Rationality Is Limited
17/04/2013
Wilhelmina van Leeuwen
Rationality is limited
Psychology of managerial judgement and decision making – written essay
"The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world" (Simon, 1957)
Introduction
The present organization administration theories are to a great extent a result of the post-war development of organizational science. The classical doctrine and human relation thinking have been replayed for sociological academic organization science. Researchers, in particular in the field of psychology, have begun to message examples of constraints in people’s judgment and decision-making since the 50’s. One of these researchers is Herbert Simon (1916 - 2001). Herbert Simon is known for what is known in the economy, sociology and political science as the idea of bounded rationality. This researcher judged rational decision-making models for ignoring several factors and considers that people won’t necessarily take an optimal decision; they will take a decision that is adequate. The efforts that must been taken for making an optimal decision could be too large, so people will be satisfied with a suboptimal decision; this suboptimal decision will require less effort. By this limited number of alternatives, a wrong choice can be made, and a decision may and a taken decision can be wrong. Therefor it is important to take account of the environment when making a decision. However, saying this does not mean people are irrational; it is based on limiting rational behaviour to optimize the utility function. So rationality is limited and people operate from emotional and/or irrational motives as well. Several empirical studies indicate that consumers don’t always behave rationally. For example studies of Tversky and Kahneman to cognitive anomalies: conditions under which individuals are clearly not
Wilhelmina van Leeuwen
Rationality is limited
Psychology of managerial judgement and decision making – written essay
"The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world" (Simon, 1957)
Introduction
The present organization administration theories are to a great extent a result of the post-war development of organizational science. The classical doctrine and human relation thinking have been replayed for sociological academic organization science. Researchers, in particular in the field of psychology, have begun to message examples of constraints in people’s judgment and decision-making since the 50’s. One of these researchers is Herbert Simon (1916 - 2001). Herbert Simon is known for what is known in the economy, sociology and political science as the idea of bounded rationality. This researcher judged rational decision-making models for ignoring several factors and considers that people won’t necessarily take an optimal decision; they will take a decision that is adequate. The efforts that must been taken for making an optimal decision could be too large, so people will be satisfied with a suboptimal decision; this suboptimal decision will require less effort. By this limited number of alternatives, a wrong choice can be made, and a decision may and a taken decision can be wrong. Therefor it is important to take account of the environment when making a decision. However, saying this does not mean people are irrational; it is based on limiting rational behaviour to optimize the utility function. So rationality is limited and people operate from emotional and/or irrational motives as well. Several empirical studies indicate that consumers don’t always behave rationally. For example studies of Tversky and Kahneman to cognitive anomalies: conditions under which individuals are clearly not