BOUNDED RATIONALITY IN DECISION MAKING | Top B-schools in Bangalore for MBA

Posted by Kavya J On 13/12/2021 09:32:09

Bounded rationality is a human decision-making process in which we attempt to satisfy, rather than optimize. In other words, we seek a decision that will be good enough, rather than the best possible decision.

The theory that suggests a modification of pure rationality is known as bounded rationality. This concept revolves around a recognition that human knowledge and capabilities are limited and imperfect. Three specific limitations are generally enumerated:

  • Decision-makers do not have access to all possible information relevant to the decision, and the information they do have is often flawed and imperfect.
  • Decision-makers have limited analytical and computational abilities. They are not capable of judging their information and alternatives perfectly. They will inevitably make misjudgments in the evaluation process.
  • Decision-makers do not have unlimited time to make decisions. Real-life situations provide time constraints in which decisions must be made.

In light of these limitations, the theory of bounded rationality suggests that decision-makers must be willing to adapt their rational approach. For example, they must determine how much information is reasonable to pursue during the information-gathering stage; they cannot reasonably expect to gather and analyze all possible information.  Top B-schools in Bangalore for MBA

Similarly, decision-makers must content themselves with a consideration of only a certain number of alternative solutions to the decision.

Also, decision-makers being far from perfect in their abilities to evaluate potential solutions must inevitably affect their approach. They must be aware of the possibility that their analysis is wrong and be willing to accept evidence to this effect. This especially includes situations in which they’re relying on predictions of an uncertain future. Uncertainty and inaccuracy often arise in efforts to predict the future. For example, your career decision is fraught with uncertainty as you don’t know if you will like the work or the work environment. What are decision-makers to do when they are uncertain about potential results from their actions? This makes a strictly rational approach difficult and less reliable.

To conclude, the decision-making capacity of the individuals will be based on bounded rationality which will give the best results with success for the individual in both personal life and career life.

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