bounded rationality

Examples of bounded rationality in the following topics:

• Problems with the Rational Decision-Making Model

  • Critics of rational choice theory—or the rational model of decision-making—claim that this model makes unrealistic and over-simplified assumptions.
  • Their objections to the rational model include:
  • The more complex a decision, the greater the limits are to making completely rational choices.
  • The theory of bounded rationality holds that an individual's rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.
  • Bounded rationality shares the view that decision-making is a fully rational process; however, it adds the condition that people act on the basis of limited information.

• Rational Decision Making

  • Rational decision making is a multi-step process, from problem identification through solution, for making logically sound decisions.
  • Rational decision making is a multi-step process for making choices between alternatives.
  • The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight.
  • The word "rational" in this context does not mean sane or clear-headed as it does in the colloquial sense.
  • The idea of rational choice is easy to see in economic theory.

• Non-Rational Decision Making

  • People frequently employ alternative, non-rational techniques in their decision making processes.
  • The rational model of decision making holds that people have complete information and can objectively evaluate alternatives to select the optimal choice.
  • They instead apply their rationality only after they greatly simplify the choices available.
  • Emotion is a factor that is typically left out of the rational model; however, it has been shown to have an influential role in the decision-making process.
  • Examine alternative perspectives on decision making, such as that of Herbert Simon and Gerd Gigerenzer, which outline non-rational decision-making factors

• Bureaucratic Organizations: Weber

  • As Weber understood it, particularly during the Industrial Revolution of the late nineteenth century, society was being driven by the passage of rational ideas into culture, which, in turn, transformed society into an increasingly bureaucratic entity.
  • Weber did not see any alternative to bureaucracy and predicted that this would lead to an "iron cage," or a situation in which people would not be able to avoid bureaucracy, and society would thus become increasingly more rational.
  • Weber viewed this as a bleak outcome that would affect individuals' happiness as they would be forced to function in a highly rational society with rigid rules and norms without the possibility to change it.

• Sources of Power

  • Informational power offers advantages in building credibility and rational persuasion.
  • We can group these tactics into three categories: behavioral, rational, and structural.
  • Rational tactics of influence make use of reasoning, logic, and objective judgment, whereas nonrational tactics rely on emotionalism and subjectivity.
  • Examples of each include bargaining and persuasion (rational) and evasion and put downs (nonrational).

• Cognitive Biases

  • They and their colleagues demonstrated several replicable ways in which human judgments and decisions differ from rational choice theory.
  • In this situation, they believe that their confidence in their decision is founded on a rational and logical assessment of the facts when it is not.

• Introduction to Red Ocean and Blue Ocean Strategy

  • The thesis behind the blue ocean strategic perspective is that competing in an established market is not a rational option for investment.
  • The idea behind the blue ocean strategic perspective is that competing in a red ocean (an already established market place, likely with companies with economies of scale), is not a rational option for investment.

• Scientific Management: Taylor and the Gilbreths

  • Important components of scientific management include analysis, synthesis, logic, rationality, empiricism, work ethic, efficiency, elimination of waste, and standardized best practices.
  • Time and motion studies are used together to achieve rational and reasonable results and find the best practice for implementing new work methods.

• Managers as Leaders of Change

  • Conner (1998) identified six distinct leadership styles related to change: anti-change, rational, panacea, bolt-on, integrated, and continuous.
  • The rational leader - This leader focuses on how to constrain and control change with logical planning and clearly defined steps.

• The Importance of Performance Targets

  • Objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound.