Bounded Rational Decision Making Process (Explained)

Bounded Rational Decision Making Process in OrganizationBounded rational decision making defined as an ability and willingness to follow a reasoned, unemotional and logical approach in decision making.

A very important issue on the subject of decision-making is rationality.

What is rationality?

When is an effective decision made rationally?

Ideally, people acting or deciding rationally must have a clear understanding of alternatives by which goals can be reached under existing circumstances and limitations.

Also, they must have the information and the ability to analyze and evaluate alternatives in the light of the objective set forth.

Finally, they must have the willingness to come to the best solution by choosing the alternative that most effectively satisfies the accomplishment of the goal.

Rationality may be defined as an ability and willingness to follow a reasoned, unemotional and logical approach in perceiving the objectives in evaluating the means through which objectives are to be achieved.

In an objectively rational context, the decision-maker has a clear idea of the problem, opportunities, and alternatives backed by complete knowledge about them.

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In the real world, it is very difficult to make decisions in a completely rational manner.

Rationality is an ideal concept as rational decisions are perfect and without any fault.

But in real-life situations, several practical considerations are likely to interfere with the attainment of an ideal condition.

In fact, rationality shows how the decisions should be made and not how decisions are actually made.

Bounded Rationality

As has already been said, to assume rationality in its perfect sense is unrealistic and unrepresentative of actual human behavior.

March and Simon rightly say that people seldom achieve complete rationality, particularly in managing.

Nobel Laureate Herbert A. Simon coined the concept of “bounded rationality” or limited rationality taking into account the human and environmental realities.

Related: 3 Conditions for Decision Making

Principles of Bounded Rationality

  1. As no one can make a decision affecting the past, decisions must operate for the future and the future almost in all cases involves uncertainties.
  2. The capacity of the human mind to perceive, retain and retrieve complete knowledge and information on past, present and future events is not unlimited. Again, information is neither readily available nor is it a free commodity. The cost of information collection vis-a-vis its reliability and relevance is an important consideration.
  3. It is difficult to recognize all the alternatives that might be followed to reach a goal, because of human cognitive constraints. It is neither necessary nor feasible to generate the entire set of alternatives. The computational capabilities of the decision maker are also limited. In most cases, not all alternatives can be analyzed, even with the latest analytical techniques and tools like computers.
  4. With all his’ knowledge and intelligence, the average decision maker has his own soft emotions. He cannot completely shut off his subjective viewpoints from influencing the decision process.

Because of the limitations mentioned above, a decision maker would rather be more interested in a choice which is satisfactory and sufficient.

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In other words, a manager must settle for limited rationality or “bounded” rationality.

Since it is not possible for managers to be fully rational in practice, they sometimes compromise with their dislike of risks—their desire to “play it safe”—to interfere with the desire to reach the best solution under the circumstances.

This has been termed “Satisfying”, that is, choosing a course of action that is satisfactory or good enough under the circumstances.

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