Question

Question 5.

With reference to the work of Herbert Simon and Philip Selznick, and providing real-life examples, discuss the principles of rational decision making and explore the reasons for non-rational decision making.

Answer 1

Principles for rationale decision making

1. Marginal Theory of Decision-Making:

Manager must take every decision with the aim in view that the profit of the organisation goes on increasing till it reaches its maximum.

The marginal analysis of the problem is based on law of diminishing returns. With extra unit of labour and capital put in production, the production increases but it increases at a proportionately reduced rate.

From every extra unit of labour and capital the production diminishes and a time comes when the increase in production stops with ‘zero’ as the production of the last unit used there in. At this stage a decision is taken to the effect that no additional unit of labour and capital now is required to be introduced in the production.

Production of the last unit is marginal one where-after further in-production of extra-unit becomes un-economical or non-yielding.

The marginal principle can be effectively and while taking decision on matters relating to:

(i) Production,

(ii) Sales,

(iii) Mechanisation,

(iv) Marketing,

(v) Advertising,

(vi) Appointment and other matters, where marginal theory can be scientifically and statistically used and a good decision is rendered possible.

2. Mathematical Theory:

There are few other theories like—venture analysis, game theory, probability theory, waiting theory. On the basis of which a manager analyses a given fact and takes decision accordingly. This has given rise to a scientific approach to the decision-making process.

3. Psychological Theory:

Manager’s aspirations, personality, habits, temperament, political leanings and social and organisational status, domestic life, technological skill and bent of mind play an important role in decision-making. They all in some form or the other leave an impact on the decision taken by the manager.

He is also bound by his responsibilities and answerability. Decision-making is a mental process and the psychology of those who are deliberating and of the person who takes the final decision has a definite say in decision-­making.

4. Principle of Limiting Factors:

The decisions taken are based on limited factors nevertheless they are supposed to be good because of the simple fact that under the circumstances it was the only possibility.

From this principle it emerges that though there are numerous alternative available to a decision-maker but he takes cognizance to only those alternatives which suit the: (i) time, (ii) purpose, and (iii) circumstances and which can be properly and thoroughly analysed considering the human capacity and then finally one of the alternatives is chosen which form the basis of a decision.

5. Principle of Alternatives:

Decision is an act of choice. It is a selection process. Out of many available alternatives the manager has to choose on which he considers best in the given circumstances and purpose.

6. Principle of Participation:

This principle is based on human behaviour, human relationship and psychology. Every human being wants to be treated as an important person if it is not possible to accord him a V.I.P. treatment. This helps the organisation in getting maximum from every person at least from those who have been given the place of importance and honour.

The principle of participation mostly aims at two things:

(1) It aims at the development and research of all possible alternatives. If larger number of people concerned are asked to search for alternatives on the basis of which decisions are expected to be taken then greater participation is assured which is surely an important aim of this principle.

(2) This principle asks for debating and deliberating by more and more people, so as to know the mind of all and to assess the possible reaction of a particular decision which the manager has in mind.

Reasons for non-rational decision making.

• Satisficing
• Breaking the decision into increments
• Intuition