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Further, some managers just aren't that smart. The same set of data can be interpreted different ways by people with different intelligence and different training. Rational thinking theory pretty much assumes that all managers are equal in their cognitive abilities, but that condition does not hold in the real world.
Lastly, managers may not have the time to gather and process all of the information. They must work within these constraints. They might approach an issue from a strictly rational perspective, but without enough time to gather all available information and process it properly, a manager will need to make a decision with imperfect information. Not surprisingly, this leads to imperfect decisions.
The importance of this concept in managerial decision-making is that it is necessary to understand the limitations to rationality in decision-making. It can never be assumed that all decision-making is purely rational because it isn't. Managers need to understand the weaknesses in their methodologies, even going beyond things like emotion...
Having an understanding of the concept of bounded rationality can help avoid things like analysis paralysis, where the managers never make a decision because they never feel that they have enough information. Knowledge of this concept can also help managers to work towards eliminating some of these problems in order to improve the quality of their decision-making. For example, allotting enough time to make decisions will allow for better rationality and therefore better decision-making. or, ensuring that managers have the knowledge and training needed to interpret and gather the appropriate data is important, because this allows the managers to make more rational decisions. But just knowing that perfect rationality will never be achieved is important, so that managers can understand how their decisions are made and seek to make improvements within the framework of bounded rationality.
References
JF. (1996). Bounded rationality. Michigan State University. Retrieved March 28, 2014 from https://www.msu.edu/course/aec/810/bond-rat.htm
This is definitely an issue, when somebody instead of gathering knowledge themselves, leans on the knowledge of others. There are major gaps that can be expected under that scenario. It is worth considering that this applies to information systems as well. Computer systems are powerful with respect to the information that they can process, but they are configured in a fixed manner. If there are gaps in terms of
404). They found that complexity especially in hierarchical organizations strongly determines success of design choice outcomes, especially when endogenous adaptation in different modules delivers "local performance improvement" (Ethiraj and Levinthal, 2004, p. 404). This is based on H.A. Simon's 1962 model of organizations, products and technology as complex, evolving systems where some choices constrain decision-making in the lowest levels, and also "near-decomposability" (Ethiraj & Levinthal, 2004, p. 404), the
Mergers The hypothesis is that "if managers are rational, mergers should always lead to an increase in shareholder value." In principle, this statement should hold, but there are a couple of pragmatic considerations that must be taken into account. Before examining the nuts and bolts of mergers, the statement needs to be corrected a little bit -- if managers are rational mergers should always lead to an expected increase in shareholder
Organizational culture theory and the role and impact of both formal and informal groups on the functioning of modern day organizations. Organizational culture is the way organizations conducts its business transactions. It also refers to the different perspectives that a company sees things. An organization builds its own organizational culture through structure, history and the traditions of the company (Shafritz 2005). Theories of organizational culture suggest that culture gives an organization
How is bounded rationality related to decision making? Bounded rationality is the property of an agent that behaves in a manner nearly optimal to its goals as its resources will allow. Simon suggests that researchers not just look at the surface answers in their research, but look to the reasons why something acts like it does (Simon, p. 50). Decision-making can benefit by following this rule. If one looks at the basis
True, the company has a highly cohesive ethic, regarding the environmentally friendly and ethically produced nature of its products. However, one problem that a supermarket chain will inevitably run across is that different areas of the nation have different tastes. This is why allowing self-governance is so important on a store-by-store basis for this chain. A Whole Foods in New York City might have more convenience vegan food, for