Decision Making Skills

Introduction

Decision-making is an essential part of our lives, and we make decisions every day. As humans, we are capable of making a wide range of decisions, from simple, daily choices to more complex, tougher decisions. However, due to the complexity of real-world decision-making, the decisions we make in different areas of our lives can often have an impact on our future. Thus, it is important to be aware of the various tools and concepts introduced in decision-making to ensure that we make the right decision.

My adapted version of an individually selected real-world decision is to purchase a car. Having a dependable mode of transportation is important for meeting my obligations as a student, as well as for future employment. Buying a car is a long-term investment decision that requires a thoughtful analysis of relevant costs and benefits. In this paper, I will illustrate how I applied the tools and concepts of decision-making science (DMS) to the decision to buy a car, such as marginal analysis, cost-benefit analysis, risk analysis, effects of uncertainty, strategic aspects, and the effect of time horizons. This paper will also provide a logical application of concepts and tools to arrive at the optimal decision with respect to the effects of sequential action, advanced strategic moves, changes in decision-makers risk preferences, behavioral and emotional factors.

Making decision process

The decisions that I had to make were between two major choices. The first one was to decide which car to buy. Secondly, I had to decide how to finance it. When making a long-term investment decision, such as purchasing a car, a cost-benefit analysis should be utilized to determine the costs and benefits of making such a decision. In this section, I will explain each decision in detail and how I applied the tools and concepts of decision-making science in making this decision.

Analysis: The alternatives

Alternative 1: deciding which car to buy

To decide which car to buy, I began by gathering information about different models to determine their respective costs, benefits, and features. Additionally, I had to consider the dealer’s financing terms, the warranty, and the expected resale value. A cost-benefit analysis was conducted to compare the purchase price and fuel costs of various car models and to arrive at my decision. I also considered the cost of insurance, gas, repairs, and other ongoing expenses associated with owning a car. For instance, after gathering the necessary information, I compared the purchase price and fuel costs of two models: a Honda Civic hatchback and a Toyota Corolla sedan. The Civic has a lower purchase price and closer to a 50 MPG fuel economy rating, while the Corolla was slightly more expensive and had a 40 MPG rating. Additionally, the Civic had a more attractive warranty scheme and was expected to have a higher resale value in the future. By using marginal analysis, I was able to make an informed decision that the Civic was the better option despite its higher purchase price.

Cost Benefit Analysis

Alternative 2: how to finance it

The benefits of financing the car through a loan included low upfront costs and the ability to build credit. The cost associated with taking out a loan included interest payments and long-term repayment costs. At the same time, financing the car with cash presents fewer costs in the short term, though it requires a larger upfront investment. For my decision, I weighed the benefits and costs of both options, taking into account the length of repayment, my current finances, my credit score, and other factors. I also considered the risks of each option, such as the interest rate, monthly payments, and potential penalties. I weighed these risks against the potential benefits, such as a lower total cost of ownership, the ability to retain more cash, and the ability to customize the deal. Ultimately, I decided that financing the car was the best option, as I am able to build credit while slowly and steadily paying off the car.

In making the above decisions, I applied the tools and concepts of decision-making science, such as marginal analysis, cost-benefit analysis, and risk analysis. In this case, the marginal cost of buying a car involves factors such as expenditure for the car itself, registration and taxes, insurance, gasoline, and potential repairs. On the other hand, the marginal benefits include the convenience of having a personal car, potential savings from carpooling, and potential savings from public transportation. Comparatively, the overall expected benefits are higher than the costs, and because of this, my decision to purchase a car is profitable (Heberle, 2021).

The key component of my decision is risk-benefit analysis. Risk analysis is a tool used to measure and manage the risk associated with a decision (Zio, 2018). In my particular case, the risk associated with buying a car includes breakdowns, mechanical problems, and other unforeseeable risks. To assess this risk, I researched potential cars to buy and the likelihood of those vehicles having breakdowns. I also researched repair shops and car maintenance companies to determine the services they provide and how cost-effective they are. From this process, I determined how to manage the risk associated with buying a car and decided that the risk of purchasing a car was outweighed by the expected benefits.

The effects of uncertainty and time horizons are also important aspects to consider when making a decision to purchase a car. Uncertainty dictates how one should approach a decision, as it affects the cost and the possibility of future unexpected changes in the environment (Chenet et al., 2021). In my case, I used a “wait-and-see” strategy, as I had a long-term perspective. This strategy allowed me to examine potential cars to buy over a period of time and decide if I should hold off making the purchase if I was not getting the desired deal. Additionally, this strategy allowed me to evaluate how the current car market was progressing and how it would affect my decision to purchase a car in the future. This strategy has allowed me to make a wise decision with regard to the long-term implications of the decision.

Finally, strategic aspects are also a factor when deciding to purchase a car. Strategic aspects cover the aspects of the decision that involve other stakeholders, such as car sellers and car manufacturers. From my perspective, I considered the strategic aspects of the decision by researching potential sellers, looking for reviews saying how reliable or trustworthy they were, and contacting the manufacturers to see what specific features the car had. These tactics allowed me to determine which sellers and manufacturers offered the best deals and make strategic decisions.

Ultimately, by performing a cost-benefit analysis, I was able to determine which costs and benefits are implicit in the decision and which are the most important for the outcome. When examining different car models, I can use marginal analysis to compare the fuel costs, purchase price, loan interest rate, licensing fees, and other associated costs for each model. After comparing the various models, I can then decide on the car which has the most benefits for the least cost.

Conclusion

To conclude, the decision to purchase a car is a multi-faceted and long-term decision that requires careful consideration and analysis of the various tools and concepts introduced in DMS. I applied a cost-benefit analysis to assess the expected value of my decision and applied tools such as marginal analysis, risk assessment, and analysis of strategic considerations in order to shape my decision. I had to factor in the effects of uncertainty, risk, and changes in my risk preferences and preferences for a time in order to come up with the optimal decision. By applying DMS throughout the decision-making process, I was able to make an informed decision about purchasing a car and could be certain that I had made the best decision for my needs.

Reference

Chenet, H., Ryan-Collins, J., & van Lerven, F. (2021). Finance, climate-change and radical uncertainty: Towards a precautionary approach to fiscal policy. Ecological Economics, 183, 106957.

Haeberle, K. S. (2021). Marginal Benefits of the Core Securities Laws. Journal of Financial Regulation, 7(2), 254-283.

Zio, E. (2018). The future of risk assessment. Reliability Engineering & System Safety, pp. 177, 176–190.