Rationality Is Limited

Topics: Decision making, Rational choice theory, Economics Pages: 6 (1862 words) Published: April 28, 2013
Wilhelmina van Leeuwen

Rationality is limited
Psychology of managerial judgement and decision making – written essay

"The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world" (Simon, 1957)


The present organization administration theories are to a great extent a result of the post-war development of organizational science. The classical doctrine and human relation thinking have been replayed for sociological academic organization science. Researchers, in particular in the field of psychology, have begun to message examples of constraints in people’s judgment and decision-making since the 50’s. One of these researchers is Herbert Simon (1916 - 2001). Herbert Simon is known for what is known in the economy, sociology and political science as the idea of bounded rationality. This researcher judged rational decision-making models for ignoring several factors and considers that people won’t necessarily take an optimal decision; they will take a decision that is adequate. The efforts that must been taken for making an optimal decision could be too large, so people will be satisfied with a suboptimal decision; this suboptimal decision will require less effort. By this limited number of alternatives, a wrong choice can be made, and a decision may and a taken decision can be wrong. Therefor it is important to take account of the environment when making a decision. However, saying this does not mean people are irrational; it is based on limiting rational behaviour to optimize the utility function. So rationality is limited and people operate from emotional and/or irrational motives as well. Several empirical studies indicate that consumers don’t always behave rationally. For example studies of Tversky and Kahneman to cognitive anomalies: conditions under which individuals are clearly not behave rationally. This is based on the facts of imperfect and incomplete information, the complexity of problems, the limitations of human capacity for the processing of information, time constraints for making decisions and conflicting preferences. This all inspired a number of new theories in various research areas, especially in the fields of economy, sociology and political science. The aim of this essay has to do with personal notes against the theory of bounded rationality based on information that is written on Internet. Reading different types of information related to this theory allows it to analyse advantages, critics and differences.

Applying bounded rationality

The ability of people to create and to resolve complex issues is restricted. This is based on the idea of bounded rationality, which is mentioned in the introduction. It refers to the human behaviour which is purposeful rational, but merely in a limited extent. These limitations are a result of both physical borders as language limitations.

Physical borders
Physical limits may be established to the human capacity constraints for information without errors to receive, store, retrieve and process data. In other words, the cognitive skills of people are limited: people are limited in knowledge, perspective, skills and time. Therefore, organizations may be useful instruments to achieve certain goals.

Language limitations
The language barriers are about the inability of individuals relating to their own knowledge and feelings by using words, numbers or graphs in such a way that others can understand them. Sometimes people fail in using certain vocabulary because people don’t have the required vocabulary, which is needed or the necessary vocabulary is not available. In order to achieve understanding, the only solution may be learning-by-doing, demonstrations, etc. For example; compare a Chinese proverb: an image that is worth ten thousand words. Professional politicians know how to...
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