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Managerial Economics - Essay Example

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Rationality denotes a particular behaviour within an individual that is particularly needed for achieving a goal despite the presence of conditions and binding constraints (Hatchuel, 2001). However, the theories of rationality may be normative or it can be descriptive depending…
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Managerial Economics
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Download file to see previous pages Rationality is considered as an important aspect of the behavioural theory (Simon, 2001). There is a distance between the behaviour and rationality and they are connected by the concept of decision making. A decision making process is common in an organization where the managers have to take various decisions in order to achieve the mission of the organization (Ethiraj and Levinthal, 2004). The aim for this paper is to evaluate the effectiveness of bounded rationality and the critical analysis of how the heuristics creates biasness towards decision making. The research would offer a scope to have a detailed analysis of bounded rationality as explained by Herbert Simon.
According Herbert Simon (1961), rationality in behavioural characteristics of a person considers a relation of efficacy between the presumed end and the means to reach them (Kahneman, 2003). According to the researcher, the human beings lack in their rational behaviour due to the different aspects that is the rationality requires knowledge as well as understanding of the situation. However, the decision makers cannot be always called as rational because since they are likely to take decisions based on the available data and are unable to incorporate new information within their decision making process. According to the researcher, the organization must have a clear organizational goal so that the employees can work hard in order to achieve the goal (Simon, 2001). The organizations would have benefits for developing the organizational goals that helps in the organizational decision making process. It is said when the organizational members experience bounded rationality, managing the situations becomes much more difficult and the organizations are supposed to use both formal and informal control mechanisms in order to make the employees perform rationally (Simon, 2001).
A theory of rational behaviour involves both the rationality of the individual as well ...Download file to see next pagesRead More
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