Bounded Rationality Essay

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Further, some managers just aren't that smart. The same set of data can be interpreted different ways by people with different intelligence and different training. Rational thinking theory pretty much assumes that all managers are equal in their cognitive abilities, but that condition does not hold in the real world.

Lastly, managers may not have the time to gather and process all of the information. They must work within these constraints. They might approach an issue from a strictly rational perspective, but without enough time to gather all available information and process it properly, a manager will need to make a decision with imperfect information. Not surprisingly, this leads to imperfect decisions.

The importance of this concept in managerial decision-making is that it is necessary to understand the limitations to rationality in decision-making. It can never be assumed that all decision-making is purely rational because it isn't. Managers need to understand the weaknesses in their methodologies, even going beyond things like emotion and bias. Having an understanding of the concept of bounded rationality can help avoid things like analysis paralysis, where the managers never make a decision because they never feel that they have enough information.

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Knowledge of this concept can also help managers to work towards eliminating some of these problems in order to improve the quality of their decision-making. For example, allotting enough time to make decisions will allow for better rationality and therefore better decision-making. or, ensuring that managers have the knowledge and training needed to interpret and gather the appropriate data is important, because this allows the managers to make more rational decisions. But just knowing that perfect rationality will never be achieved is important, so that managers can understand how their decisions are made and seek to make improvements within the framework of bounded rationality......

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