Topic: Contrast Rational Decision Making with Intuitive Decision Making

ASSIGNMENT #3






Resource Person
MR. SHOAIL AKRAM

Submitted By: Mohammad Nawaz
ID# 100645002
Program: M.COM


BUSINESS ANALYSIS
University Of Management & Technology
Rational Decision-Making
Managers make consistent, value-maximizing choices with specified constraints. To maximize a particular
outcome, try the rational decision making model
Rational decision making involves the following steps,
Define the problem.
Identify the decision criteria.
Allocate weights to the criteria.
Develop the alternatives.
Evaluate the alternatives.
Select the best alternative.

Assumptions of the Rational Decision-Making

i. Problem Clarity
The problem is clear and unambiguous.
ii. Known Options
The decision-maker can identify all relevant criteria and viable alternatives.
iii. Clear Preferences
Rationality assumes that the criteria and alternatives can be ranked and weighted.
iv. Constant Preferences-
Specific decision criteria are constant and that the weights assigned to them are stable over time.
v. No Time or Cost Constraints
Full information is available because there are no time or cost constraints.
vi. Maximum Payoff
The choice alternative will yield the highest perceived value.
BOUNDED RATIONALITY
Individuals make decisions by constructing simplified models that extract the essential features from
problems without capturing all their complexity.
Individuals make decisions rationally, but are limited (bounded) by their ability to process information.


Assumptions:
Decision makers will not seek out or have knowledge of all alternatives
Decision makers will satisfies to choose the first alternative encountered that
satisfactorily solves the problem rather than maximize the outcome of their
decision by considering all alternatives and choosing the best.
INFLUENCE ON DECISION MAKING
Escalation of commitment: an increased commitment to a previous decision despite evidence that it
may have been wrong.
INTUITIVE DECISION MAKING:-
Making decisions on the basis of experience, feelings, and accumulated judgment. Or An unconscious
process created out of distilled experience.
Intuition is often used when there is a high level of uncertainty, there is little precedent to go on, when
the variable in question are less predictable, when facts are limited, these facts dont lead you in one
particular direction, data is of little use, when there are several plausible choices, and there is time
pressure
Problem Identification
Problems that are visible tend to have a higher probability of being selected than ones that are important.
Why?
It is easier to recognize visible problems.
Decision-Makers want to appear competent and on-top of problems.
Decision-Makers self-interest affects problem selection because it is usually in the Decision
Makers best interest to address problems of high visibility and high payoff. This demonstrates an
ability to perceive and attack problems.
Alternative Development
Decision makers rarely seek optimum solutions but satisfying or good enough ones.
Efforts made are simple and confined to the familiar.
Efforts are incremental rather than comprehensive.
Many successive limited comparisons rather than calculating value for each alternative.
This approach makes it unnecessary for the decision maker to thoroughly examine an alternative
and its consequences.
Thus the decision makers steps are small and limited to comparisons of the current or familiar
options.