Bounded Rationality

Topics: Decision making, Game theory, Risk Pages: 3 (888 words) Published: April 7, 2011
According to Open University (2005), bounded rationality and political processes are the reasons why organisational decision-making is unstructured and chaotic rather than structured and rational. Despite the arguments that favour the structured approach to decision making, these processes are in reality mostly unstructured because people are limited in their cognitive, information processing and decision making capabilities. March’s four propositions argue the fact that in reality decision processes are “complicated, confused and erratic” (Open University, 2005:19) because: •There are people with problems seeking solutions as well as people with pre-disposed possible solutions that eagerly await a situation where their “solutions” can fit a problem. •Organisations and its management deal with many issues at one time. •The importance and priority of issues are relative from day to day, are in constant flux and cannot be managed perfectly. •Depending on the nature and amount of decisions to be made as well as who is present on different occassions, managers are faced with occasions of choice. I will now discuss applicable theory to show why organisational decision-making is often erratic and unstructured in an attempt to support March’s propositions that the rational model does not best explain organisational decision-making. In rational decision-making a number of well-defined steps have to be followed to arrive at the best decision, given the information processed in sequential steps. The rational model assumes a completely informed decision maker that: •Knows all possible alternatives;

Knows the impact and consequences of implementing each alternative; •Has a logical sense of priorities or preferences for each alternative; and •Has the ability to compare consequences and to determine final choice/s or preferred alternative. However, the model of bounded rationality seems to oppose this perfect rationality in decision-making. According to Simon’s...
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