Rational choice theory Free Essay Example, 1250 words

Individual could also have limited information that could help make a better decision and thus optimize his/her objective. To take care of the limitations of perfect rationality, a more advanced theory of bounded rationality was developed. Bounded Rationality Simon (1979) argues that models of optimizing entrepreneurs who are completely certain of consequences or probability distributions for uncertain events are theories of how to decide and not what to decide (498). He further claims that no individual is in a position to make perfectly rational decisions due to limited information and new levels of uncertainty and inability to calculate consequences due to own perceptions hence make satisficing decisions rather than optimal ones. He referred this theory as ‘bounded rationality’ which involves the search for alternatives by individuals and choosing the alternative that lead to optimal or satisfying goal. The alternatives are evaluated using a certain criteria or techniques and habits. Implications on Managerial Decision Making Decision making in organizations is aimed at ensuring the organization functions effectively or to ensure high performance mainly in terms of profit maximization. According to miller et al (2001), decisions are concerned with allocation and exercise of power in organizations because power determines the decision maker. We will write a custom essay sample on Rational choice theory or any topic specifically for you Only $17.96 $11.86/pageorder now The decision making approach of a leader or leadership style thus determines the performance of an organization (Michel, 1997). In rational choice models the leader determines the course of action to be taken and how it will be implemented in order to achieve a business goal. The manager thus is assumed to know the relevant goals and how to assess them hence can rank them in order of preference. He/she is also assumed to have accurate knowledge of consequences arising out of each alternative hence can choose the most efficient alternative means for maximizing goals (March & Simon, 1993). The decision of the manager is thus applied regardless of the employees’ perceptions or without evaluating the effects on those concerned. For example, in the Pearl Harbour case, the Japanese attacked the US Navy expecting to neutralize American naval power in the pacific without evaluating the other party options and in return, the US used nuclear bomb as re venge. There is bound to be conflicting interests in the organization that may hinder realisation of the optimal goal. The manager thus guides the behaviour of employees to align with the goals set or established norms.