...BOUNDED RATIONALITY Herbert Simon (1916-2001) is most famous for what is known to economists as the theory of bounded rationality, a theory about economic decision-making that Simon himself preferred to call “satisficing”, a combination of two words: “satisfy” and “suffice”. Contrary to the tenets of classical economics, Simon maintained that individuals do not seek to maximise their benefit from a particular course of action (since they cannot assimilate and digest all the information that would be needed to do such a thing). Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly. The human mind necessarily restricts itself. It is, as Simon put it, bounded by “cognitive limits”. Hence people, in many different situations, seek something that is “good enough”, something that is satisfactory. Humans, for example, when in shopping mode, aspire to something that they find acceptable, although that may not necessarily be optimal. They look through things in sequence and when they come across an item that meets their aspiration level they go for it. This real-world behaviour is what Simon called satisficing. He applied the idea to organisations as well as to individuals. Managers do much the same thing as shoppers in a mall. “Whereas economic man maximises, selects the best alternative from among all those available to him,” he wrote, “his cousin, administrative man, satisfices, looks for a course...
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...Published in: Swiss Journal of Economics and Statistics, 133 (2/2), 1997, 201–218. © 1997 Peter Lang, 0303-9692. Bounded Rationality: Models of Fast and Frugal Inference Gerd Gigerenzer1 Max Planck Institute for Psychological Research, Munich, Germany Humans and other animals need to make inferences about their environment under constraints of limited time, knowledge, and computational capacities. However, most theories of inductive inferences model the human mind as a supercomputer like a Laplacean demon, equipped with unlimited time, knowledge, and computational capacities. In this article I review models of fast and frugal inference, that is, satisficing strategies whose task is to infer unknown states of the world (without relying on computationaly expensive procedures such as multiple regression). Fast and frugal inference is a form of bounded rationality (Simon, 1982). I begin by explaining what bounded rationality in human inference is not. 1. Bounded Rationality is Not Irrationality In his chapter in John Kagel and Alvin Roth’s Handbook of Experimental Economics (1995), Colin Camerer explains that “most research on individual decision making has taken normative theories of judgment and choice (typically probability rules and utility theories) as null hypotheses about behavior,” and has labeled systematic deviations from these norms “cognitive illusions” (p. 588). Camerer continues, “The most fruitful, popular alternative theories spring from the idea that limits...
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...Introduction The theory of bounded rationality is one that been a cause for discussion in economist circles around the world for many years. The theory, originally coined by Hebert Simon surrounded the limitation of humans to process the amount of information available to make a logical, economic decision and the consumer would therefore, settle for something that satisfyingly sufficient, or ‘satisfice’(Simon 1955). Furthermore, the theory expanded over time to also include mans use of heuristics to simplify cognitive effort in the decision making process (Simon and Newell 1972) and it was argued that ‘logical and economic’ decisions were never reached by humans due to emotions and judgement controlling the decision making process and causing a range of biases and errors (Tversky and Kahneman 1986). The theory identified that humans would use these heuristics, such as rule of thumb or an estimation, to find something that is satisfactory to their needs rather than making the ideal economic decision. I agree with the notion that the world is ‘too complex for people to solve problems by employing strict logical rules and comprehensive thought processes’ (Simon 1955) and am also of the belief that humans will rely on heuristics to make the cognitive process more straightforward. Rational Consumer Choice Rational consumer choice theory has been around for many years and stems from the ideal that consumers act in a ‘rational’ fashion when making economic decisions. Not as...
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...a) Explain and contrast the concept of full rationality in economics with the concept of bounded rationality in human decision making. b) What is the availability heuristic and what biases emanate from this heuristic? Answer: There is a major difference between the concept of full rationality in economics (homooeconomicus) and the concept of bounded rationality in human decision making (homo-sapiens). Rationality is a decision making process that is logically expected to lead to optimal results given an accurate assessment of the decision maker’s values and risk preferences. The rational decision procedure consists of six stages. The first stage is to define the problem using an accurate judgment. Secondly, a rational decision maker identifies all the relevant criteria in the decision making process. In the third stage, a rational decision maker has to weigh all the criteria regarding his decision. The weight of these criteria varies in importance and the decision maker knows the values they place on each one of them. The decision maker, in the fourth stage, can search and generate for alternatives until the time that the cost of the search outweighs the value of the added information. The most difficult stage of the decision maker is the fifth stage, where the decision maker has to carefully assess potential consequences of each identified criteria of selecting each of the alternatives. Rating each alternative on each criterion requires forecast of future...
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...Assignment File 1 Assignment 1 Due date: Length: 24 Nov 2014 The total length of essay-type questions should not exceed 2,000 words. Those exceeding the upper word limit will be strictly penalized. Coverage: Units 1–2 Important note You must use word processing software (such as Microsoft Word) to prepare the TMAs, and submit the TMAs via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date. Failure to upload a TMA in the required format to the OLE may result in the score of the TMA being adjusted to zero. Question 1 (20 marks) For each of the following ten sub-questions, select the best answer. Each correct answer is worth 2 marks. 1 The candy market in Asia has grown recently as more Asians imitate the American lifestyle, and Hershey has decided that to grow it must start selling to the Asian markets. This decision was part of which management function? A planning B organizing C leading D controlling 2 The marketing manager of Interstate Bakeries was asked to meet with the organization's research and development department to explain why the company needed to change its 25-year-old package design for Twinkies. The marketing manager took on an interpersonal role as: A liaison B disseminator C disturbance handler D figurehead 2 MGT B240 Principles and Practices of Management 3 Which of the following would be a part of an organization’s specific environment? A the technology it uses to make its product B new...
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...Perspectives in relations to four promin ent schools of organization theory; which are Taylor’s scientific management, Fayol’s general principles of management, Weber’s theory of bureaucracy and Simon’s discussion on administrative behavior. Rational System Perspectives There are two key elements characterizing rational systems: 1) Goal Specificity Specific goals support rational behavior in organizations by providing guideli nes on structural design, which leads to specify what tasks are to be performe d and how resources are to be allocated. 2) Formalization Formalization is an attempt to make behavior more predictable by standardizing and regulating. Formalization provides stable expectation, which is a precond ition to rationality. Selected schools The author related rational system perspectives to four schools of organizatio nal theories. Taylor’s Scientific Management (1911) Taylor Scientifically analyzed tasks performed by individual workers and disco vered the best procedure that would produce the maximum output with the minimu m input of resources. His attempts (to rationalize labor at level of the indiv idual worker )led to changes in the entire structure of work arrangement. Ther efore, efficiency improved. His four principles includes: 1) Develop a science for each element of an individual’s work. 2) Scientifically select and train workers. 3) Heartily cooperate with workers to ensure that each work is done as plan. 4) Divide work and responsibilities...
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...it leaves out emotions, which plays a big role when making a decision. The rational choice paradigm of decision making includes identifying problems and opportunities, choosing the best decision style, developing alternative solutions, choosing the best solution, implementing the selected alternative, and evaluating the decision outcome. The ultimate principle of the rational choice paradigm is to choose the alternative with the highest subjective expected utility. This involves calculating (1) the probability that each alternative will cause any of the possible outcomes to occur and (2) the value (or happiness) of those possible outcomes. When evaluating and choosing an alternative, Herbert Simon argued that “people engage in bounded rationality because they process limited and imperfection information and rarely select the best choice.” In decision making, employee involvement (also called participative management) refers to the degree to which employee’s influence how their work is organized and carried out. Employees can identify problems, choose the best alternative,...
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...demonstrates that he is an emotionally damaged character who's thoughts of revenge clouds rational judgment. Said's paranoia becomes revealed through his thoughts as he interacts with Mr. Bazaya. Said thinks that "So the bastard has friends. He'll know right away what all these greetings are about. You're probably peeking at us through the shutters now, Illish, hiding like a woman" (Mahfouz 16). Not only is there a sense of paranoia present in Said’s thoughts, but also his opinions of Illish are clearly presented as full of hatred. Illish’s betrayal of Said causes Said to seek revenge, which in turn results in his judgment becoming impaired. Consequently, Said’s actions and behaviors towards those around him lack good judgment and rationality. Said’s unwillingness to follow the Sheikh’s sage advice demonstrates how his judgment is both irrational and illogical. As demonstrated by Said’s interactions with the Sheikh, he is unable to listen to the instruction given to him by others, even those of his superiors. The...
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...Rational: The nature of names will be expressed in a speech that incorporates, my experiences, and my interpretation of names, and what the significance of names hold for humans. Incorporating my history and my experiences with the power of names, and their effects will improve the ideas and interpretations for the speech due to personal ties. My speech will outline certain traits of my name and outline the benefits and negatives that those traits have for my everyday life. Once those traits have been established and how those traits affect me, I will then go over how those traits affect fundamental words that are constant in the English language and the disadvantages of those traits or the benefits. The speech will rely heavily on the connection to my personal life, and my experiences with having a very unusual name. This is an important as the ability to draw on personal experiences enriches the speech. Being that I don't have to make up certain stories or situations and can draw on the personal feelings of those experiences. The three experiences that will be used to further exercise my point are pivotal moments that improve my understanding of the power of names and can be translated to the audience of the speech. Speech: Throughout all languages there are names, the same object can have a large number of different names. The multiple ways to represent an object each show a different perspective for all the different cultures, each with their own pronunciations and connotations...
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...Introduction The English word 'Decision' originated from the Latin word 'decisio' which means "to cut from." 'To decide' means "to come to a conclusion" or "to pass a resolution. According to Trewartha and Newport "Decision making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem." Bounded rationality The concept and associated decision model of bounded rationality was first discussed by Herbert Simon in his celebrated book Models of Man published in 1957 by John Wiley and Sons. Simon basically stipulates that individual decision making is not rational as assumed by a number of theories, especially dealing with economics issues. Individual decision making is limited by a number of boundary conditions such as the individual's intellectual traits, time, and non perfect information. Non perfect information for example, can pertain to limited access to reliable information or raw information, information corruption through layered processing and/or simply lack of information Bounded rationality and decision making. When applied to management decisions, managers, usually because of time constraints, lack of information, and cognitive factors usually make numerous daily decisions and seek to make the best possible decision considering the circumstances, rather than the optimal decision; the optimal decision would be the most rational decision under perfect circumstances. Perfect...
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...NEWCASTLE BUSINESS SCHOOL & LEARNING DEVELOPMENT GSBS6001 Assignment 1: OVERALL STRUCTURE The following is an example of how this assignment might look when finished. The word limits are indicated at the end of each section. This is neither an essay or a report; it is simply an assignment with 3 sections. It does not need to have an introduction or a conclusion. Clarity is achieved by clear section headings, and clear paragraphing. NB: our example does not reach 1500 words; further paragraphs need to be written in sections 2 and 3. The Decision A mining claim of 60 miles had to be staked, and the project manager Tom Parker decided to budget 7 days and 3 assistants to do it. He based this decision on his own physical experience and skill. He was an outdoors man, skilled in all non-technical aspects of mining claims. He himself proved able to do 8 claims per day, and he assumed that each assistant would be able to do the same. The workers were poorly paid, but if they completed the job in 7 days they would receive a $300 bonus. Parker may have negotiated this bonus with the company when he budgeted 7 days. The main outcome of this decision was that the job was not completed in time. There were several smaller consequences of the initial budgeting decision that resulted in this outcome. No planning of the details was done until after Parker and the men set up camp. Only at this stage did they consider differences in the terrain, the order of areas to be staked, and where the...
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...aspects of the concept of ‘rationality’ and how these are identified in different management theories Rationality in today’s world has become a significant facet of management in organizations. Rationality as a whole can be defined as the ability of being consistent with or based on logic (Rona-Tas, 2007). A more appropriate definition for rationality in management for this essay is, described by Simon (1972) as a style of behaviour that is appropriate to the achievement of given goals, within the limits imposed by given conditions and constraints. The principal meaning of rationality is a condition of consistency among choices made from different sets of alternatives. In his view, rationality is defined by the existence of a preference relation which is complete and transitive (Arrow, 1996) .The essay is concerned with giving a brief overview of rationality and it will also discuss the different aspects on the concept of rationality identified in different management theories. Types of Rationality Rational behaviour is behaviour in accordance with reason, behaviour that in some sense serves the actor’s interests. Most writers seem to accept that rationality is an essential premise for any science of economics. In so far as economics is a science of human action, there seems to be little one can say of action, which is unreasonable. However, much work has gone into distinguishing alternative concepts of rationality, which it is suggested, could...
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...The Thief of Time The Thief of Time Philosophical Essays on Procrastination Edited by Chrisoula Andreou Mark D. White 2010 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2010 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, NY 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data The thief of time: philosophical essays on procrastination / edited by Chrisoula Andreou and Mark D. White. p. cm. Includes bibliographical references and index. ISBN 978-0-19-537668-5 (hardback: alk. paper) 1. Procrastination. I. Andreou, Chrisoula. II. White, Mark D., 1971– BF637.P76T45 2010 128'.4—dc22 2009021750 987654321 Printed in the United States of...
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...leading North American manufacturer of chocolate confectionery (The Hershey, 2014). The company uses cocoa suppliers in West Africa, where the harvest type of child labour and human trafficking is exposed in the chocolate industry. Thousands of children are forced to engage in unsafe activities such as using machetes and carrying heavy loads. Therefore, the majorities have scars on their body (Nieburg O., 2014). Nearly two million children work illegally on cocoa farms. Children from the Western Africa start to work at a young age of 12 to help their families because of the intense poverty that surround them (Louv J., 2014). Decision-making models • Bounded Rationality In order to address the issue of child labour and to build sustainability in the community, Hershey Company should follow the Bounded Rationality style of decision- making. The rational decision making model is very effective in the cocoa farms as it’s based on the rational thinking in order to come up with the best potential results. It gives the possibility to find possible solutions to the child labour issue, to calculate the consequences of them and finally to choose the best option. There is a cycling through different choices until an applicable one is found (Cioran N.A., 2013). • Varoom and Yetton’s Leadership On the other side, referring to the Varoom and Yetton’s Leadership and Decision-making (1973), it also can be an effective model in order to help the Hershey to respond successfully...
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...then the price mechanism take over and lessen all the claims on resources and subsequently lead to meet market equilibrium. Sometimes, two filters (Islamic and conventional) can make it possible in making optimum economy, due to may be one filter not able to fulfill the market needs of all human being. This two filter can be together in order to use only the necessary resources to satisfy the material as well as spiritual needs of all human being. Besides, it also can reduce the concentration of wealth in a few hand to rise saving, in order to promote for a greater investment and employment. Other than that, help to be rational economic man also one of the differences between the Islamic economics and the conventional economics. Rationality is a need in human life which leads to be human behavior....
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