MGMT 3000 Chapter Notes - Chapter 8: Bounded Rationality, Satisficing, Risk-Seeking

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Chapter 8
- decision making: the process of identifying issues and making choices from
alternative courses of action
Rational Decision Making
Theory of rational choice: theory that individuals make decisions
based on a rational thought process that optimizes self interest
o Contradicted by Simon Sinek’s “Start with Why” theory?
Expected utility: when confronted with a choice, people try to make
the best possible decision; one that maximizes their expected utility
How Managers Make Decisions
Factors that influence decisions: misleading information, limited
ability to process information, limited time, conflicting preferences
Bounded rationality: a set of boundaries or constraints that tend to
complicate the rational decision-making process
o By bounding what they need to consider, attempt to
accelerate the process
Satisficing: the act of choosing a solution that is good enough
Conditions of certainty: individuals have all of the information they
need to make the best possible decision (rare)
Ambiguity: situations that are characterized by uncertainty and risk
& where the optimal decisions is not clear or obvious (more likely)
o Conditions of risk: individuals have information about an
objectives, priorities, and potential action courses, but not all
info about possible outcomes for each course of action
o Conditions of uncertainty: have info related to the objectives
and priorities, but do not have complete info about alternative
courses of action or about possible outcomes
Intuitive decision making: insights that are tapped through intuition
and are not always fully understood by the decision maker they just
feel right, subconscious activity drawn from past experiences, used
when there are time constraints
o “Thin-slicing” and snap judgments; common in moral
judgment
o Can be problematic if base on past situations that were very
different contexts
How Biases Impact Decision Making
Heuristics: rules of thumb, short cuts or quick judgments that
individuals use to save time when making complex decisions
o Based on our recall of information, assessment of its
importance, and evaluation of perceived choices
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