Compensatory Strategies

Definition

Compensatory strategies are decision-making processes where a decision-maker evaluates alternatives by balancing positive and negative attributes to arrive at the best overall choice. This approach allows for the trade-off of lower scores in one area with higher scores in another, making it particularly useful in scenarios where multiple criteria are considered important.

5 Must Know Facts For Your Next Test

1. Compensatory strategies are often used in consumer decision-making, such as when buying a car, where factors like price, safety, and fuel efficiency are weighed against each other.
2. This strategy enables flexibility in choices, as a high score in one attribute can compensate for a low score in another, leading to potentially better overall satisfaction with the decision.
3. Compensatory strategies can lead to more thorough evaluations, but they may also introduce complexity and overwhelm if too many factors are considered.
4. The effectiveness of compensatory strategies can be influenced by cognitive biases, which might skew the perceived value of different attributes.
5. In business contexts, using compensatory strategies can enhance decision quality but requires a clear understanding of how to weigh different factors effectively.

Review Questions

• How do compensatory strategies differ from non-compensatory strategies in decision-making?
  • Compensatory strategies allow for trade-offs between attributes, meaning that a strong performance in one area can make up for weaker performance in another. In contrast, non-compensatory strategies eliminate options that do not meet minimum criteria in any single attribute without considering how strengths in other areas could compensate. This distinction is crucial because it affects how decisions are made and which options remain viable.
• Evaluate the role of cognitive biases in the effectiveness of compensatory strategies during business decision-making.
  • Cognitive biases can significantly impact the effectiveness of compensatory strategies by distorting perceptions of attribute importance or leading to overemphasis on certain factors. For instance, confirmation bias may cause decision-makers to favor information that supports their initial preference while neglecting contradictory evidence. This can result in skewed evaluations and potentially poor decisions if not recognized and mitigated through careful analysis.
• Analyze a scenario where compensatory strategies could lead to better decision outcomes compared to heuristics.
  • In a scenario where a company is choosing a supplier based on multiple factors like cost, reliability, and delivery speed, compensatory strategies would allow them to evaluate trade-offs across these attributes. For example, they might choose a more expensive supplier if they have proven reliability and faster delivery times. In contrast, using heuristics might lead them to focus only on cost, potentially overlooking the long-term benefits of quality and reliability that justify the higher expense. Thus, compensatory strategies provide a more balanced approach that considers the full picture.

Related terms

Heuristics:

Mental shortcuts or rules of thumb that simplify decision-making by focusing on one or two key factors, rather than considering all available information.

Multi-Criteria Decision Analysis (MCDA): A structured approach to decision-making that involves evaluating multiple conflicting criteria when making choices, allowing for a more comprehensive analysis of options.

Non-Compensatory Strategies: Decision-making approaches that do not allow for trade-offs between attributes; if an option fails to meet a certain threshold in one criterion, it is eliminated from consideration.