The Bounded Rationality - Assignment Example

Define the bounded rationality. How could the bounded rationality affect the manager decision Bounded rationality can be understood in three different contexts. Scholars have various definitions about it in attempts to elucidate the core meaning. Simon (1955) expressed the idea that bounded rationality is the capacity of people to process limited information. Later on Simon (1979) elaborated his definition adding the term "heuristics" referring to people's efforts to economize cognitive knowledge by relying on short-cuts. Those two factors that define bounded rationality lead to the third one which involved emotions as influential category both on cognition and judgment. Emotions act on a wide range of situations causing biases and errors (Rabin 1998). In short this means that in certain circumstances the complex, human logical apparatus ceases to process rationality, which establishes grounds for the emergence of bounded rationality. "The other is that in interactive situations of complication, agents cannot rely upon other agents they are dealing with to behave under perfect rationality, and so they are forced to guess their behavior. This lands them in a world of subjective beliefs, and subjective beliefs about subjective beliefs (Arthur 402)." Bounded rationality plays on suggestion. Bounded rationality could affect managers, because there is not enough information for the manager to make the rational decision. In such occasions, he has to rely on suggestive guesses and interpretations. This may create errors and mistakes in the strategic course that the organization is taking. Do you think that implicit favorite could affect the selection Beach (1996) describes the implicit favorite model of decision making. First, the need for taking a decision is determined. Then, alternatives are identified and a selection for the implicit favorite alternative is chosen. Afterwards, criteria must be established to match the implicit favorite and alternatives a compared with the implicit favorite criteria. At the end the implicit favorite is confirmed and finally selected. This type of model can be best utilized by people who know what they strive for and what their goals are. In situations, when for example the individual is looking for a job and he hasn't set his aims yet, the implicit favorite can affect the selection of a job. The selection can be influenced by the salary, proximity of the office, extra working hours, business trips and job position. How could you utilize the intuition in making your decision And when The business world is a dynamic one and recently is has become less structured too. Thus, managers are forced to use their intuition in essential situations especially when there is lack of information. Intuition is often mistaken for emotions, though. Although intuition is formed in subconscious level, the intuitive decision making is a combination of quick qualitative and quantitative analyses (Quinn 1980). Intuition can help decision making, because it is based on past experiences and knowledge deeply rooted in your subconscious rational thinking. Thus, relying on our intuition can aid us in situations when there is little information available. Intuition can be used in situations when the circumstances are rapidly changing and there is no time for analyses. Intuition is needed also in expedient decision making when the problem is poorly defined and structured. If the deal is not structured, incomplete, there are conflicting points or ambiguity, intuition is required. Perceptual blinder is one of four reasons that increase the escalation of commitment, list the other three and elaborate on the Perceptual blinder We can define escalation of commitment as the tendency to invest additional financial resources in seemingly losing non beneficial projects, because they cost already lots of efforts, money and time. The perceptual blinder can influence the escalation of commitment on the bases of emotions - fears or anger. Staw and Ross (1987) summarized several reasons for the formation of escalation of commitment. Often managers are influenced by partial reinforcement and experience difficulty in processing the information conveyed. Moreover, they can also distort information through internal, perceptual defense mechanisms. "Organizational factors, such as the need for external justification and self-presentation, reinforce this tendency to stay with an unfavorable course of action (Staw 1981)." In many occasions the manager's behavior can be irrational for the company, but quite rational for the manager who wants to prevent bad results in the long-term company records. Internal defense mechanisms can literally blind the manager in reaching an adequate and rational decision. The perceptual blinder can lead to escalation of commitment under the influence of momentary emotions or personal problems that affect the decision making process. What does the risk of conflict means Give an example for both types of conflict Risk of conflict means evaluating the degree to which a final decision can create possible complications and eventually lead to a conflict of ideas. One type of conflict is the interest conflict. In a business environment, they are caused by competition over incompatible viewpoints or needs. Conflicts of interest often result when the different parties involved consider that in order to satisfy the prevailing needs to the teams the opponents' interests should be sacrificed. Such types of interest based disagreement can be best expressed in positional terms. A number of interests and intentions form and motivate the different potions in negotiations in the interest conflict. They all must be addressed in order to maximize the final resolution. Interest based conflicts can start over substantive issues - such as times, resources, financial and physical, money. There are also procedural issues - the way the dispute is managed and directed. And last, but not least, there are psychological issues like respect, fairness, desire for participation and willingness to reach a decision, mutual trust (Effective Mediation Resources n.d.). In order for an interest conflict to be solved, parties must be helped out in defining their conflict areas and express their individual ideas and interests. These interests might be linked in an invisible way, in which the mediator can find the resolution. Interest based conflict is best handled when the parties' respective interests are integrated and maximized implementing positive intentions. Thus, the desired outcomes can be achievable. Another type of conflict is value conflict. They are caused by actual or recognized incompatible value system. Values are common beliefs that people utilized to shape their identity, personality, character and to find meaning in their culture and life. Value system explains what are the moral norms - right and wrong, what is good and bad, or just and unjust. Although, different values should not create conflicts, there are circumstances in which value conflicts are initiated. Value debates form when people from different value systems try to force their set of values on others, and claim that theirs are the right ones to observe and follow. People with such value system does not allow for others to have different beliefs than their own. It is meaningless to try and change such value systems. Generally, long strategic interventions are required to do so. The mediator in such value conflicts can support both parties' expression and acknowledge no "right" side. Regardless of the different value systems, people can live together harmoniously, despite their distinctions in values. What are the most advantages of the Heterogeneous teams Heterogeneous teams are those in which participants have diverse values, orientations and different cultural background. In comparison homogenous teams can be characterized with similar attributes and beliefs, which is a prerequisite for greater cohesion, productivity and goal achievements. Although in heterogeneous teams agreement might be challenging and it will require reconciling various opinions, one of the advantages is that it leads to more innovative solutions. Another advantage is that greater creativity can be accomplished and strategic research and planning applied in a better way. Heterogeneous teams can bring fresher and workable ideas, due to the internal diversity. Another advantage of heterogeneous team is that its members have different skills and different areas of expertise. Those competences can be applied in gaining better market positions and appealing and lucrative representation in the mass media. Discuss the social loafing inside the team. How could the organization minimize it Social loafing can be defined as the tendency for people to fail on simple tasks and to show outstanding results in complex tasks when they are surrounded by others. This phenomenon can be explained by cultural and social circumstanced. Individualistic societies like American one have less social loafing than collective ones - for example China. When working in a group, participants are prone to invest less effort in the task than if they work on it individually. Max Ringelmann (cited in Kravitz and Martin 1986) made a research in 1913 finding out that when asked to pull a rope, the group of men pulled it less harder, than pulling it alone. The idea behind is that while an individual is working as part of a group he can hide his laziness, because everyone is working together. Thus, no one can evaluate his contribution. In order to minimize social loafing in a group or even avoid it, the team leader has to make sure that everybody is assigned individual tasks by which the employee can be evaluated. What are the characteristics of the SDWT Team work has increasing become the most desired skill when applying for a job. Good teamwork provides the opportunity to maximize the employees' potential through empowering teamwork. Self-directed work team (SDWT) is a strategy of obtaining a diverse group of employees, with different personalities, skills, attitudes, beliefs so as to work together towards a realizing the company goal. There are several characteristics in a self-directed work team. Such team makes the majority of the decisions on a daily bases, for examples rotating job positions or tasks, assigning work, prioritizing goals or scheduling deadlines, work hours, breaks, leaves or vacations. Self-directed work team organizes its goals in accordance with the company's goals. Moreover, such self-directed work team creates its own performance criteria and evaluates the results according to them. Such team conducts internal audits and inspections and determines the necessity of further training. In addition, the team identifies and applies improvements in the work process and facilitates the procedures in day to day decision making. Self-directed work team creates makes the decision about major purchases of stationary materials related to the work processes and maintains its own work space and responsibility of the achieved results. In the self-directed work team constant feedback is provided to all its members about their tasks, performance and project progress. If necessary, new members can be recruited to the self-directed team and all the selection and interviewing is done by the team. Reference: Arthur, W.Brian "Inductive Reasoning and Bounded Rationality". American Economic Review. (n.d.). 84(2): 406-411. Beach, L.R. "Decision making in the workplace: a unified perspective". Lawrence Erlbaum Associated, Inc.,1996. Kravitz, D.A., & Martin, B. "Ringelmann rediscovered: The original article". Journal of Personality and Social Psychology.50(5),1986. 936-941. Quinn, J.B. Strategies for change: Logical incrementalism. Homewood,IL:Irwin.1980 Rabin, M. "Psychology and Economics", Journal of Economic Literature 36, 1998. 11-46. Simon, H.A. "A Behavioral Model of Rational Choice", Quarterly Journal of Economics 69, 1955. 99-118. Simon, H. A. "Rational Decision Making in Business Organizations", American Economic Review 69, 1979. 493-513. Staw, Barry M. "The escalation of commitment to a course of action," Academy of Management Review, 6 (October).1981. 577-587. Staw, Barry M. and Jerry Ross. "Knowing when to pull the plug," Harvard Business Review, 65 (March- April). 1987. 68-74. Effective Mediation Resources, Oregon Mediation Center, Inc.2009. web. 22 Dec.2009 Read More