Master of Business Administration: Decision Making Process and Heuristics

This report explains the decision making scenario of the organization, applicability of the three concepts and answer of the four questions given in the case. It should be noted that from the above mentioned essay, it was analyzed that the human mind is not capable to make effective decisions alone due to presence of limitation in the mind.

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Contents
Part 1: Essay................................................................................................................................................1
Part 2: Case Study Report............................................................................................................................6
Introduction.............................................................................................................................................6
Decision making scenario........................................................................................................................6
Availability...........................................................................................................................................7
Representativeness.............................................................................................................................8
Bounded Rationality............................................................................................................................9
Conclusion...............................................................................................................................................9
References.................................................................................................................................................10
Appendices................................................................................................................................................13

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Part 1: Essay
The purpose of this essay is to provide a brief introduction about the application of decision
making process initiated by the human mind in order to solve complex situations present in real
world. The essay explains the quote given by Herbert A. Simon for the decision making process
of an administrative leader in the environment. Simon explained the concept about rationality in
terms of the heuristics; further the report also explains three discrete concepts that evaluate the
bias in decision making process that are bounded rationality, availability and representative. It
should be noted that the theory of organization cannot subsist without the rational choice of the
theory, which is best described as intendedly rational based on two types of economic man,
consumer and entrepreneur (Thompson, 2018).
Heuristics refers to the mental decision taken by the people present in the society with an aim to
solve the complex issues present with them. Talking about the quote, it should be noted that with
this quote Simon, aims to explains that the human minds holds very little capacity to solve the
complex problems by themselves. These complex issues are regarded as major issues for which
the human mind is incapable to successfully implement activities (Appendices 1). The solution
of these problems is required for the objectively rational behavior in real world. The aspect of
bounded rationality explains that how the judgment is being made by the person in the
environment, apart from evaluating the outcomes of the decision, it also evaluates the class of
environments in which the judgments might fail or succeed (Zsolnai, 2017). These decisions are
fast and do not depend on any aspect resulting to which, there might be a chance of error in this
type of decision making process. Whereas, on the other hand rational behavior refers to the
process of decision making that is dependent on various factors. Due to the presence of such
diversified aspects the human being initiated a decision that provides benefit to them in both
monetary as well as non-monetary terms. The benefits can be attained either in monetary terms
or through fulfillment of emotional needs whereas Simons under this case constantly attempt to
create a theory that involves human behavior and other several characteristics of heuristics
(Wittmer, 2016).
Availability heuristic is dependent upon the way to form a judgment for an issue. The decision
might be dependent upon the profitability margin of the company that might not provide accurate

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decision. For instance, people assume higher percentage in the cases of crimes that includes
violence irrespective of the actual account. This type of decision of people is based on the past
records, opinions etc. (Ajzen, 2015). The concept explained Simon stated that it is important for
people to think rationally in order to take decisions according to the satisfaction level of people
in the environment. He also explained in the theory that the capacity of the mind of an individual
in solving the problem with respect to the actual real-problem is really less (Appendices 2). The
people do not have enough capacity to look at all the available aspects analyze them and take the
right decision (Marshall, Ambrose, McIvor, & Lamming, 2015).
Source: (https://aspirantforum.com/2016/06/13/simons-concept-of-decision-making/)
Further, one of the types of heuristic is the representative heuristic that is also called as the
mental shortcut for decision making process by comparing the real information with the mental
prototype of a human being. For instance, if an elder woman gives love and care to the person in
the environment, then it is regarded as the love and care of their grandmother. Thus, it should be
noted that in the cases of Representative Heuristic, the person uses different dimensions and
categories to implement a judgment. According to Simon, this type of skill of implementing
decision is based on the rationale of a person and is limited to an individual if compared as a
relative problem (Cuesta, et. al., 2015). Further, bounded awareness rationality refers to the
economic behavior of a person towards the decision. The aspect of bounded awareness
rationality covers thee different views between rationality and behavior. It should be noted that

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under this case, the behavior process requires selection of a choice that results in occurrence of
various other alternatives of behaviors. Thus, the process of decision is initiated in the
environment by selecting one of the possible alternatives of behavior and working accordingly.
In this way a decision is initiated in the environment on the basis of bounded awareness
rationality. Simon also defined bounded rationality as the relation between the pre-established
ends and the ways to reach the expected ends (De Groot, Thogersen, & Schubert, 2016
. These expected ends have different specifications in terms of value due to which it is way
beyond the scope of a person to attain them. Further, it should be noted that, this type of relation
depends upon the question of facts, the evaluation of this question is based on three steps that
are, (i) point out the list of the all possible outcomes, (ii) identification of the outcomes that will
follow the alternative options listed out and lastly, (iii) measuring all the alternatives and
evaluating the outcomes for the each set of alternative options (Filippini, Hirl, & Masiero, 2016).
In the administrative Behavior, Simon gave important to the variance between the effective and
theoretical behavior with the assumption of global nationality that includes the recognition of all
the possible options related to the behavior. This aspect also includes anticipation of the
consequences of the behavioral options and the valuation and measurement of the outcomes of
the consequences of every aspect (Appendices 3). But the person faces a problem in evaluating
the possible outcomes as the skills involved with the human mind is limited, resulting to which
they face difficulty in evaluating all the possible outcomes and identify the correct and
appropriate decision. Although there is presence of computers and different software in the
environment but these tools are also used by the human in the environment due to which
efficiency of these resources is also limited in the environment (Dhesi, & Ausloos, 2016).
Further, apart from this, organizational behavior is the least natural but mostly rational unit
present in the business environment that is associated with the decision making process of an
economic man. However, organizational behavior is most hollow concept for the organization
whose employees are perfectly rational individual. This occurs because of the restriction of the
human mind and knowledge to attain a specific goal in the target market that is aimed by the way
of communication or use of knowledge and skills in the environment to solve the problem in the
organization or between the employees (Stockhammer, Qazizada, & Gechert, 2016).

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The theory of organization for the rational behavior is mainly concerned with the attainment of
the information of the limitations and drawbacks present in the organization that acts a barrier for
the organization to achieve their desired goals and objectives. The entrepreneurial principles of
the economic theory are only related to the external factors like the demand and supply, interest
of the employees of competitor’s firm. Further, procedural rationality is the process of
simplification of the system of choices that is being introduced and advanced by Simon. This
aspect includes two major elements that are computation and satisfaction. The two elements of
procedural rationality are social as well as psychic on the emotional and non rational factors of
human behavior (Brown, & Zhang, 2016). This type of theory majorly focuses on the behavior of
selection and the choices that are to be applied by people. These choices should be applied by the
individuals in the environment on the basis of the outcomes of the events and the aspects taken
into consideration. This theory majorly focuses on the selection behavior of the people and the
choices that are to be applied by them in response to certain events. The general procedure of
occurrence of uncertainty in the choice implemented by people on the basis of their assumptions
present in the environment and their knowledge about the future aspects is defined in the form of
probability distribution. With reference to the statements given by Simon for the rationality
behavioral computation and the satisfaction, its elements are irrational and interrelated as well
(Prasertsom, 2015).
Further, in order to manage the aspects of procedural biasness, a person has to evaluate their
personal skills and rationality between the computation alternatives and satisfactory result that
can be achieved. The procedural rationality explains the extent to which the values were
evaluated in the computation of the information for the economic and behavioral theory.
Moreover, the key to an effective and appropriate result is present in the substitutional goal. This
process is initiated to find the best result of the event (Dryden, 2014). Thus, it should be noted
that the above mentioned essay explained rational behavior in terms of the limitations present in
knowledge and aptitude of a person with respect to the purpose of achievement of goals in the
environment. This concept defined rational behavior with the help of three critical concepts
namely availability, representativeness and bounded awareness (Tompkins, & Anderson, 2015).
The essay also explained the behavioral rationality including the bounded rationality and
procedural rationality. The essay explained that due to the presences in the human mind and

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thinking skills, it is difficult for people to initiate a qualitative decision that includes value for
future along with monetary profitability.

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Part 2: Case Study Report
Introduction
The purpose of this report is to provide a brief information about a real world case scenario
under which the organization made a decision on the basis of the three heuristics. The report
explains the decision making scenario of the organization, applicability of the three concepts and
answer of the four questions given in the case. It should be noted that from the above mentioned
essay, it was analyzed that the human mind is not capable to make effective decisions alone due
to presence of limitation in the mind. In response to which the decision making process is biased
to some aspects present in the environment (Bennett, & Pearson, 2015). The case in this report is
being analyzed on the basis of three biases namely, availability, representativeness and bounded
awareness.
Decision making scenario
The decision was implemented by the company Boeing in the year 1952 when the company bets
big on the 707. Boeing is one of the most dominant company present in the aviation industry, the
company has not made this image in the market so easily, but it took courage of the leader, hard
work, contribution of the employees. In this way only the organization achieved a reputable
position in the market. Talking about the time of 1952, the year following to the World War II,
with the industry of US was retooling the civilian production, at that time Boeing was the only
maker of the military aircrafts in the industry. The most famous products of the company B-52
bomber and the companion tanker had proven that the Seattle Company always uses the right
products for enhancing their jet aircraft technology. But Jets were not commercially viable for
the airlines as the conversion of jet technology requires high amount of investments that can
easily blotch their bottom line (Paur, 2010). The safe choice for the company would have been
that they would only produce defense industry knitting. However, the company did not planned
the same; the president of the company William McPherson at that time made a prototypical
decision, they made bet the company move on civil aviation producing a single product in the
market. This was a major decision that was initiated by the company to switch from one product
to another. Although, the company was earning well in the respective market, still the president
of Boeing made such changes to enter in the civil aviation market.

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The leader of the company was convinced that would definitely purchase the products from the
company and this aspect will actually provide real growth to the company in the external target
market. Through this act, the leader was risking the whole future of the company; one wrong
decision in this case can make the company to suffer. In the same year, the management of
Boeing convinced the Board of management of the company to invest $16 million in their
organization so as to produce the Boeing 707 product. It was the first US transatlantic
commercial jetliner and the plane that would totally change the course of Boeing history
(Fortune Editor, 2018). The use of the 707 product increased with time and became a cultural
icon as a transportation vehicle. This product was the greatest achievement of Boeing till date;
the president of country along with some major organization praised the initiative of the
company. It was told that Boeing invested $185 million in the year 707, however according to
the article posted on Fortune in 1957; it was $36 million more than the previous year’s net worth
of the company.
Thus, it should be noted that it was the biggest decision of all times to change the line for the
company and produce new product in tough situations as well.
Availability
i. Firstly, it should be noted that according to this aspect, the organization should initiate
the opposite decision according to the statistics. While producing jets the company was
earning profits only. However by producing the organization can gain first mover
advantage. Further, availability biased refers to the bias in the decision making process
under which the decision implemented by the leader becomes biased by looking at the
profitability margin and numeric details of the company. In the current scenario, the bias
is evaluated in such a way that the management of the company sees great future in the
aviation industry (Schwartz, 2016). They aimed to gain first mover advantage by entering
in this industry (Appendices 4).
ii. It should be noted that there are no certain ways to measure the availability bias in the
decision, but it can be easily measured by the revenue earned by the organization. The
higher level of revenue for the company increases the availability bias for the
management to initiate such decision in the environment.

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iii. The above mentioned aspects explained the bias in the scenario, further, it should be
noted that the availability heuristics is making the decision effective to some extent
(Bazerman, & Sezer, 2016). There is no need to implement effective strategies for the
company to overcome bias as the company has already enacted according. Decision
would be biased when the company would have not used the idea of creating airlines for
the civilians. But, analyzing the future outcomes of the event, the profits that the
company can get in future attracted the leader of the organization due to which they
initiated such actions.
iv. As discussed above that the decision outcomes were already used as the best for the
company (Maitland, & Sammartino, 2015).
Representativeness
i. Representativeness refers to the mental shortcuts that the person forms by looking at the
circumstances. Under this process the people generate a decision that is biased of an
event that has low probability. The action is initiated accordingly when there is presence
of strong context proposition behind the event. Further, the production of civil aircrafts
for the people attracted the company due to strong representation of the products. As no
company was present in that industry before that made the company think that they have
high probability to earn (Noval, & Stahl, 2017).
ii. The biased can be measured with the help of common method bias in the environment.
iii. Talking about the ways to overcome the bias, it should be noted that, the management of
the company should not form their personal opinion of the basis of the mental shortcuts.
They should evaluate all the available circumstances and events and then initiate an
action actively. As the Boeing 707 project looked interesting to the company, but they
should not initiate this action leaving the jets production behind. Instead they should
count the actual probability of the event and then initiate actions actively.
iv. This process can increase the extent of profits for the company. By focusing on
producing jets and provide the defense services to the US military, the company should
have gained differentiation in the market (Zeni, Buckley, Mumford, & Griffith, 2016).

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Bounded Rationality
i. Bounded rationality bias says that the human mind will attempt to satisfy rather than
optimize. The people in the environment attempt to make a decision that is good enough,
rather than the decision that is best for the organization (Blumenthal-Barby, & Krieger,
2015). According to this aspect, the decision is biased because the organization has
resources along with efficiency to increase the revenue of the company by producing jets
in the market. But they chose other option that was good but not best (Appendices 5).
ii. There is no fixed method to measure or evaluate the biasness present in the scenario.
iii. Talking about the strategies, it should be noted that the company should look for the
opportunity cost of the action implemented by them in the environment. The company
has possibility to earn well then they are sticking to their products and gaining
specialization in it (Dane, & Sonenshein, 2015).
iv. This process will help the company to gain specialization in the work that they perform
and gain maximum profit as well.
Conclusion
Thus, in the limelight of above mentioned events, it should be noted that the company Boeing
implemented the best decision according to the theory of decision making. There are several bias
present in the environment relating to availability, representativeness and bounded rationality
that affects the decision making process of the organization. The above mentioned report clearly
relates the decision implemented by the management of Boeing with respect to these heuristics
presents in the environment. The report justifies the requirements of the assessment.

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References
Ajzen, I. (2015). The theory of planned behaviour is alive and well, and not ready to retire: a
commentary on Sniehotta, Presseau, and Araújo-Soares.Health Psychology Review, 9(2),
131-137.
Bazerman, M. H., & Sezer, O. (2016). Bounded awareness: Implications for ethical decision
making. Organizational Behavior and Human Decision Processes, 136, 95-105.
Bennett, R., & Pearson, L. (2015). Group Rational Emotive Behaviour Therapy for paranoia.
Innovations in Psychosocial Interventions for Psychosis: Working with the Hard to
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Blumenthal-Barby, J. S., & Krieger, H. (2015). Cognitive biases and heuristics in medical
decision making: a critical review using a systematic search strategy. Medical Decision
Making, 35(4), 539-557.
Brown, C., & Zhang, D. (2016). Un-rational behaviour? What causes discrepancies between
teachers’ attitudes towards evidence use and actual instances of evidence use in schools?.
Journal of Educational Administration, 54(4).
Cuesta, J. A., Gracia-Lázaro, C., Ferrer, A., Moreno, Y., & Sánchez, A. (2015). Reputation
drives cooperative behaviour and network formation in human groups. Scientific reports,
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De Groot, J., Thogersen, J., & Schubert, I. (2016). Morality and Green Consumer Behaviour: A
Psychological Perspective.
Dhesi, G., & Ausloos, M. (2016). Modelling and measuring the irrational behaviour of agents in
financial markets: Discovering the psychological soliton. Chaos, Solitons & Fractals.
Dryden, W. (2014). Rational emotive behaviour therapy: Distinctive features. Routledge.

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Filippini, M., Hirl, B., & Masiero, G. (2016). Rational habits in residential electricity demand.
CER-ETH Center of Economic Research at ETH Zurich, Working Paper, (16/228).
Fortune Editor, (2018). The Greatest Business Decision of all Times. Retrieved from
http://fortune.com/2012/10/01/the-greatest-business-decisions-of-all-time/
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Wittmer, D. P. (2016). Developing a behavioral model for ethical decision making in
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Appendices
1. Simon's rejection of formal decision making models of economic theory inspired
researchers in psychology to develop research programs to study decision making
empirically. The most important of these endeavors was Tversky and Kahneman's
approach, which we call here “biased rationality.” After presenting this approach, we
discuss two approaches under the term “ecological rationality” – rational analysis and the
fast and frugal approach. These approaches were also inspired by Simon's views, but they
disagreed with Tversky and Kahneman's pessimistic view of rationality.
2. A key assumption of positive theory in economics is that the economic actors maximize
utility, and in order to do that, they must be perfect rational agents. This means that the
end result of their decisions would be the same as if they were using the rules of logic or
probability perfectly, or if they were carrying out a full cost-benefit analysis with all the
options available. Economic theorists do not assume that all the economic agents produce
the same end results, but they avow that departures from rationality are rare when the
stakes are significant, or that non-maximizing agents would disappear because they
would not survive in a market.
3. Klein (1989, 1998) and other authors (see Klein, Orasanu, Calderwood, & Zsambok,
1993) developed the naturalistic decision making approach, which consists of studying
real-world decisionmaking behavior. In particular, they studied the decisions made by
experts under time pressure. This approach has shed important light on the question of
decision making. A striking result is that experts can understand problem situations and
make decision rapidly, in a matter of seconds. With routine problems, these decisions
tend to be the correct ones, or at least reasonable ones
4. In the same direction of research, Frederick (2005) developed a “cognitive reflection
test.” This test consists of three problems, the solutions of which are counter-intuitive and
in which there are intuitive (but incorrect) possibilities that the subjects have to refrain
from giving as a response. He found that there is a correlation between this test and the
choice of “good” options in typical preference tasks such as risk preferences (e.g.,
Kahneman & Tversky, 1979). Just like Stanovich and West (2000), Frederick (2005)
proposed that the fact that the participants that are good at solving counter-intuitive

Master of business administration 15
problems also tend to choose the presumably good options in preference tasks, is a
suggestion that paper and pencil artificial decision-making tasks are good indicators of
rationality in decision making.
5. In order to understand, with an experimental approach, how (economic) agents make
decisions, Simon and colleagues utilized puzzles (e.g., the Tower of Hanoi). They asked
participants to solve a particular puzzle while thinking out loud. The think-aloud
protocols obtained by this method were used to look for typical patterns in the thinking
process. The main characteristic of the puzzles was that there was always an initial state
and a well-defined goal state that the problem solver had to attain. From the initial state
to the goal state there are a number of intermediate states that vary in number according
to the difficulty of the task. Newell and Simon (1972) found that participants do not
explore all the problem space – the number of states is often simply too large to enable
this. Instead, participants use 18 strategies that allow them to reduce the number of states
they have to explore to reach the final state. Newell and Simon called these strategies
heuristics. Heuristics are “rules-of-thumb” that do not guarantee the solution of the
problem, but are frequently successful and save much time and effort.