Discussbounded rationality. In your discussion, explain the term as well asits importance in rational managerial decision-making.
Boundedrationality derives its basis from political scientist Herbert Simon(Fiori,n.d.).The concept was derived as a means of helping managers in theireffort to make a decision within the organization. Simon believesthat the process of making decisions is influenced by non-rationalfactors, which include prejudices, emotions and other kinds ofsubjective biases. The procedure of making decisions especially thoseof business nature requires certain characteristics on the part ofthe policy-makers. They should be adaptive and goal oriented innature. However, with all the needed features, there are thosecritical decisions that they fail to make or even achieve. These arecontributed by the human cognitive and expressive manner. When thisoccurs, it often leads to inequality between the environment in whichthe decision is made and the choices by the policy makers.
Accordingto Fiori(n.d.), bondedreality primarily relies on human behavior particularly thelimitations in the achievement of goals. This means that thisapproach does not make an assumption regarding the decisions made anddoes not use a mathematical approach in making decisions. Bondedreality explores the limitations of incomplete information aboutalternatives and cognitive processing as issues that prevent decisionmakers from achieving their targets. It is important in rationalmanagerial decision making because, it enables managers to adopt aheuristic approach in means of solving problems in a businesssetting. Managers can come up with an appropriate decision though itmay not be an ultimate decision (Fiori,n.d).
Discusshow bias has blocked your ability to make a rational decision. Inyour answer, discuss the heuristic that you may have used and thebias associated with that heuristic. What could you have done toovercome the bias generated by the heuristic?
Rationaldecision formulation entails the use of analysis, facts and step bystep procedure to reach a decision (DeMartino et al , 2006).Bias is one of the factors that influence the process of rationaldecision making. Judgment and decisions are made each day inbusiness. Heuristic has made the process of decision making easierthrough the application of efficient thinking techniques. Anindividual does not have to spend a lot of time analyzing andresearching on the best approach to deal with a situation (DeMartino et al., 2006).Heuristic is a form of mental shortcut in quick analysis ofinformation. Although it can be of essential help to an individual,it often leads to judgmental errors. Sometimes you can find anintelligent person making a dumb decision because of heuristicapproach.
Imay have used availability heuristic in the past when confrontingsome situations. The bias associated with this kind of heuristic isthat we tend to make decisions based on how we perceive an event inour mind. There is an over-reliance on the present and past events,especially when making a decision (DeMartino et al., 2006).Any readily available information in our mind acts as a basis of anevent, and we tend to be cautious of the similar situation. In orderto overcome the bias generated by availability heuristic, we shouldresearch on the subject matter and avoid dwelling on assumptionsbased on past events.
Discussthe concept of satisficing. In your answer, discuss the positive andnegative aspects of applying satisficing in decision-making
Managersconsider the process of decision-making as a vital virtue in acompany. However, there are times when a corporation faces a problem,and there are several alternatives for addressing it. These mean thatthe manager would have to look for the best possible option if he/shewants to decrease efforts, time and cost of decision making. The actof the manager taking a decision that is good enough to address thesituation is referred to as satisficing (ZHU& XIE, 2013).The positive aspect of applying satisficing in decision making isthat it reduces the various risks that are involved in comparingalternatives.
Additionally,satisficing justifies optimization in that the chosen optionaddresses the issue at hand without spending more resources inlooking for alternatives. It is also beneficial in cases where we donot have the required information needed for the evaluation ofoutcomes (ZHUet al., 2013). The negative aspect of applying satisficing in decision making isthat at times it may be easy to find a solution to a problem.However, the decision taken may complicate future events in case itwas not set high enough. It requires a decision maker to consider abigger perspective and make a long term decision to the problem (ZHUet al., 2013).
Explainthe availability, representativeness, and affect heuristics. In youranswer, compare the three and discuss the positive and negativeaspects of each.
Gigerrenzer& Gaissmaie (2011) defines availabilityheuristic as making of decision-based on likelihood or frequency ofoccurrence. There is too much reliance on events that are readilyavailable in our minds. The advantage of this approach is that it iseasier to make a decision without consulting. Moreover, individualstend to correlate actions that happen close together. The negativeaspect is that it is biased as it depends on information that iseasier to recall (Gigerrenzeret al., 2011).
Representativenessheuristic involves the making of decision-based on the informationcommonly known as mental prototypes. The decisions emanate from whatan individual has been taught such that he/she associates somethingor someone with it (Gigerrenzeret al., 2011).The advantage of this approach is that it saves time and energy sincea fast decision and assumption is made without too much thinking. Thedownside is that it often breeds stereotyping among individuals(Gigerrenzeret al., 2011).Affect heuristic comprises of a situation whereby a person makes adecision based on emotions at the present moment. The emotions may befear, pleasure, and surprise. The positive aspect of this approach isthat decisions are made faster, which saves on time (Gigerrenzeret al., 2011).The negative aspect is that there is over reliance of feelings in theprocess. Hence, it does not reflect a correct judgment on a problemand how it was addressed.
DeMartino, B., Kumaran, D., Seymour, B., & Dolan, R. J. (2006).Frames, biases, and rational decision-making in the humanbrain. Science, 313(5787),684-687.
Fiori,S. Herbert A. Simon and Contemporary Theories of Bounded Rationality.SSRNElectronic Journal.http://dx.doi.org/10.2139/ssrn.1367091
Gigerenzer,G., & Gaissmaier, W. (2011). Heuristic decision making. Annualreview of psychology, 62,451-482.
ZHU,D. & XIE, X. (2013). Which One Is Better, Maximizing orSatisficing?. AdvancesIn Psychological Science,21(2),309-316. http://dx.doi.org/10.3724/sp.j.1042.2013.00309