How are decisions actually made in organizations?

Are decision makers in organizations rational? Do they carefully assess problems, identify all relevant information, use their creativity to identify all viable alternatives, and painstakingly evaluate every alternative to find an optimal choice? For novice decision makers with little experience, decision makers faced with simple problems that have few alternatives courses of action, or when the cost of searching out and evaluating alternatives is low, the rational model provides a fairly accurate description of the decision process. But such situations are the exception. Most decisions in the real world don’t follow the rational model. For instance, people are usually content to find an acceptable or reasonable solution to their problem rather than an optimal one. As such, decision makers generally make limited use of their creativity. Choices tend to be confined to the neighborhood of the problem symptom and to the neighborhood of the current alternative. As one expert in decision in decisions making put it: Most significant decisions are made by judgment rather than by a defined prescriptive model.

The following discusses large body of evidence to provide you with a more accurate description if how most decisions in organizations are actually made.

Bounded Rationality: When you considered which college to attend, did you look at every viable alternative? Did you carefully identify all the criteria that were important in your decision? Did you evaluate each alternative against the criteria in order to find the optimal college? We expect the answers to these questions is probably “No” Well, don’t feel bad. Few people made their college choice this way. Instead of optimizing, you probably satisfied.

When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood. This is because the limited information processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize. So people satisfy, that is, they seek solutions that are satisfactory and sufficient.

Because the capacity of the human mind for formulating and solving complex problems is far too small to meet the requirements for full rationality, individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features from problems without capturing all their complexity. Individuals can then behave rationally within the limits of the simple model.

How does bounded rationality work for the typical individual? Once a problem is identified, the search for criteria and alternatives begins. But the list of criteria is likely to be far from exhaustive. The decision maker will identify a limited list made up of the more conspicuous choices. These are the choices that are easy to find and that tend to be highly visible. In most cases, they will represent familiar criteria and previously tried and true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. But the review will not be comprehensive – not all the alternatives will be carefully evaluated. Instead, the decision maker will begin with alternatives that differ only in a relatively small degree from the choice currently in effect. Following along familiar and well worn paths, the decision maker proceeds to review alternatives only until he or she identifies an alternative that is ‘good enough’ – one that meets an acceptable level of performance. The first alternative that meets the ‘good enough’ criterion ends the search. So the final solution presents a satisfying choice than an optimal one.

One of the more interesting aspects of bounded rationality is that the order in which alternatives are considered is critical in determining which alternative is selected. Remember, in the fully rational decision making model, all alternatives are eventually listed in a hierarchy of preferred order. Because all alternatives are considered, the initial order in which they are evaluated is irrelevant.

  • pranju

    It’s just wow…

  • Jackson