MGMT 2400 Lecture Notes - Lecture 5: Bounded Rationality, Satisficing, Confirmation Bias
24 Jul 2019
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Document Summary
How should decisions be made: decision: the choice made from two or more alternatives, rational: choices that are consistent and value-maximizing within specified constraints. Describes how individuals should behave in order to maximize some outcome. The problem is clear and unambiguous: known options. The decision maker is able to identify all relevant options in an unbiased manner: chooses the option with the highest utility, bounded rationality. Limitations on one"s ability to interpret, process, and act on information: satisficing. The first acceptable option rather than the optimal one: intuition. A non-conscious process created from distilled experience that results in quick decisions: relies on holistic associations, affectively charged engaging the emotions. Believing too much in our own ability to make good decisions: anchoring bias. Using early, first received information as the basis for making subsequent judgments: confirmation bias. Selecting and using only facts that support our decision: availability bias. Emphasizing information that is most readily at hand: recent, vivid, escalation of commitment.
