Research on Decision-making Behavior Test System for
Top Management Team Based on Simulation Environment
Xue-ying Hong1, Zhu-chao Yu2 , Zhu Wang , Yang Jiang
(Northeastern University of Business Administration, ShenYang, LiaoNing, 110004)
1
yingshuyuan@126.com, 2 zcyu@mail.neu.edu.cn ()
Abstract - The decision made by Top Management Team
is fatally important for business operation. So, how to
improve the quality and reliability of decision-making seems
very necessary. Starting from the Prospect Theory of
behavioral decision-making theory, this paper puts forward
testing decision-making behaviors of Top Management
Team, and analyzes the specific process and methods of
decision-making. According to results of the decisionmaking behavior testing, the characteristics of Top
Management Team can be obtained, and so as to provide
reasonable foundation for evaluation and improvement of
decision-making behaviors.
Keywords - Behavior testing, decision-making behavior ,
decision simulation, top management team
I. INTRODUCTION
The Nobel Prize Winner Herbert Simon used to say
that “management is making decision”, which reveals
how important the decision-making is in business
administration. With the global economic integration goes
further in China, drastic market competition and rapid
changes of information revolution, diversification
oriented business and close coordination oriented
department all present new challenges to executive
leaders[1]. At the same time, team decision-making
gradually takes place of personal decision-making and is
becoming more and more important in business
administration. By full understanding of Top Management
Team (TMT) on decision–making behavior characteristics,
we can make better use of the advantages of certain teams
and achieve the effect that team decision is superior to
individual decision, thus we can keep continual
development of business in the long run.
Katzenbach defined TMT as “top leaders team in
organizations and institutions”, they usually have the
power to solve problems, coordinate activities, mobilize
organization members and make important decisions of
the company. Because of the importance of the TMT,
researchers in both domestic and overseas do a lot of
____________________
This work was partly supported by the National Science Foundation of
China (Project No. 71171043), the National Basic Scientific Research
Expenses - National Project Breeding Fund (Project No. N090406006)
and the National Undergraduates Innovating Experimentation Project
“Under Team Task Situations Decision-Making Behavior of Business
Executives Test Platform” (Project No. 110105).
researches on behaviors of TMT. Henning Bang and his
partners got the conclusion that goal clarity and focused
communication is positively related to team effectiveness
by self-report and observer data from eight top
management groups that processed 56 agenda items
during meetings, thus provided instructions on how to
make decisions efficiently. At the same time, they
extended three dimensions related to team efficiency: task
performance, relationship quality, and member
satisfaction [2]. From
two total different aspects:
functional-background and locus-of-control, Chirstophe
Boone and Walter Hendrisks analyzed the compositional
diversity and organizational performance by collecting
and analyzing the data collected from scientific and
technical corporations, and they finally provided
instructions on the optimizing of team composition [3].
In this paper, we introduce decision simulation
system into the research of decision-making test of TMT,
so we can avoid the problems that are met in traditional
surveys, such as information distortion and data
ambiguous. This paper also takes advantage of
management simulation programs to create management
decision scenarios which are very similar with real
market. By data collection and result analyzing, we can
obtain decision-making characteristics of TMT, and
finally help TMT to improve their decision performances.
II. METHOD
A. Behavioral decision-making effect
Behavioral decision-making theory is a new theory
developed to solve problems that are difficult to rational
decision-making theory; classical decision theory also can
be regarded as special case of behavioral decision-making
theory when there are a lot of hypotheses. In 1979,
Kahneman and Tversky (KT) put forward the Prospect
Theory under uncertain conditions of personal decision
behavior based on economic experiments[4], thus denied
the Expected Utility Maximization Theory proposed by
Van Newman and Morgenstern in 1944 [5]. Expected
Utility Maximization Theory holds the opinion that the
preference of a decision maker is changeless, and his
decisions can be predicted by statistical methods. On the
contrary, Prospect Theory indicates that there exists
Framing Effect, Reference Point Effect, Deterministic
Effect and other effects caused by irrational behaviors
under uncertain conditions, what’s more these irrational
behaviors make individual decisions betray the Expected
Utility Maximization. Framing Effect manifests that
different formulations can lead to different preferences to
the same problem. Deterministic Effect manifests that
decision makers have obvious preference on certainty. In
fact, these two effects are both caused by the changing of
reference point which has a big influence on individual
decisions. In different fields, different environments and
among different individuals, decision makers’ reference
points may change, and we define this change as
Reference Point Effect. For example, through experiments
Zhan-lei Li validated that there exist Framing Effect,
Reference Point Effect and Deterministic Effect in
individual decisions under the environment of economy,
society and culture [6].
In view of different behavioral decision-making
effects’ different influences, in this paper we mainly use
four effects (Reference Point Effect, Framing Effect,
Fuzzy Avoid Effect and Deterministic Effect), which are
extended from Prospect Theory, to test decision behaviors
of TMT under different decision scenarios and analyze
their behaviors’ characteristics.
B. Management simulation
Management Simulation is a kind of Computer
simulation system using Computer Science, Management,
Game Theory and Operational Research, and it is used to
simulate management activities of business. The earliest
Management Simulation came from some of American
famous universities in 1850s, and the first university to
use it was the University of Washington. In 1957, the
University of Washington used a simulation system
named High-level decision-making and management in
the course of Business guidelines [7]. According to the
data of 2001, more than half of the core members
belonging to the Association to Advance Collegiate
Schools of Business (AACSB) widely use Management
Simulation in such courses as Strategic Management,
Marketing, Accounting and Finance, and there are also
Management Simulation Competitions in America and
some other regions. At present, there are mainly 3 kinds
of Management Simulation in the world, these are
Management Game governed by Carnegie Melton
University (CMU), MBABEST21 governed by CSIM
College of Aoyama Gakuin University and Global
Management Challenge [8].
When taking part in these Management Simulation
systems, corporate executives will form several teams.
These teams compete with each other and try to improve
their own business’s performance. As a result, they can
experience management, use theory and cultivate
innovative thinking [9].
Aiming at testing subsjects’ decision-making
behaviors, this system takes advantage of parameter
model used in traditional Management Simulation
systems when design testing scenarios. Besides, we create
various kinds of testing scenarios based on four basic
effects. At last, we can analyze their decision-making
characteristics by the data we collected.
C. Methods of decision-making testing
From the middle of 1970s, behavioral decisionmaking had become an independent subject, and was
widely used in areas of economy, finance and
management. In this stage, research methods includes
observational method, investigation method (mainly are
questionnaire survey and interview survey) and
experimental method (psychological experiment and
economical experiment). Since then, these methods are
also called general empirical research of decision-making
behavior [10]. For example, by using “Asian disease
problem”, Tversky and Kahneman testified the existing of
Framing Effect and successfully questioned traditional
invariance [11].
At present, researches of behavioral decision-making
theory mainly focus on summarizing behavioral
characteristics and refining the behavioral variables, then
apply it to analysis of rational decision-making.
Representative studies of this kind of researches include
such four investor psychology models as BSV model [12],
DHS model [13], HS model [14], BHS model [15], and
Behavioral Asset Pricing Model [16], Behavioral
Combination Model [17].
Being different with general research methods, this
paper’s method uses logical processes to test TMT’s
decision-making behavior under management simulation
scenarios. That is testing decision makers’ behaviors and
analyzing experiment results by controlling some
variables under controlled experiment conditions, thus
reinforce the reliability of the results. Besides, high
emulation situation have directive functions in real life.
III. SYSTEM DESIGN
A. Overall structure of the system
Aiming at testing decision-making behavioral
characteristics of TMT, this system includes the function
of managing multitask scenarios.
There are two main subsystems: testing subsystem
and analyzing subsystem. The overall structure of the
system is shown in Fig. 1. As we can see, there are two
modules in testing subsystem which are module of testing
online and module of information services, and two
modules in analyses system: module of data statistics and
module of management of testing scenarios. At first,
subsjects log in. Secondly, they should input their team
information and then they can choose testing scenarios.
After all of these, they will enter into testing subsystem to
finish the whole processes under the guide of the system.
B. Design of database
Database is used for depositing testing data of testing
subsystem and system parameters of simulation programs.
Login
Subjects
Manager
Testing online
Data
Statistic
Database
Information
services
IV. SYSTEM IMPLEMENTATION
Based on decision-making testing scenarios and
researches of four effects, variable testing scenarios can be
designed to cater for different demands of subjects.
According to different testing scenarios and relevant
parameters this system can provide special decisionmaking situation for subjects.
There are mainly four functional modules in this
system: situation management, testing online, data
statistic analysis and information services.
A. Situation management
Management
of testing
situation
Fig. 1 Overall structure of decision-making behavior testing
In testing phrases, subjects input decision variables and
decision values as the simulation system asked. Then, the
system will use relevant decision parameters that are set
by managers in advance to calculate the results of
simulation operation. Finally, the results will be seen in
the interface as the form of reports; in decision-making
behaviors analyzing phrase, managers take advantages of
statistic analysis software to analyze all the decision data
and give the results of the subjects’ characteristics of
decision-making behaviors.
C. Design of function module
This system obtains results of decision-making
testing and of behavioral testing by calculating various of
function modules, which includes module of parameter
setting, module of operation calculating and modules of
decision behavior analyzing. Among these modules,
module of parameter setting is used for creating decision
simulation environment and reducing errors to real
situation; module of operation calculating, which includes
demand function, constant cost function, variable function
and so on, is used for calculating the operational results
based on the values inputted by subjects; module of
decision behavior analyzing is used for analyzing the
decision data and the results of operation, and finally the
testing results by classifying subjects’ behaviors based on
four effects mentioned before can be obtained.
This function includes adding testing scenarios that
have been designed, modifying relevant marketing
parameters in every progress according to different
behavioral decision-making effects, editing or deleting
certain situations that are not significance in testing
phrase. Only managers have the right to modify
parameters to cater for demands.
B. Testing online
Testing online mainly provides functions that can be
used to test subjects’ decision-making behaviors. At first,
subjects log in main interface, then under the guide of the
system they can implement testing needed. This system
provides individual settings, which are single-period
testing and multiple rounds of simulations decision
testing, in view of different testing aims. In single-period
testing, system will guide subjects to another decision
situation after they finished their first decision-making
and provide simulation operation results. Subjects will be
tested a lot of times under certain testing scenarios, where
only some certain parameters will be changed in order to
control certainty of simulation situation, until enough data
has been collected. In multiple rounds of simulations
decision testing, subjects will be required to manage a
company for several periods and testing scenarios will be
changed along with subjects’ decisions. And different
with single-period testing, subjects’ decisions will always
affect next period in multiple rounds of simulations
decision testing.
directions on the composition of TMT according to their
different decision-making behavioral characteristics.
Login main
interface
User
Information services
Yes
Other
operations
No
Select criteria
Searching criteria
Whether
do further
searching
Getting the
result
Fig. 2. Process of searching
C. Data statistic analysis
After all the tests are over, managers will use
statistical analysis software to analyze data which subjects
submitted, and final results will be obtained.
D. Information services
There are mainly two aspects: in multiple rounds of
simulations decision testing, operational results will be
provided and can be searched; after tests over, decisionmaking behavioral characteristics and relevant
suggestions will be provided. The process of searching is
showed in Fig. 2.
V. SUMMARY
The trend of economic globalization has brought
great challenges to companies, so how to ensure the
quality of executives in decision-making will become
increasingly important. Decision simulation system,
which integrates application of management science,
decision science, computer technology and IT, can
provide managers with a realistic management
environment and good experimental environment for
researches on decision-making behaviors. Based on the
four behavioral decision-making effects of prospect
theory, we develop a testing system to test executives’
decision-making behaviors. Using this system, TMT can
obtain their different decision-making preferences under
the conditions of uncertainty and understand their own
decision-making behavior characteristics. Thus, they can
avoid decision-making bias in a major decision and
improve their decision-making as a whole quality.
What’s more, the testing system also provides practical
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