4.3 – Discussion: Managerial Decisions Making
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Herbert Simon is often viewed as one of the most famous
economists of the late 20th century. He taught at Carnegie Mellon University
and earned a Nobel Prize for his work on decision making. He put forth the idea
that decisions made by managers are generally sub-optimal. Managers, due to
time constraints, resource limitations, external pressures, etc. often engage
in what Simon calls “satisficing”. Here, a decision is made that meets the
decisional criteria but the decision is not necessarily optimal. The term
satisficing comes from satisfy and suffice blended together. Furthermore, Simon
introduced the term “bounded rationality” to suggest that we, as managers,
cannot conceivably process all available information due to
time and cognitive limitations. Thus, there are boundaries on what we can
rationally take in and use.
Of course it must be noted that Simon was born in 1916 and
died in 2001 at age 85. Since then, the computer age has changed how we make
decisions to some extent. Quick reference dashboards, balanced score cards,
quality metrics, performance metrics, and the likes have enabled us to engage
in Evidence-based Management and data-driven decision making. Read Practical
Wisdom in Management Development (Links to an external site.) an article on
decision making.
*Note – Log into ERNIE in order to access the article.
Herbert Simon
Duration – 3:44
Although introduced decades ago, Simon’s concept of
Satisficing and Bounded Rationality holds true. In fact, today’s information
age may even make decision making more difficult! Other issues are a variety of
heuristics people use in their decision making. These issues were brought to
the fore front by the work of Daniel Kahneman (Nobel prize winner in 2002) and
Amos Tversky. A good simple summary of heuristics and their effect on decision
making is provided in this video (6:33).
I want to learn more about pilot fatigue. I Google “pilot
fatigue”. In .33 seconds, Google returned 13,200,000 results.For example:
I want to purchase a new house in my new zip code. I go to
Zillow.com and learn that in .20 seconds it returned 427 homes for sale that
meet my criteria. I have 2 weeks to purchase.
I need to purchase chairs for my new office. I go to
Amazon.com and search for “desk chair” and in .42 seconds have 202,155 to
choose from.
After reading the scenarios provided in Activity 4.3, how do
bounded rationality, satisficing and heuristics apply? Join the discussion and
address the following:
When making decisions that involve money, what steps do you
take to make sure you are making a good decision? Use an example or two.
When using sources of information to make a decision, how do
you know the information is accurate, relevant, and comprehensive (e.g., think
about customer reviews as one tool to make purchasing decisions online)? Use an
example or two.
Managers are often blamed when poor decisions are made. Is
there a difference between a bad decision (error) and a bad decision born from
insufficient information or satisficing? Use an example or two from your work
experience where a bad decision was made that could have been reasonable at the
time but still turned out to be problematic. You may also use examples of good
decisions that were made and how management arrived at an evidence-based
conclusion.
Please begin with three substantive paragraphs (one for each
question) connecting your thoughts to the material you just read. Then, comment
on the experiences and observations of two other students.
