Rational Decision Making Model

Rationality

• Rationality is a logical, step-by-step approach to decision making.
• Rational decision making involves a thorough analysis of alternatives and their consequences.

Rational Decision Making Model

• Identify the problem: Define the issue that requires a decision.
• Establish the decision-making criteria: Determine the factors that will be considered when making a decision.
• Weigh the decision criteria: Assign importance or weight to each criterion.
• Generate alternatives: Create a list of potential solutions or actions.
• Evaluate the alternatives: Assess each alternative based on the established criteria and weights.
• Choose the best alternative: Select the option that appears most advantageous based on the evaluation.
• Implement the decision: Put the chosen solution into action.
• Evaluate the decision: After implementing the decision, assess its effectiveness and make any necessary adjustments.

Application of Rational Thinking

• Example: Purchasing a new car.
  • Step 1: Establish decision-making criteria (e.g., passenger capacity, mileage, safety, price).
  • Step 2: Weigh the criteria based on importance (e.g., safety might be prioritized over price).
  • Step 3: Generate alternatives (e.g., different car models).
  • Step 4: Evaluate the alternatives using the weighted criteria.
  • Step 5: Choose the best alternative.
  • Step 6: Purchase the chosen car.
  • Step 7: Evaluate the decision - is the new car fulfilling the criteria?

Factors that Limit Rational Behavior

• People do not always behave in rational ways due to various limitations.
• Past decisions influence people's choices, even if they might be less optimal.
• People tend to disregard information conflicting with their beliefs and values.
• Decision-makers often create and follow rules even if they are not appropriate in a particular situation.
• People may rationalize their choices, providing justifications that might not be entirely objective.

Bounded Rationality

• Bounded rationality suggests that decision-makers are limited by the information they have and their ability to process information quickly.
• Herbert Simon's theory of bounded rationality emphasizes the limitations of human rationality.
• It acknowledges that people are rational but constrained by factors such as time, information, and cognitive capacity.
• Satisficing: Finding a satisfactory solution rather than an optimal one due to the time and effort required to search for an optimal solution.

Bounded Rationality Model

• Decision-makers: Often choose the first satisfactory alternative, even if better options may exist.
• Simplification: Decision-makers recognize that their understanding of the world is simplified, not complete.
• Limited Alternatives: Decision-makers are comfortable deciding without considering all potential alternatives due to constraints.

Explore the systematic approach to decision making through the Rational Decision Making Model. This quiz covers each step involved, from identifying the problem to evaluating the decision after implementation. Test your understanding of how to make logical and effective decisions.