BUMGT5980 - Managerial Decision Making: Bias, Rationality & Scenarios

This essay critically examines the concepts that contribute to bias in managerial decision-making, drawing from Simon's principle of bounded rationality. It explores the physiological properties of the decision-maker, administrative behavior, and the elements of rationality, highlighting how these impact the decision-making process within organizations. The essay further discusses heuristics and various biases, such as those stemming from stimuli, automatization, and the 'sunk-cost' fallacy, suggesting methods to overcome these biases. The second part of the essay uses case studies to show how these biases manifest in real-world scenarios, emphasizing the importance of subjective factors and trade-offs in decision-making, particularly concerning the allocation of time and money, and advocates for considering multiple objectives to arrive at well-rounded and effective decisions. This document is available on Desklib, a platform offering a range of study tools and resources for students.

Running Head: MANAGERIAL DECISION MAKING 1
Managerial Decision Making
Student’s name
Institution’s name

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PART 1
Introduction
“The capacity of the human mind for formulating and solving complex problems is very small
compared with the size of the problems whose solutions are required for objectively rational
behavior in the real world or even for a reasonable approximation to such objective rationality”
This quote by Simon can be examined on the basis of several concepts that define the bias in
decision making in the place of work. This principle is commonly known as the principle of
bounded rationality, and it can be used to clarify bias and rationality in the decision-making
process by basing explanation on several concepts. The concepts include the administrative
behavior, physiological properties of the actor, rational components in the role behavior and the
contemporary philosophies of human choice. These concepts are accountable for any bias in the
decision making process in an organization (Smith 2014). These concepts define the impacts on
the various aspects of the thought method of the individuals in the decision-making course.
Decision making is an important aspect of proper management in organizations. This is mainly
carried out by managers. Good decision making involves sequences of steps that require input of
info at different phases of the process and also it requires one to process the feedback.
Decision making as a basis for strategy
The behavioral theory of strategic managing begins with a vital idea that decision making entails
of finding a satisficing result, instead of looking for the best probable alternative. Socially
speaking, strategic management involves dealing efficiently with trials of bounded rationality in
altering and ambiguous atmosphere. The decision difficult as it faces the managers in tactical
decision-making scenarios is one of defining a course of action which will satisfy the ambition of
the organization. This may involve coming up with new alternatives among which managers can
select from (Brennan 2012). Other times the managers must look for not only for the answers to
the problems but for the problems themselves. This normally requires the capability to come up
with ambitions and to use imaginations in creating innovative strategic possibilities.
Physiological properties of the actor

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The physiological properties of the actor in decision making allows actors to come up with a
model of the real world. This model allows actors to have feelings of the real world for their own
rational behavior and reference (Goldfarb et al 2012). The actor in the decision-making course
come up with this simplified model to make sure that his or her behavior to the real world
situation is rational. One can determine the behavior of the actor of the decision making the
process by having a deeper insight into the factors in the course of coming up with this simple
model along with its structure. The construction of this model is usually affected heavily by the
physiological properties of the individual such as the family background, the cultural
background, their behavior, and nature. The actors behaving rationally to this model of reality
may not be behaving rationally in the actual world situation of the model. Hence, the decision-
making process based on the behavior of the actor in this model may involve various biases
based on a number of issues in the nature of the person.
Administrative behavior
This theory is used to describe the course by which people work within an organization. It was
developed by Herbert Simon and it sought to clarify the process by which goals are specified and
formalized hence contributing to rational behavior in organizations. People in higher positions
make decisions that are of high value while those in lower position make decisions with a factual
component (Kalantari 2010). There are two concepts associated with this theory. The first one is
bounded rationality which notes the cognitive restrictions of managers. The second notion is
satisficing. This is a behavior that challenges to attain at least some minimum level of a specific
variable, but it does not endeavor to achieve its optimum possible outcome.
The administrative theory or the bounded rationality model does not adopt individual rationality
in the decision process. As an alternative, it adopts that individuals, while they search for the best
possible answer, they normally settle for much less since the decisions they challenge typically
requires greater time, information and processing competences than they possess. Hence, they
settle for limited rationality in decisions (Nooraie 2012). This model views the decision makers
as individuals with varying degree of inspiration and are overwhelmed by demands but have
little period to make decisions and thus take shortcuts to find satisfactory resolutions.
The administrative theory is based on several basic concepts: the first concept is sequential
attention to an alternative answer since it is the tendency of people to scrutinize probable

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solutions one at a time rather than coming up with all possible clarifications and stop looking
once an suitable solution is found. The second concept is heuristics. This is the assumption that
guides the exploration of alternatives into areas that have a high chance of creating success. The
last concept is satisficing which simply involves picking the best course of action that is
reasonable under the conditions (Barros 2010). This is the tendency of decision makers to take
the first alternative that meets their minimally satisfactory requirements instead of pushing them
further for an alternative that yields the best results. Satisficing is better for decisions of little
significance where time is a major constraint.
Rationality in decision making
Rational decision making has been vastly researched and many theories and opinions stated
about it since decision making is one of the vital parts of human behavior as an individual or in a
firm. The decision is said to be rational if it is taken under the circumstances of either faultless
or bounded rationality. Rational behavior incorporates several fundamentals such as that the
decision makers will analyze only a subsection of the many decision alternatives and out of this
process, a conceivable choice of outcomes will ensue (Harstad & Selten 2013). According to the
behavioral theory, the value is allocated to each possible outcome and the one with the highest
value is chosen.
According to Simon, a decision is a matter of compromise since there are several alternatives and
the decision makers will have to select one or a few alternatives from them. They will have to
decide the most appropriate alternatives since their main goal is to make a practical and most
suitable decision. The fact that the decision makers selected a particular alternative and not the
other is simply is simply called compromise (Spiegler 2011). Any decision that is not rational is
not expected to produce the desired results. The concept of rationality is usually associated with
problems and to get rid of these we may suggest that the decisions be subjectively rational and
objectively rational.
A decision is said to be objective if it maximizes the given standards in a given condition. It
becomes subjectively rational if it capitalize on fulfillment comparative to the real knowledge of
the matter (Bazerman, & Moore 2013). A decision is said to be organizationally rational it is
concerned with the organization’s objectives.

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There are several problems associated with rationality in decision making. One is that it limits
the human capabilities as it makes their choices narrow and they usually sacrifice or be satisfied
with suitable solutions when faced with difficulties (Grandori 2010). It also limits on info and
knowledge as it accepts that one has enough knowledge of the root and effect that are crucial in
the evaluation of alternative answers, particularly with respect to projecting impending
consequences. This model also limits time as the search for the best solution will create a delay
that could harmfully impact the benefits of the chosen alternative.
Heuristics
A heuristic technique is closely linked to descriptive theory and the behavioral theory of decision
making. Heuristics have been accepted by individuals as a response to intricate and unclear
decision making circumstances and are mental shortcuts, which are sometimes unconscious and
helps them think in a continuous way (Gigerenzer & Gaissmaier 2011). It generally involves part
of the human solving process that includes a very discerning search through problematic spaces
that are regularly immense. When a satisfactory conclusion is reached, the examination finishes
and this decision is engaged. One of the most corporate heuristic approaches is
representativeness by which likelihoods of events are considered according to how resembling of
an event another is. If the similarity is great then the chances that one of the events develops
from the other is also great.
Biases and how to overcome them
Many biases occur and the most common ones are due to stimuli in judgment and evaluation
which is due to lack of a translated linear mode, generating a falsehood in the reasoning process.
The other one is due to unconscious automatization of humans’ cognitive act when trying to
remember information from their memories (Newell & Shanks 2014).
Heuristics also raises several biases since our beliefs and judgments are anchored by the first
impression one has on a condition and rarely considers new viewpoints to the situation which
may lead to improper conclusions. This can be overcome by being unprejudiced and looking and
assuming the cognitive strategy of putting into consideration the opposite (Campitelli & Gobet
2010).

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Another bias arises in an organization when managers tend to pick choices that do not affect
much the status quo. This occurs since individuals do not want to hold accountability for an act
that can cause criticism hence prefers a safer course of action that possesses a less psychological
risk to them. This can be overcome by having broad applicability as well as through the
assumption of a motivational approach of liability.
Lastly, another bias that impacts the rationale of choices is the ‘sunk-cost’. According to this, the
majority of those involved in decision making continue to support their past selections even if
they do not appear effective anymore (Proctor 2010). The most effective way to block this bias is
by consulting the opinions of others who were not involved in the decision-making process and
will likely have an unbiased perspective on it.
PART 2
Rational decision making is mainly a subjective way of decision making. Hence, it is wise to put
into consideration subjective factors and avoid a call to rely only on objective facts when coming
up with important decisions. Good decision makers should choose an alternative based on a
single criterion or factor. When taking the most appropriate course of action in decision making
entails, with few exceptions, evaluating many objectives (Lee 2011). One should consider all the
objectives when making important decisions even if those objectives may compete with each
other.
Choosing the best course of action always involves trade-offs among many objectives. Hence, all
important decisions are said to be subjective. For example, when deciding what is important
between money and time. Money and time are objectives in almost every single important
decision. Compared to other objectives, money and time are easily measured in quantifiable
objective ways, but this does not mean there are merely objective factors (Gabaix 2014). Even
though we can measure them in discrete, measurable increments, they still have considerable
subjective value in many crucial decisions. This is because their relative value is not the same,
depending on the scenario and the group of people making the decision. First, one should
consider the relative value of time versus money on an organizational level. The relative
importance of time and money is dependent on the people making the decision. There exists no
objective data that can ascertain the relative importance of these two objectives.

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Bounded rationality notion is that an action can infringe a rational principle or be unsuccessful to
adapt to a custom of ideal rationality but nonetheless be reliable with the quest for an applicable
set of goals (Secchi 2011). Here are some examples to help explain: when the principle being
dishonored is to purchase clothes that fit one’s body well, the customer action might be to buy
clothes that are instead half size too, big. This action might be considered bounded rational if the
clothes are needed urgently and if impeccably fitting clothes might be found for certain only by
go to each of 15 geographically distributed shops. In this situation, only thinking of the decision
maker as simply as an optimizer of comfort would lead to bewilderment at his selection, but the
buying of poorly fitting clothes looks bit reasonable enough when the customer’s inadequate
information of the retail location is put into consideration.
A different scenario would be when the principle being dishonored is to draw voting borders in a
way that equalizes the residents within the voting regions created. The planner’s act might be to
attempt to make sure that merely no two populations vary by more than one percent (Lunenburg
2011). This action would be considered bounded rational if the cost of computing an suitable
boundary outline would increase with the rate of accuracy needed since it would then be proper
to stand little inequalities in district populations to bar computational costs. In the above
examples, an action that is certainly sub optional in a certain narrowly defined choice problem
can be rationalized by putting into consideration the totality of the decision-making situation. In
the first instance, buying clothes that are bit oversize does not appear unsuitable to give the
costumer’s time limitation and obliviousness of precisely where well-fitting clothes can be
found. Also, making voting districts with residents that are almost but not precisely equal seems
practical given that improving the partitioning could be computationally expensive (Cabantous &
Gond 2011). The general phenomenon that bounded rational behavior can be modified to look
fully rational by widening the scope of the choice problem to which it is viewed as a response,
has led to some commentators to suggest that the models of optimal decision making are
satisfactory for social scientific purposes as long as the environment is comprehensive.
Heuristics
As explained earlier heuristics is a mental shortcut that helps one make quick but sometimes
improper valuations. There are many types of mental shortcuts but the most common one
comprises of depend on facts that comes to mind fast. This is known as the availability. If one

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quickly thinks of multiple instances of something happening, they believe that it is the most
common (Grandori 2010). For example, after seeing numerous news reports about car thefts, one
might make a conclusion that car theft is much more common than it really is in the region.
This type of availability heuristics is very supportive in decision making by managers when
faced with choices that often lack enough time and resources to investigate further. This allows
them to arrive at a conclusion faster (Kunc & Morecroft 2010). However, availability heuristics
can lead to errors. For example, reports of plane accidents, child kidnappings, and train
derailments often make folks accept as true that such happenings are much more common than
they are truly are.
The major bias about this is that availability heuristics occur unconsciously and functions under
the norm that ‘if you think of it, it must be important’. The things that comes to mind more
simply are thought to be more common and more precise reflections of the real world (Baron
2014). For example, if one watches a film about a nuclear disaster, they become convinced that a
nuclear war is highly likely.
The availability heuristics can be a useful tool, but it is also vital to know that it can sometimes
lead to inappropriate assessments of a situation (Newell, Lagnado & Shanks 2015). Just because
something looms large in your memory does not mean that it is more common or appropriate.
The administrative model
This model lies in the belief that decision makers resolve for a smaller than ideal resolution
because of time and motivation deficiencies. Instead of pursuing the best alternative that
maximizes significance, they accept the first available ‘good enough’ alternative (Simon 2013).
This concept of settling for less than perfect is called satisficing.
For example, in our busy everyday lives, we often such approaches without much consideration.
Imagine yourself sitting in the office on a weekday afternoon and suddenly you remember that
you have to attend a birthday party later that evening on the same day. Had you remembered
over the weekend, you might have spent some time browsing through shops looking for a perfect
gift. Now, your only options are quite limited. You have only a single shop next to your office
and you quickly go through the shelves on your way to the party, hence settling for best gift that
remotely matches your friend's interest. That was definitely not the best gift but it will certainly

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save you from the embarrassment of showing up empty-handed. The main drawback of this
approach in decision making is the lowered quality of the final decision (Wood, Cogin &
Bechmann 2009). But it does help to compensate for the loss of quality. It is also bit
advantageous in a situation that is time costly, settling for a ‘good enough’ option can be an
effective strategy.
Conclusion
The most crucial organizational responsibility of managers in an organization is to make a
decision that will form the organization and goals. These decisions are mostly difficult and are
often made in a setting of uncertainty and vagueness. The managers similar to other people are
subject to being predisposed by their own unconscious minds and biases. People cannot be
wholly rational when making decisions and do not have the time or the ability to follow totally a
rational approach to making decisions. Instead, every vital decision is influenced and sometimes
undermined by the innate limits and cognitive biases of beings (Taylor 2013). Since these limits
are intrinsic to human nature, they cannot be avoided in the decision-making process. Hence,
people including directors need to reflect on and manage how their own norms and emotions that
influence their decisions.

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