When you were deciding where to attend college, did you obtain catalogs from the thousands of colleges and universities that exist throughout the world? Obviously not. Did you carefully identify all the relevant criteria – tuition costs, scholarships offered, location, majors offered, and so forth – in making your decision? Did you evaluate each potential college against these criteria in an effort to make an optimum selection? Probably not, but don’t take it as an indictment of you or your decision making ability. Most of us make decisions on the basis of incomplete information. Why? When we are faced with complex problems, most of us respond by reducing the problem to something we can readily understand. People often have limited abilities to process and assimilate massive amounts of information to reach an optimal solution. As a result, they satisfice: that is, they seek solutions that are satisfactory and sufficient –or just good enough.
Do managers engage in satisficing behavior? Or do they act rationally by carefully assessing problems, identifying all the relevant criteria, using their creativity to identify all viable alternatives and after a meticulous review of each alternative finding the optimum choice? When managers are faced with a simple problem with few alternatives when time pressures are minimal and when the cost of seeking out and evaluating alternatives is low, the rational model provides a good description of the decision making process. But such situations are the exception rather than the rule.
Numerous studies have added to our understanding of managerial decision making. These studies often challenge one or more f the assumptions of rationality. They suggest that decision making often veers from the logical, consistent and systematic process that rationality implies. Do these limits to rationality mean managers ignore that eight step decision process we described ate the beginning? Not necessarily. Why? Despite the limits to perfect rationality, managers are expected to appear to follow the rational process. They know, that good decision makers are supposed to do certain things: identify problems, consider alternatives gather informative, behave thoughtfully and act decisively but prudently. By doing so, managers signal to their bosses, peers, and employees that they are competent and that their decisions are the result of intelligent and rational deliberation. The process they follow is frequently referred to as bounded rationality.
What is Bounded Rationality?
Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem.
Management theory is built on the premise that individuals act rationally and that managerial jobs resolve around the rational decision making process. However, the assumptions of rationality are rather optimistic. Few people actually behave rationality. Given this fact how do mangers make decisions of it is unlikely are perfectly rational? Herbert Simon an economist and management scholar, found that within certain constraints managers do act rationally. Because it is impossible for human beings to process and understand all the information necessary to meet the test of rationality what they do is construct simplified models that extract the essential features from problems without capturing all of their complexities. Simon called this decision making process bounded rationality. Under the definition of bounded rationality, decision makers behave rationality (the rational decision making model) within the limits of the simplified or bounded model. The result of their actions is a satisficing decision rather than a maximizing one – a decision in which go enough solutions are selected. As a resulted instead of optimizing a choice, decision makers select solutions. As a result, instead of optimizing a choice, decision makers select alternatives that satisfy the problem.
How do managers’ actions within these boundaries differ from actions within rational model? Once a problem is identified, the search or criteria and alternatives begins. But this list of criteria is generally limited to the more conspicuous choices. That is, Simon found that decision makers will often on easy to find choices and ones that tend to be highly visible. In many instances, this approach means developing alternatives that vary only slightly from decision that have been made in the past to deal with similar problems.