Topic: Contrast Rational Decision Making with Intuitive Decision Making

ASSIGNMENT #3

Resource PersonMR. SHOAIL AKRAM

Submitted By: Mohammad Nawaz

ID# 100645002

Program: M.COM

BUSINESS ANALYSIS

University Of Management & Technology

Rational Decision-Making

Managers make consistent, value-maximizing choices with specified constraints. To maximize a particular outcome, try the “rational decision making model”…Rational decision making involves the following steps,

Define the problem. Identify the decision criteria. Allocate weights to the criteria. Develop the alternatives. Evaluate the alternatives. Select the best alternative.

 

Assumptions of the Rational Decision-Making

 i. Problem Clarity

    The problem is clear and unambiguous.

ii. Known Options

    The decision-maker can identify all relevant criteria and viable alternatives.

iii. Clear Preferences

    Rationality assumes that the criteria and alternatives can be ranked and weighted.

iv. Constant Preferences-

    Specific decision criteria are constant and that the weights assigned to them are stable over time.

v. No Time or Cost Constraints

    Full information is available because there are no time or cost constraints.

vi. Maximum Payoff

The choice alternative will yield the highest perceived value.

BOUNDED RATIONALITY

Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

Individuals make decisions rationally, but are limited (bounded) by their ability to process information.

Assumptions:

Decision makers will not seek out or have knowledge of all alternatives

Decision makers will satisfies to choose the first alternative encountered that satisfactorily solves the problem rather than maximize the outcome of their decision by considering all alternatives and choosing the best.

INFLUENCE ON DECISION MAKING

Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.

INTUITIVE DECISION MAKING:-

Making decisions on the basis of experience, feelings, and accumulated judgment. Or An unconscious process created out of distilled experience. 

Intuition is often used when there is a high level of uncertainty, there is little precedent to go on, when the variable in question are less predictable, when “facts” are limited, these facts don’t lead you in one particular direction, data is of little use, when there are several plausible choices, and there is time pressure

Problem Identification

Problems that are visible tend to have a higher probability of being selected than ones that are important.  Why?

It is easier to recognize visible problems. Decision-Makers want to appear competent and “on-top of problems.” Decision-Makers self-interest affects problem selection because it is usually in the Decision

Maker’s best interest to address problems of high visibility and high payoff.  This demonstrates an ability to perceive and attack problems.

Alternative Development

Decision makers rarely seek optimum solutions but satisfying or “good enough” ones. Efforts made are simple and confined to the familiar. Efforts are incremental rather than comprehensive.

Many successive limited comparisons rather than calculating value for each alternative.

This approach makes it unnecessary for the decision maker to thoroughly examine an alternative and its consequences.

Thus the decision makers steps are small and limited to comparisons of the current or familiar options.