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How do managers arrive at decisions? (Rationality (Assumes: (Preferences…
How do managers arrive at decisions?
Rationality
Also, it made by managers “maximise” economic benefit for the organisation
Rational decisions describe choices that are
consistent and value-maximising
All managerial decision makings are assumed to be rational
Assumes:
Preferences are clear
Preferences constant and stable
All variables are known
The problem is clear， single and well defined
No time or cost constraints exist
Final choice will maximise payoff
multi-step and linear process often involve plugging information into a graph or chart. This information usually includes facts as well as assumptions
Definition
A rational decision making approach is a methodical approach in which data that has been obtained through observation or statistical analysis or modeling is used in making decisions that are long-term.
Bounded Rationality
Decisions made within certain constraints
Have to behave rationally
Cant always be the best decision at every instant, but rather good enough
Often found in organisations, more often then rationality
Example: in any business one cant keep provide everyone with everything they want and still be productive, eg cant pay staff $1m pa and extra holiday leave and still run a profitable business
Intuition
Its absolute and is on the subjective end of the spectrum, based on personal experiences, previous experiences, accumulated judgement and gut level feelings
EXAMPLE - An investor received a pitch from an entrepreneur, regarding a possible business venture. All of his numbers added up and made sense however the investor was a bit anxious and decided not to invest. Instead another investor did and in the end the business venture folded.
Important to trust your intuition because you can unintentionally blindside yourself if you rely only on your rational mind
Intuition is the ability to have a grasp on a situation or information without the need for reasoning