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Management (Bounded rationality) - Essay Example

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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…
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Management (Bounded rationality)

Download file to see previous pages... 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
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.
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. ...
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 ...Download file to see next pagesRead More
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