In: Operations Management
Decision-making, sustainability, values & ethics
1. What are the main assumptions of the rational (optimal, maximising) approach to decision-making? How does it work? Give examples.
2. What are the main assumptions of bounded rationality (the satisfying approach) to decision-making? How does it work? Give examples.
1. Rational decision makinh is defined as the decision making process which favours the formal process and objective data of analysis over the subjectivity and intuition of the person. This model of rational decision making would assume that the decision making has the perfect information and knowledge about every alternative offered. It would also assume the rational decision maker has tike, resources to evaluate and also the cognitive ability to make the perfect decision. This model would work on the assumption that people would make the best choices that would maximise their benefits for themselves and minimise the risk and costs associated.
One good example of this rational decision making approach would be the consumer buying decision where the consumer would want to get the best out of the products bought at the lowest price possible. To attain this, the consumer would judge the benefits of the product, evaluate the alternatives, the attractiveness of the product compared to others and finally make a choice and decision to buy the product considering every data and information around. This is rational decision making.
2. Bounded rationality or bounded decision making would talk about how the decision making process isn't a fully rational process. It is a partially rational process where the condition is put that people would make the decision having limited information about the things and behaviours around. Because the decision makers would lack the ability and also the resources to arrive at the best decision, they would instead apply the rationality they hold with a set of choices they have narrowed down already and make a decision with absence of the complete information and the resource. For example, if in a company, the human resource manager wants to recruit an employee having the best motivational and leadership skill into the HRM department urgently but the candidates that arrive at the interview are lacking the good communication skill for being a good motivational leader, then the manager would instead make a decision with the employee showing up. It won't be a best decision because he lacks the alternatives, but again because the situation is urgent, thus the employee would get recurited because of the bounded rationality decision making concept.