Making Decisions Rationality

A rational decision maker would be fully objective and logical.

Rational decisions and thoughts are based on reason rather than on emotion.
The problem faced by rational decision maker would be clear and unambiguous
Rational decision maker would have a clear and specific goal.
Rational decision maker know all possible alternatives.
Rational decision maker selects the best alternative.
In managerial decision making, decisions are made in the best interests of the
organization
Example: Suppose you purchased a cell phone and now you have to select a networks
you have two options or alternative one is Ufone and other is Mobilink your family use
Mobilink but Ufone cost is relatively low as compared to Mobilink. So if u goes with
emotions you may select Mobilink but if you are rational decision maker you may go for
Ufone because it fulfills your needs and is in your budget as well.
Making Decisions: Bounded Rationality:
Managers make decisions rationally, but are limited (bounded) by their ability to process
information.
Managers cant possibly analyze all information on all alternatives.
Managers Accept solutions that are good enough rather than maximize.
Managers being rational within the limits (bounds) of their ability to process
information.
Decision making is also likely influenced by the organizations culture, internal politics,
power considerations, and by a phenomenon called escalation of commitment.
Satisfice: Accept solutions that are good enough
Escalation of commitment: An increased commitment to a previous decision despite
evidence it may have been wrong.
Example: Suppose that you are doing MBA in finance and before passing out you want a
job, preferably as a Finance Manager, with a minimum salary of 50,000 and within a 50km
of your home. You accept a job offer as a Marketing Manager not exactly a Finance
Manager but still in the Management fieldat Nestle 30km from home at a starting salary
of 45,000. If you had done a more job search, you would have discovered a job as Finance
Manager at a multinational only 15km from your hometown and starting at a salary of
55,000. You werent a perfectly rational decision maker because you didnt maximize your
decision by searching all possible alternatives and then choosing the best. But because the
first job offer was satisfactory, you behaved in a bounded rationality manner by accepting
it.
Making Decisions: The Role of Intuition
Making decisions on the basis of experience, feelings, and accumulated judgment is called
intuitive decision making.
Intuitive decision making have identified five different aspects of intuition
1. Experience-based decisions (Managers make decisions based on their past experiences)
2. Affect-initiated decisions (Managers make decisions based on feelings or emotions)
3. Cognitive-based decisions (Managers make decisions based on skills, knowledge, and
training)
4. Subconscious mental processing (Managers use data from subconscious mind to help
them make decision)
5. Values or ethics- based decisions (Managers make decisions based on ethical values or
culture)