance sheet. However in the real bailout plan Treasury Secretary of the Federal Reserves, Mr. Paulson handed out $350 billion in capital injections to banks, rather than his original plan to buy so-called toxic assets, primarily mortgage-backed securities, that were weighing down bank balance sheets. The Federal Reserve also cut interest rates essentially to zero, bought hundreds of billions of dollars of mortgage-backed securities and took a wide range of extraordinary measures to provide liquidity. (Credit Crisis Bailout Plan, 2009)
This already was not serving well the banking interests first because they had a reputation they wanted to maintain and secondly by the federal government regulating their interest rate it actually was going to financially affect the banks standing. These led to the big banks opting out of this plan by paying back the loan infusions plus an executive fee to the federal government. The banks in doing this desired to exit from the regulations that had been set out by the Federal Reserve which were not promoting a conducive business environment for them. While these banks appreciated the decision to receive infusion to help them clear the toxic assets from their balance sheets, they were cautious about the regulatory role that the federal government was intending to play in the process for example the regulation of the interest rates to zero percent. While opting out of this plan the banks were clearly reasoning in a self serving manner to protect their interests because they realized that with the federal regulations they would not bring in profit the very reason why they are in business.
Unit IV Q4
While purchasing a commodity or service a proper decision must be arrived at to avoid impulse buying. Impulse buying defines a situation where there is an unplanned purchase. This will usually take place when one has an unusual motivation which eventually turns into a desire to purchase a commodity instantly. This purchase may be having no specific objective at that time. Studies indicate that these purchases normally involve cheap products. When we go to the market place to purchase some goods or services we already have a preconception of whatever we want or expect. However our preconception is related to the purchasing power and pricing of the product or service. Motivation and emotion do play a part in the decision we arrive at during any purchase.
However most often the motivation and emotion must operate within some bounds, the strongest of which is the purchasing power, simply put how much you are willing to pay for the good or service on offer. There were two homes on offer within the neighborhood. One had a car garage to go with which meant an extra amount of money to buy though the buyer did not need the garage at the time. However this home had almost all the things the buyer wished in a home whereas the other did not but had room for the buyer to buy the things they needed to furnish it. The buyer needed to arrive at a decision quickly enough because the offer would soon close. They ended up buying the home with the car garage though they had no need for the garage at that particular time. They purchased this home because they thought it was necessary to do this because one day they would have an automobile which would find a place at the garage though their initial intention was to buy a home within the budget and current setting.