Understanding Simon’s Concept Of Rationality And Heuristics In Decision-Making

Discussion

Discuss Simon’s quote in reference to a critical examination of four discrete concepts (covered in this course) that may explain bias in decisions.

The following presentation is about decision-making application on rational behavior of human mind for the formulation and solution of complex problems in context to real world. In reference to Herbert A. Simon’s concept about the rationality in terms of heuristics which are of four types- availability, representative, confirmation and bounded rationality. It is said that the theory of an organization cannot subsist without a rational choice of theory, which is best described as intendedly rational based on the two species of economic man; consumer and entrepreneur.

Heuristics are the mental decisions taken by individual in order to take a solution for complex problems. These decisions are faster and not based on any particular rules and regulations but there could be judgmental errors in the decisions taken by the individuals. Whereas rational behaviour means a process of decision-making based on the choices that result in the most beneficial level for the human being, which does not mean in receipt of monetary benefits all the time. The benefit or utility could be in either kind or emotional whereas Herbert A. Simon consistently strived to build a theory of human behavior and described several categories of Heuristics (Dhesi & Ausloos, 2016).

Availability Heuristic is based on easy way to form any judgment for a particular problem. It could be on percentage basis or probability basis, which might not be accurate. For example, individuals often tend to guess higher percentage in case of crime that involves violence (Ajzen, 2015). However, it is not necessary that the judgments taken would be erroneous or accurate. This decision taken by the individuals based on several factors like past records, options, random selection etc.

According to the concepts presented by Simon, it is stated that the individuals are required to think rationally that helps in taking decisions in order to aim his satisfaction. Further, Simon in his theory had pointed out that the capacity of individuals mind in making the formula and solution to the size of the problems is comparatively quite small in the real world (Dhesi & Ausloos, 2016). However, the theory of Robinson Crusoe as the decision-making in rational processes explains that it had not taken the rational processes understanding much beyond this stage.

Another type of heuristic is representative heuristic, which is also a mental shortcut for decision-making process by comparing realistic information to the human mental prototype. For example, love and care of an older lady is considered to be a love and care of her being grandmother (Marshall, et al. 2015). So, in case of representative heuristic individuals use categories to form judgments and decisions. According to Simon, this skill in forming the decision is limited in individuals as compared to the relative problems.

Conclusion

Bounded awareness rationality was explained in terms of economic behaviour while the distance between the rationality and behavior was covered by the element of decision. In other words, behavior is required a selection of choice which results among various possible alternatives of behaviours and decision is a procedure which the selection of the alternatives is performed (Marshall, et al. 2015).

Confirmation or decision making heuristics, individuals often rely on the easy reasoning to make decision on difficult situations. This heuristic involve two systems of human mentality for the decision-making process, system 1 which is based on human instinct, intuition or emotional reaction whereas, system 2 is the output of system 1 based decisions (Dhesi & Ausloos, 2016).

Further, Simon had defined bounded rationality as a relation in accordance between pre-established ends and ways to reach the said ends, which has the specification in terms of value and hence is way beyond the scope of science. This relation however depends on the question of fact whose evaluation is involved in three steps, (i) point out the list of all the possible options, (ii) identification of the consequences that will follow the options listed out and (iii) measuring all the options and evaluation is also to be done for all the sets of consequences for each of the options or alternatives selected (Cuesta, et al. 2015).

In Administrative Behavior, Simon had given importance on the difference between effective and theoretical behavior with the assumption of global rationality, which requires recognition of all the possible behavioral options, it also requires anticipation about the consequences of the behavioral options and the valuation and measurement of the outcome of the consequences of each of the options (De Groot, Thogersen & Schubert, 2016). However, there is a critical problem in evaluation of the possible outcomes as the human skill and efficiency is limited to carry out the necessary alternatives in order to achieve the required and set out goals for both the economic man i.e. consumer and entrepreneur. In the present era, though the human efforts have been given an alternative in the form of computers and machinery, yet the human knowledge and skill to operate the machines are required which is also limited.

Organizational behavior on the other hand, is the least natural but most rationally constructed units of human association but ironically, it is the most vacuous theory for an organization whose members are perfectly rational individuals. This is because there is a limitation in the human skill and knowledge required to achieve the desired goals, aims by way of communication or application of the source of knowledge and skill and the same becomes the problem in cooperation between the individuals and organization (Ajzen, 2015).

Basically, organization theory for rational behavior is centrally concerned with the study and recognition those limitations and drawbacks that are hurdles in terms of flexibility and adaptability to the attainment of goals for individuals and organization (Brown & Zhang, 2016). As discussed above entrepreneur principle of the economic theory is limited only to the external factors like demand- supply of his products as well as the interests of the individuals, which are different from that of the enterprise.

Moreover, procedural rationality is the simplification in the system of choices which is introduced and advanced by Simon. The procedural rationality consists of two important elements: computation and satisfaction, which are the social and psychic on the affective and non rational factors of human behaviour. The theory focuses on the selection behaviour and choices to be applied by the individuals in connection with the appropriate and evaluation of the outcome of the sets of assignments taken into considerations. The general procedure of introduction of uncertainty into the choice of            formulation is the assumption that the knowledge about future values is determined in the form of probability distribution (Prasertsom, 2015). In the context of Simon’s reference for the rationality behavioral computation and satisfaction, elements are irrational and interrelated. In order to cope up with the procedural biasness, individual have to evaluate his skill and knowledge so that the rationality between the computational alternatives and satisfactory results can be achieved. The procedural rationality explains the probability distribution for values to be evaluated in the computation of the required data for economic and behavioral theory. Moreover, the key to an effective and appropriate solution lies in substitutional goal in order to find the best move.

Conclusion:

The following essay has been dealt with the rational behaviour in terms of human skill and knowledge limitation in order to achieve the required goals in reference to the concept laid by Simon. The concept of rational behaviour has been described using four heuristics i.e. availability, representativeness, confirmation and bounded awareness in consideration with the limitation of factors which are generally external to the human beings. For consumers, the external limited factors are fixed pricing budget and supply of the products he is willing to buy. Whereas for the entrepreneurs the limited factors are demand- supply of the products of the organization as well as the interests of the consumers, which may be different with that of the enterprise.

 Further, the presentation has been done in the context of behavioral rationality i.e. bounded rationality and procedural rationality. Bounded rationality is the element between the choices of different alternatives and the selected alternative, which depends on the skill and knowledge of the individuals. Further, due to the limitation of human skill and knowledge it is difficult to derive accurate variables and probability of the values in future context as well as measurement of the data in relation to pricing and selection of the variables is difficult in order to achieve the desired goals of the enterprise.

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