Decision Making-Part 2-Limited Rationality

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Decision-Making Processes : 

Decision-Making Processes Part 2-Limited Rationality

III. Limited Rationality : 

III. Limited Rationality Organizations cannot be perfectly rational, but must operate under conditions that limit their ability to follow the rational model Limit the amount of information they gather Limit the number of options considered Make decision by “satisficing” Don’t try to find the best possible decision, just one that is good enough

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes Uncertainty Absorption Uncertainty is lack of information about some aspect of the decision Uncertainty absorption refers to absorbing the uncertainty connected with a decision so you can make it by satisficing

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes Uncertainty absorption How do organizations absorb uncertainty? Consult a specialist Hire consultants Appoint committee to study the issue Make the decision to “put the matter to bed” Find another issue or emergency to distract them Rely on tradition

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes (cont) Uncertainty absorption Each position and process in the organization has the potential to absorb uncertainty Preferred sources for uncertainty absorption External sources preferred over internal sources Search in restricted networks

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes (cont) Limited and sequential attention to goals Trade-offs on goals The influence of coincidence Politics and goals

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes (cont) Symbolic information processing Organizations try to look rational Often they gather information, hold meetings, appoint task forces etc. but don’t utilize the information

III. Limited Rationality : 

III. Limited Rationality B. Decision Processes (cont) Symbolic information processing Why? Gathering information shows you’re working hard Information itself is a symbol of rationality

III. Limited Rationality : 

III. Limited Rationality Revisiting the Pinto and Subcontracting Decisions in light of Limited Rationality

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