Management 10: Analysis of Simon's Managerial Decision Making Essay

This essay delves into the intricacies of managerial decision-making, commencing with an executive summary highlighting the significance of rational attitudes in achieving organizational objectives. The essay centers on Herbert A. Simon's concept of bounded rationality, examining the limitations of human cognitive capacity in complex problem-solving. It critically analyzes Simon's quote and explores three key concepts: heuristics, overconfidence, and bounded awareness. Heuristics, while offering shortcuts, are shown to potentially introduce biases and errors. Overconfidence, encompassing overestimation, overprecision, and overplacement, is discussed as a factor that can negatively affect the decision-making process. Finally, bounded awareness, including inattention blindness and focusing illusion, is explored as a factor that can negatively affect the decision-making process. The essay concludes that rational behavior is vital for effective decision-making and achieving organizational goals.

Running Head: MANAGEMENT
0
[Type the company name]
Managerial Decision Making
Essay
Student
10/6/2019

MANAGEMENT
1
Executive Summary
To accomplish the organizational objectives, the management of the company initiates the
decision-making process so that the goal can be achieved systematically and effectively. In this
process, the rational attitude of the team plays a vital role as it emphasis positive outcomes and
generation of optimum benefit. However, the behavior of the people varies according to their
prevailing conditions and needs. In this following report, the emphasis has been placed over the
Bound rationality, which is proposed by Simon, and 3 major concepts have been discussed
related to rationality.

MANAGEMENT
2
Contents
Introduction............................................................................................................................................3
Critically examination of Simon’s Quote..............................................................................................3
1. Heuristics:....................................................................................................................................4
2. Overconfidence............................................................................................................................5
3. Bound Awareness........................................................................................................................6
Conclusion.............................................................................................................................................7
References’............................................................................................................................................9

MANAGEMENT
3
Introduction
Rational behavior is a kind of attitude adopted by the people in the decision-making
process which can generate a positive outcome not only for the organization but can direct the
management to obtain optimum benefit from the decision. To gain an advantage, individuals
generally make choices and behave in a manner that directs them to accomplish their needs.
Therefore, it can be regarded as more purpose-driven and full of self-interest as goals are
achieved according to priorities. Moreover, rational decision value can be availed from the
available opportunities. However, sometimes rational behavior in the decision-making process
might not result in monetary satisfaction as it majorly focuses on the best result which can be
either in terms of money or value.
In the assignment, a critical analysis over the quote of Herbert A. Simon will be
conducted which depicts the complexities that might occur in the decision-making process,
which is difficult to analyze through the limited rational behavior of the individuals ( G., 2010).
In the assignment, bounded rationality has a major role, which states that the thought processes
of human minds are limited to particular information which is available to them. In the essay, 3
major concepts related to the behavior will be examined that are useful in depicting and
analyzing the biases in decisions (Huang, G., &, A. 2013).
Critically examination of Simon’s Quote
Herbert Alexander Simon who was known for its theories of bounded rationality and
satisficing quote, stated that “The capacity of the human mind for formulating and solving

MANAGEMENT
4
complex problems is very small in comparison to 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”. Through this quote, it can be estimated that human
competencies are limited to a certain extent. In other words, bounded rationality suggests that
individuals make choices according to their needs within the psychological boundaries. Simon
developed this theory of rational behavior, which is considered to be the second-best alternative
in economics and political science (Godelier, 2013). This theory is generally regarded as
satisfaction theory as individuals make a choice that generates valuable results without
challenging their mental capabilities (Roehrich, Grosvold & Hoejmose, 2014). However, the
needs and priorities of the individual vary according to end goals. This variation in the rationality
can be perceived through 3 conceptual theories.
1. Heuristics:
This concept majorly emphasis on the satisfaction level without any guarantee of benefits
and rational decisions. “Heuristics” technique is used to solve the problems with the practical
application that does assure any kind of advantages in its process as it focuses on the
accomplishment of the objectives. This theory has widely adopted during trial and error, and the
role of thumb (Strough, Karns & Schlosnagle, 2011). It is known as the shortcut method as
through this concept people can solve their problems quickly and efficiently. However, such kind
of method might lead to systematic errors and biases. The people who are impulsive, fast and
overconfident about their decisions majorly adopt this kind of theory (Gigerenzer & Gaissmaier,
2011). However, it can lead to biases. As it can be perceived that though, heuristics can solve are
problems and initiate the decision-making process, their utilization can also lead to various
problems and errors (Pettigrew, 2014). This can happen because whatever that has resulted as a

MANAGEMENT
5
positive outcome might not generate that much profit( Blumenthal-Barby & Krieger, 2015)
Moreover, focussing over a particular model might limit the scope of other alternatives and
ideas. In addition to this Heuristics, the concept can also lead to prejudice and stereotypes
because individuals practice psychological shortcuts to categorize and differentiate among the
people due to which they ignore the valuable information and conducts discrimination in the
decision-making process which has a negative outcome.
According to the Simon theory of Bound rationality, people who are generally impulsive
and overconfident about their decisions conducts this theory. However, it can be said that though
it fulfills the basic level of satisfaction of the people there is no guarantee about the optimum
benefits as its goal-oriented. Such kind of decision-making can be observed in the autocratic
leadership style as the managers during the decision-making display their bias attitude towards
subordinates and focus on the end goals rather than the process. Such shortcuts might lead to
wrong decisions that can negatively impact it is surrounding of an organization.
2. Overconfidence
It refers to the phenomenon that describes the confidence among the people in their
opinion and knowledge. This concept has been explained through two important majors that
describe the existence of biases attitude during the examination of the information. According
to the first major individuals are confident in assessing the information. Such a judgemental
procedure begins when the person examines the solution of a particular question without
analyzing the given information. The second major indicates that errors can occur even the data
that are collected is unbiased (Johnson & Fowler, 2011). In the literature, it has been defined in
three major categories, which are an overestimation of current performance, considering your
performance better than other people and overprecision which means believing and having

MANAGEMENT
6
confidence over the decisions. The overconfidence of the people can be analyzed by how they
are confidently providing answers. Through this data, it was depicted how the confidence of the
people overpowers the accuracy of the answer, which depicts that the majority of the people are
confident over the accuracy of their answers. In the overconfidence theory, various aspects are
involved like the illusion of control which categorizes the dominating nature of the people that
do not exist. In Overprecision, people tend to have excessive confidence over judgments like
they have insights about the topic and Over placement is one of the prominent indicators of the
overconfidence theory where the people believe that they are better than other individuals. It
means placing yourselves over other people( Fellner & Krügel 2012).
However, overconfidence can create negative impacts, people having high confidence
dominates other people and admire themselves in front of them that can negatively motivate
them. Moreover, such kind of people overlooks the information and sets an unachievable goal for
their team members, which can put strain over the employers and employee relationship.
According to the quote of economist Simon, overconfidence among the people can create a
negative impact over the decision-making process which increases the problems and bias attitude
of the people as people will listen to their inner call and neglects the opinions of other members.
Such rational behavior might result in fast decisions, however, it becomes difficult to predict its
accuracy.
3. Bound Awareness
It means neglecting the attitude of the people who have mistakenly fail to detect the
information because they waste their valuable time over the information and hidden
information. This means that people ignore the most prominent information and control it in the
procedure of the decision-making procedure. The cause of bound awareness is overly focussing

MANAGEMENT
7
on a particular topic. This topic is divided into 3 major parts that are intention blindness, accurate
blindness and focusing illusion (Bazerman & Sezer, 2016). In Inattention blindness, people
generally become unsuccessful in noticing the visible pieces of information because of their
engagement in another task, event or the case. Though this kind of blindness is associated with
failure but varies from various kinds of other failures like intentional failures and visual
awareness. Sometimes intentionally, blindness includes a critical trail where the objects appear
without any prior notice. Change blindness is related to inattention blindness. In the study
researchers, states that people generally fail to detect the modifications that are available to them.
Frequently people are so busy that they are not able to describe the kind of changes that are
taking place in the environment.
Another factor of Bound awareness is Focus illusion, which depicts the tendency of the
people to focus on a particular event. According to the quote of Simon bounded awareness
overpowers of mental capabilities of an individual that pressurizes him/her to focuses on the
particular things rather than overall available information. This negatively affects the working of
the organization. Due to bound awareness. Errors become more frequent which reduces the
productivity of the employees as well as organization. Moreover, more time will be consumed in
the accomplishment of the objectives, as mangers will goals while focusing on a particular thing.
Hence it can be said that Simons Bound rationality provides an accurate statement in the context
of rational behavior of individuals under certain boundaries.
Conclusion
It can be concluded that the rational behavior of humans can lead to the optimum
decision-making process. Rational behavior means taking such a decision that not satisfies the

MANAGEMENT
8
needs of the person but along with that, it accomplishes the goal effectively. It is generally goal-
oriented and self-driven as the prime objective deciding with such an attitude to achieve needs so
that values can be accomplished through such decisions. In this assignment, the critical
examination of Simons quote related to Bound rationality has been conducted with indicates that
every individual has opportunities that can be availed and optimum benefits can be achieved to
some extent. In the essay, three major concepts have been discussed.

MANAGEMENT
9
References’
Barros, G. (2010). Herbert A. Simon and the concept of rationality: boundaries and
procedures. Brazilian Journal of Political Economy, 30(3), 455-472.
Bazerman, M. H., & Sezer, O. (2016). Bounded awareness: Implications for ethical
decision making. Organizational Behavior and Human Decision Processes, 136, 95-105.
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.
Fellner, G., & Krügel, S. (2012). Judgmental overconfidence: Three measures, one
bias?. Journal of Economic Psychology, 33(1), 142-154.
Gigerenzer, G., & Gaissmaier, W. (2011). Heuristic decision making. Annual review of
psychology, 62, 451-482.
Godelier, M. (2013). Rationality and irrationality in economics. Verso Trade.
Huang, T., Allon, G., & Bassamboo, A. (2013). Bounded rationality in service
systems. Manufacturing & Service Operations Management, 15(2), 263-279.
Johnson, D. D., & Fowler, J. H. (2011). The evolution of overconfidence. Nature, 477(7364),
317.
K. Roehrich, J., Grosvold, J., & U. Hoejmose, S. (2014). Reputational risks and
sustainable supply chain management: Decision making under bounded rationality. International
Journal of Operations & Production Management, 34(5), 695-719.

MANAGEMENT
10
Pettigrew, A. M. (2014). The politics of organizational decision-making. Routledge.
Strough, J., Karns, T. E., & Schlosnagle, L. (2011). Decision-making heuristics and
biases across the life span. Annals of the New York Academy of Sciences, 1235, 57.