...decision-making and bounded rationality, two decision-making approaches that the health care organization can use for determining how to reduce costs. This paper will also explain why making a group decision is better than a decision by an individual, as well as list the advantages and disadvantages of group decision-making. According to Robbins, DeCenzo, and Coulter there are three decision-making approaches. These three approaches are rational decision-making, bounded rationality, and intuitive decision-making. In order for management of the health care organization to determine how to reduce costs they can use rationality or bounded rationality. Making a rational decision requires complete knowledge of the problem, all possible solutions, and the consequences of each solution. The decision maker must use logic and objectivity to determine which solution option will achieve the company’s goal. Rational decision-making will be challenging for the managers because it is unrealistic to analyze every detail of each solution option and the associated risks of each. Using bounded rationality will allow the management team to satisfice, or come up with a solution that is “good enough” (Robbins, DeCenzo, & Coulter, “Chapter 3, Foundations of Decision Making, What is Bounded Rationality,” 2011). Rational will still be used, however it will be done within the bounds of management’s ability to process information (Robbins, DeCenzo, & Coulter, “Chapter 3, Foundations of Decision Making, What...
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...BOUNDED RATIONALITY Herbert Simon (1916-2001) is most famous for what is known to economists as the theory of bounded rationality, a theory about economic decision-making that Simon himself preferred to call “satisficing”, a combination of two words: “satisfy” and “suffice”. Contrary to the tenets of classical economics, Simon maintained that individuals do not seek to maximise their benefit from a particular course of action (since they cannot assimilate and digest all the information that would be needed to do such a thing). Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly. The human mind necessarily restricts itself. It is, as Simon put it, bounded by “cognitive limits”. Hence people, in many different situations, seek something that is “good enough”, something that is satisfactory. Humans, for example, when in shopping mode, aspire to something that they find acceptable, although that may not necessarily be optimal. They look through things in sequence and when they come across an item that meets their aspiration level they go for it. This real-world behaviour is what Simon called satisficing. He applied the idea to organisations as well as to individuals. Managers do much the same thing as shoppers in a mall. “Whereas economic man maximises, selects the best alternative from among all those available to him,” he wrote, “his cousin, administrative man, satisfices, looks for a course...
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...Introduction The English word 'Decision' originated from the Latin word 'decisio' which means "to cut from." 'To decide' means "to come to a conclusion" or "to pass a resolution. According to Trewartha and Newport "Decision making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem." Bounded rationality The concept and associated decision model of bounded rationality was first discussed by Herbert Simon in his celebrated book Models of Man published in 1957 by John Wiley and Sons. Simon basically stipulates that individual decision making is not rational as assumed by a number of theories, especially dealing with economics issues. Individual decision making is limited by a number of boundary conditions such as the individual's intellectual traits, time, and non perfect information. Non perfect information for example, can pertain to limited access to reliable information or raw information, information corruption through layered processing and/or simply lack of information Bounded rationality and decision making. When applied to management decisions, managers, usually because of time constraints, lack of information, and cognitive factors usually make numerous daily decisions and seek to make the best possible decision considering the circumstances, rather than the optimal decision; the optimal decision would be the most rational decision under perfect circumstances. Perfect...
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...Published in: Swiss Journal of Economics and Statistics, 133 (2/2), 1997, 201–218. © 1997 Peter Lang, 0303-9692. Bounded Rationality: Models of Fast and Frugal Inference Gerd Gigerenzer1 Max Planck Institute for Psychological Research, Munich, Germany Humans and other animals need to make inferences about their environment under constraints of limited time, knowledge, and computational capacities. However, most theories of inductive inferences model the human mind as a supercomputer like a Laplacean demon, equipped with unlimited time, knowledge, and computational capacities. In this article I review models of fast and frugal inference, that is, satisficing strategies whose task is to infer unknown states of the world (without relying on computationaly expensive procedures such as multiple regression). Fast and frugal inference is a form of bounded rationality (Simon, 1982). I begin by explaining what bounded rationality in human inference is not. 1. Bounded Rationality is Not Irrationality In his chapter in John Kagel and Alvin Roth’s Handbook of Experimental Economics (1995), Colin Camerer explains that “most research on individual decision making has taken normative theories of judgment and choice (typically probability rules and utility theories) as null hypotheses about behavior,” and has labeled systematic deviations from these norms “cognitive illusions” (p. 588). Camerer continues, “The most fruitful, popular alternative theories spring from the idea that limits...
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...a) Explain and contrast the concept of full rationality in economics with the concept of bounded rationality in human decision making. b) What is the availability heuristic and what biases emanate from this heuristic? Answer: There is a major difference between the concept of full rationality in economics (homooeconomicus) and the concept of bounded rationality in human decision making (homo-sapiens). Rationality is a decision making process that is logically expected to lead to optimal results given an accurate assessment of the decision maker’s values and risk preferences. The rational decision procedure consists of six stages. The first stage is to define the problem using an accurate judgment. Secondly, a rational decision maker identifies all the relevant criteria in the decision making process. In the third stage, a rational decision maker has to weigh all the criteria regarding his decision. The weight of these criteria varies in importance and the decision maker knows the values they place on each one of them. The decision maker, in the fourth stage, can search and generate for alternatives until the time that the cost of the search outweighs the value of the added information. The most difficult stage of the decision maker is the fifth stage, where the decision maker has to carefully assess potential consequences of each identified criteria of selecting each of the alternatives. Rating each alternative on each criterion requires forecast of future...
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...development. To explain this it is best to analyse the meaning of each style. The three most common styles are Transactional, Transformational and Charismatic. Transactional: This style is common amongst many companies. It is based on reward and punishment as a means of motivation. This type of leader has all the power to make staff do what they are told. He/she has complete control over staff. The Staff are given an assignment and must do it in accordance with the requirements of the leader. The reward is in the form of money or any award for compliance or effort. The punishment for not complying could be dismissal, loss of bonuses, et cetera. The Transactional Leader makes it clear at the onset what is expected of the staff, what results are to be achieved, what orders are to be followed, when the task is to be completed. The results will determine whether the employee is rewarded or punished. This style is for people who lack ambition, who are happy with the wages they receive. People who like to be led, the type of people that come to work, do what they are expected to do, and then go home. I would not place Jim Steiner in this category. From what is written, if he was this type of Leader he would have followed corporate managements request and gotten rid of the existing management team, no questions asked. However, his thoughts of the situation was different as he did not believe that was the answer to the company’s problem, instead he took it upon himself to change their ways...
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...1. In a general sense, what kinds of decisions are made in baseball? Would you characterize these decisions as structured or unstructured problems? Explain. What type(s) of decision-making condition would you consider this to be? Explain. The answer to this question lies in which aspect of baseball you are referring. When it comes to actually playing the game and the decision involved, the problems are structured. For example, if a pop fly is hit to left field and there is a player on 1st, where is the ball thrown? On the other hand, recruiting high profile players, building a new stadium, and trying to secure television contracts would be considered unstructured because the factors involved may be novel and untried. 2. Is it appropriate for baseball managers to use only quantitative, objective criteria in evaluating their players? What do you think? Why? Students should see that qualitative criteria are also important because baseball is a sport that involves life-long fans and grudges. Many of the decisions involved in baseball are based fan loyalty and a team’s potential to sell tickets. Not all of these decisions involve objective measures. 3. Do some research on Sabermetrics. What is it? What does it have to do with decision making? Sabermetrics is a quantification decision making aid. By telling decision makers what to pay attention to and by providing weights for those criteria, it is easier to predict winners and losers. ...
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...from a manual entry, which could be modified very easily and apart from that, while being at work employees would keep on taking short breaks in every hour or two from their production time which leads to decrease in the overall output at the end of the day. The “entry In-Out” system helped the administration to check and verify the employees production hours, whether it met the requirements or not, and also helped in keeping a concurrent data for the future reference, keeping in mind that this would lead to increase in overall production hours of the employees, help in justifying the employee’s appraisal and also increase the overall output for the business. Simon (1957) introduced the term “Bounded Rationality” to express the idea that, as humans, our...
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...CHUKWUDI UCHE UZOEGBU PROF. UNIVERSITY OF NEWCASTLE, SYDNEY MANAGEMENT UNDER UNCERTAINTY OCTOBER 4TH, 2014 ASSESSMENT ONE Review a decision you have observed in the workplace. If you have limited workplace experience, you may focus on a decision you have observed in another situation. You should only have observed this decision making situation; you should not have participated in it. SUMMARY OF OBSERVATION To run a successful business in this age depends largely on the IT infrastructure the business functions with. To improve efficiency and reduce operational cost for organisations, IT systems (software and hardware) have to be put in place, in cases where these systems exist already, a continuous upgrade of existing systems are required for optimal functionality. Implementing operational changes in an organization suffers setbacks, if the organisation does not plan and strategize on how to carry out changes. As technology evolves, the upgrading of existing technology is a challenge affecting most organizations today. The upgrade from an older operational software to a newer version aims to improve ease of usage, fix glitches observed in the old software, improve performance and cut down on operational down time. The decision made in this case was to upgrade to newer server software for the IT system that catered for the organization’s operations. The COO who is in charge of making operational decisions in the organization made the decision without consulting senior managers...
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...birth to the Transaction Costs Theory (TCT)1. This meant a big step, which evolved the theory of the firm, from its obsolete neoclassical toots and assumptions -of a perfect competitive market and a perfect rationality-, by adding the issues of bounded rationality and opportunism to Coases work2. Williamson opened the path to new ways of conceiving and complementing the theory of the firm in general, and the transactions costs theory in particular. By enabling to the economic theory the enhancing and the building of new connections between cognitive psychology and economics. Connections that have allowed, among other things, the development of a larger view in the roll of the firm, no only as an avoider of costs, but also as a creator of knowledge. All in better accordance with the modern firms logic of making business. In order to understand the transaction costs theory, one has to comprehend that the competitive market structure, is only a reference to be taken into account, when one analyses the observed structure of markets, which are called “imperfect competitive”, For the market is not given under a homogenous form to all economic agents, but is continuously changing under agents decisions and behaviours 3 . Further more the neoclassical perfect rationality, which is an essential assumption for the competitive market structure, doesn’t takes into account the problems of processing the uncertainty due to the imperfect information, the limits to the human capacity...
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...Organizations as Rational Systems Prepared by Anna Lin, 9041816 This paper introduces Rational System Perspectives in relations to four promin ent schools of organization theory; which are Taylor’s scientific management, Fayol’s general principles of management, Weber’s theory of bureaucracy and Simon’s discussion on administrative behavior. Rational System Perspectives There are two key elements characterizing rational systems: 1) Goal Specificity Specific goals support rational behavior in organizations by providing guideli nes on structural design, which leads to specify what tasks are to be performe d and how resources are to be allocated. 2) Formalization Formalization is an attempt to make behavior more predictable by standardizing and regulating. Formalization provides stable expectation, which is a precond ition to rationality. Selected schools The author related rational system perspectives to four schools of organizatio nal theories. Taylor’s Scientific Management (1911) Taylor Scientifically analyzed tasks performed by individual workers and disco vered the best procedure that would produce the maximum output with the minimu m input of resources. His attempts (to rationalize labor at level of the indiv idual worker )led to changes in the entire structure of work arrangement. Ther efore, efficiency improved. His four principles includes: 1) Develop a science for each element of an individual’s work. 2) Scientifically select and train...
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...Chapter 2 Making Decisions In this chapter, students will explore the importance of decision-making to managers and learn how to make effective decisions. |LEARNING OBJECTIVES | | 1. Describe the eight steps in the decision-making process. 2. Explain the four ways managers make change. 3. Classify decisions and decision-making conditions. 4. Describe different decision-making styles and discuss how biases affect decision making. 5. Identify effective decision-making techniques. |It’s Your Career | | Be a Better Decision Maker Decisions are an essential part of your life, personally and professionally. Each and every day is a series of decisions, from minor to significant, and everything in between. Good decision-making is a skill, and like any skill, it can be learned and improved. So, how can you improve your decision-making skills? The chapter outlines four things students need to know; each numbered item will be described further in the chapter: 1. Know, understand, and use the decision-making process. Yes, there is a “method” to making decisions that takes you from identifying problems to evaluating the effectiveness of your decision. It works. Know it. Understand it. Use it. 2. Know when and how to use rational or intuitive decision-making...
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...Chapter 2 Making Decisions In this chapter, students will explore the importance of decision-making to managers and learn how to make effective decisions. |LEARNING OBJECTIVES | | 1. Describe the eight steps in the decision-making process. 2. Explain the four ways managers make change. 3. Classify decisions and decision-making conditions. 4. Describe different decision-making styles and discuss how biases affect decision making. 5. Identify effective decision-making techniques. |It’s Your Career | | Be a Better Decision Maker Decisions are an essential part of your life, personally and professionally. Each and every day is a series of decisions, from minor to significant, and everything in between. Good decision-making is a skill, and like any skill, it can be learned and improved. So, how can you improve your decision-making skills? The chapter outlines four things students need to know; each numbered item will be described further in the chapter: 1. Know, understand, and use the decision-making process. Yes, there is a “method” to making decisions that takes you from identifying problems to evaluating the effectiveness of your decision. It works. Know it. Understand it. Use it. 2. Know when and how to use rational or intuitive decision-making or both. Different...
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...the real word problem doesn’t come with neon flash, we have to identify them, what you consider it as problem might not be a problem for other manager. 2- Identifying Decision Criteria: when manager identify a problem, he must identify the decision criteria which is very important to resolving the problem, every decision maker has criteria that can guide him to the decision. 3- Allocating weights to the criteria (give points): the decision maker must weigh the items and give them the correct priority in the decision; we give the most important criteria the highest weight and so on. 4- Developing Alternatives: decision maker must list the alternatives that could work to solve the problem; in this step decision maker must be creative. 5- Analyzing Alternatives: when alternatives identified, a decision maker must evaluate each one. 6- Selecting an alternative: is choosing the best alternative. 7- Implementing the Alternative: put the decision into action by communicating with others 8- Evaluating Decision Effectiveness: evaluating the results of the decision to see if the problem was resolved. Managers making decision: The decision making is the essence of management it’s a part of the four managerial functions, it’s particularly important for managers who plan, organize, lead and control so they called decision makers. * Making decision Rationality : its making decision rationally , but in many cases, manager cannot decide with...
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...no one has access to information that is not already available to everyone else. One important characteristic of the EMH is its assumption that agents are rational. Rational agents is agents which has a clear preferences, models uncertainty via expected values, and always chooses to perform the action that results in the optimal outcome from all the feasible actions. Their actions depend on their preferences, their information of the current situation; which may come from past experiences, the actions, duties and obligations available and the estimated or actual benefits that the agents can get after the actions. In reality, however, agents are not always rational; people’s decision does not always correspond to the concept of economic rationality. Most people, in fact, make their decision rather intuitively. This leads to an interesting new study of behavioural finance, a study that linked psychology with finance. It provides explanations to well-known market anomalies such as: the small firms outperform; in which the case...
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