1APPLICATION OF DEC ISION MAKING Introduction The cognitive process that results in selection of series of action or beliefs amongst the other available possibilities is known as decision making. It is done based on preferences, beliefs and values of an individual that vary accordingly from person to person. There is a final choice always associated with every decision making. It can again change accordingly if needed depending on the person (Gigerenzer, 2015.) Generally, there are seven steps associated with decision making, which is first identifying the topic where decision is to be made, gather the relevant information associated with it, identify all the available alternatives, weighing all the evidences, choosing any a suitable option among the alternatives, taking the required action and last but not the least reviewing the decision and all the consequences (Friedrich, 2017.) This paper aims to study the application of decision making and the rational behavior of an individual associated with taking up a decision. Discussion Furthermore, as per (Beach & Liphitz) there is a theory associated with decision making. The study of choices made by an agent or individual is termed as Decision Theory. Technically, the theory of decisions can be divided into other two branches. One is the normative decision theory while the other is descriptive decision theory. On one hand, the normative decision theory deals with analyzing the outcomes of already taken decisions or determining optimal decisions that give assumptions or constraint. The practical aspect and application of such perspective approach aims towards finding methodologies, software for supporting system of decisions and tools for helping out people in making better decisions. Whereas on the other hand, the descriptive decision theory deals with analyzing how an agent or individual actually makes
2APPLICATION OF DEC ISION MAKING decisions that they take. It is a very positive approach that more concerns about describing the observed behaviors that is often taken under assumption that individuals are behaving in a way for making decisions under any consistent rules (Birkland, 2015.) According to (Zsolnai, 2017) over past decades, the scholars in field of interdisciplinary course of decision making and judgment have gathered trove of theories, prescriptions and findings regarding all the processes enacted by ordinary people when they make choices or decisions. The quote of Simon says, “The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world or even for a reasonable approximation to such objective rationality.” A statement with such a tone is beyond any doubt speaks about a concept that rationality is firmly bounded associated with the concept of Simon whenever decision making is a concern. Without a ration choice, an administrative theory or organization cannot exist. The behavior of human beings is any organization is described best as “intendedly rational”. This merits the description of human behavior more vividly than any other section. Theory of rational choice can be concluded that it hardly will exist without any theory of organization. A man and his characteristic environment is not only constituted with nature but also with his fellows (Frantz & Marsh, 2016.) It can be said that when decision making is concerned, the person must act as an executive staff of any concerned business. Incorporating considerations that are organizational into any theory of a rational choice is a task that needs to get completed. There are three discrete concepts of decision making that helps to understand the theories associated with it and how that helps an individual in decision making. The principle of bounded rationality includes all the required concepts needed while making optimized decisions. Although this is not practically
3APPLICATION OF DEC ISION MAKING possible as there is limitation on availability of the information that is required to take decision. The limitation of device for making any sense of making decision comes in between. This is known as theory of bounded rationality, which was proposed by Hebert Simon, a Nobel Laureate. This observation and its implication on the system of economy happen to be quite substantial. This theory questions truthfulness of the above theory and how it is efficient in the hypothesis of market when especially there is a fact given that the participants of the market are at their best whenever there is rationality within limited bounds of information and availability of a limited model for making the information sensible. A model was built for analyzing the economy using the agents who are bounded rationally. The observation described how the rational individual or agents get amplified about cooperating with the price bubble amongst the other rational individual or agents (Slovic, Kunreuther & White, 2016.) Later on, a successful concept was applied from where the concept of a bounded rationality came out for investigating the behavioral stream of proposed ubiquitous and stream of mining procedures and models of self-adaptation. It is also noted that the theory of bounded rationality puts limitations on the applicability of rationality theory. Decision making rationally has certain considerations that must be brought into notice. All the data associated with making decisions never finishes and gets subjected to errors of measurement (Shaban, 2015.) Thus, they mostly remain incomplete and imperfect. The second discrete is about rational components in role behavior. As per (McCabe, Li & Chen, 2016) It refers to a concept that the process of decision making is dependent on choices made by the individuals or agents, which further results in benefit on an optimal level of utility for the individual. There is an assumption about the rational behavior, which implies on the concept that people prefer to be rather off than to make it worse off. Many of the conventional
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4APPLICATION OF DEC ISION MAKING theory of economy are based on this assumption that the agents or individuals take part into activity or action tends to behave rationally. More than a single behavior in any given situation, the concept of decision making is deemed to be rational, as long it can be explained logically. Additionally, the rational behavior might not have any involvement in receiving material benefit or most monetary benefit because there is a level of satisfaction that is received purely non- monetarily or emotionally. The concept of rational behavior also happens to be a key assumption of the RCT or Rational Choice theory. It is basically a principal of economy which assumes that agents or individuals tend make logical and prudent decisions which has a chance to provide them the highest number of utility on a personal level. These skills of decision making give people the satisfaction or greatest benefit with the choices that are already available to the and also they are choices associated with their highest amount of self-interest. Most of the academic theory of economy and decision making are based on this theory (Halpem & Stern, 2018.) Several areas of economic and financial study gets built on an underlying examination about rational behavior that includes theory of rational choice, behavioral economics and behavioral finance. The third discrete on decision making is the rationality and maximization. As per (Gershman, Horvitz & Tenenbaum, 2015) the rationality and its concept provide a link amongst the function of production and objective of maximizing profit. It specifies the relationship amongst outputs and inputs when the prices are attached. Some of the concepts of rationality enable calculation of the determinative solutions towards problems of choices whenever there is a function of production and prediction of the actual behavior of an individual or agent. The concepts of rationality tend to form basis of predictions and prescriptions for the actual behavior. Rationality is always consistent with the capacity of human brain. Transitivity and consistency
5APPLICATION OF DEC ISION MAKING happen to be frequent mentioned attributes for rationality. Ranking of both the alternatives shall be consistent always regarding of other available choices. The consistency across those choices does not assure any consistency along with the objectives. People with their clear demarcated choices are often consistent and the choices also become transitive. Though, there are some cases in laboratory and the field where conditions like these are violated. Additive calculations are demonstrated human skills but the range varies. Hebert Simon has described human beings as “procedurally rational” limited towards whatever can be processed and known (Schiliro, 2018.) They do not want any contradictions in their preferences but again many of them do it too for the given limited capability required to handle the information even when they are available. Conclusion However, it is concluded from the above discussion that decision making is a process of making choices suitable with the present situation. For doing that, there are discrete categories of concepts and theories that describe the above quote by Simon justifiably. There are economic forces of wide range that have cooperated together for producing a steady increase into the ratio of population both in rural and urban age. Decision making is a process that every individual or agent has to make at many points in their life. It has been reached to a conclusion that the confirmed existing theories of economy are linked with the concepts of decision making in a way that has an impact on individual.
6APPLICATION OF DEC ISION MAKING References Beach, L. R., & Lipshitz, R. (2017). Why classical decision theory is an inappropriate standard for evaluating and aiding most human decision making.Decision making in aviation,85, 835-847. Birkland, T. A. (2015).An introduction to the policy process: Theories, concepts, and models of public policy making. Routledge. Frantz, R., & Marsh, L. (Eds.). (2016).Minds, models and milieux: Commemorating the centennial of the birth of Herbert Simon. Springer. Friedrich, C. (2017).Rational decision. Routledge. Gershman, S. J., Horvitz, E. J., & Tenenbaum, J. B. (2015). Computational rationality: A converging paradigm for intelligence in brains, minds, and machines.Science,349(6245), 273-278. Gigerenzer, G. (2015).Simply rational: Decision making in the real world. Evolution and Cognition. Halpern, J. J., & Stern, R. C. (Eds.). (2018).Debating rationality: Nonrational aspects of organizational decision making. Cornell University Press. McCabe, S., Li, C., & Chen, Z. (2016). Time for a radical reappraisal of tourist decision making? Toward a new conceptual model.Journal of Travel Research,55(1), 3-15. Schilirò, D. (2018). Economic Decisions and Simon’s Notion of Bounded Rationality.International Business Research,11(7), 64-75.
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7APPLICATION OF DEC ISION MAKING Shaban, R. (2015). Theories of clinical judgment and decision-making: A review of the theoretical literature.Australasian Journal of Paramedicine,3(1). Slovic, P., Kunreuther, H., & White, G. (2016). Decision processes, rationality and adjustment to natural hazards. InThe perception of risk(pp. 39-69). Routledge. Zsolnai, L. (2017).Responsible decision making. Routledge.
8APPLICATION OF DEC ISION MAKING Appendix Figure 1: Process of Decision making Figure 2: Decision making and bounded rationality
9APPLICATION OF DEC ISION MAKING Figure 3: Rational Choice Theory Figure 4: Rationality and Maximization