COMMERCE 1BA3 Lecture Notes - Lecture 8: Bounded Rationality, Satisficing, Irreversible Process

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2 Aug 2016
Individual Decision Making
The process of developing a commitment to some course of action -Escalation of Commitment (theory)
Humans increase their commitment to a decision the more they put in time, money, and ego
Bridges to ethical and unethical decisions
A form of problem-solving
Rational Decision Making Process
Identify problem - which uni to do undergrad; look at every single uni
Search for relevant info
Develop alternative solutions to the problem
Evaluate alternative solutions
Choose best solution
Implement chosen solution
Monitor and evaluate chosen solution
Ill-structure problem vs well-structured
Perfect Vs Bounded Rationality
Perfect: completely informed, perfectly logical, and oriented towards economic gain
-Economic Person who is a perfect, cool, calculating, decision-maker
Not used bc:
1. A fully rational brain is ideal; everything is assessed but we don't do that
2. Suggests that decisions are made based on careful, calculated understating of
3. Describes how decisions should be /above the water line: code of ethics but not always
4. Just prescriptive; a guideline
****Bounded: relies on limited info and that reflects time constraints and political considerations
9 reasons why bounded/ or not perfectly rational/why our brains don't make rational decisions:
Framing: how a problem is framed or worded can lead us to certain conclusions/decisions; we
fall for them; ex: referendum in politics; gain/lose language
Cognitive biases: we fall for these; heuristics = judgement shortcut; ***ex: availability bias
(when we use past events and the associated decisions depending upon how available they are in
our memory); representativeness bias (when we make a decision which is representative of a
stereotype or belief) - remember examples (pg 368)
Problems with how to identify problems: (pg389) our brains screw up when we try to identify
the real problem; we suffer defend against mechanism (often distorted bc bring in things that
matches and take out those that don't); *read it in the textbook; jumping to solutions/conclusions
bc of our background in our technical area expertise: if focused on accounting/marketing, would
focus on sales/advertising bc clouded with way of thinking: fixates on the problem as a marketing
prob; attention to symptoms rather than problems/ digging deeper: morale problem, bc of poor
pay vs job design doesn't match it
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