Bounded rationality and cognitive bias
Problems are an inevitable issue in the life of the individuals. The most common expression related to the problems is resistance. This is in terms of the intensity of the complexities, which compels the individuals to take troubles and difficulties. The approach exposed towards the problem helps in achieving efficient and effective resolutions (Simon, 1957). This determination is one of an important component of the human mind, which enables the people to attain growth and development. This segment of the assignment would peek into the behavioural approach of the individuals upon encountering problems.
As per the arguments of Bazerman and Sezer, (2016), human mind is a mere fragment of the materialistic world. This is in terms of the incapability of tackle with complex and weird problems. This can be explained through the views of philosopher, John Locke. He opined that when a child is born, his mind is like a “blank sheet”, which indicates the free flow of ideas. The child loves to explore the materialistic world, which bestows differing and wide ranging ideas. This exploration develops his maturity. Slowly and gradually, its maturity develops. However, Hoefer and Green, (2016) is of the view that upon experiencing complex problems, individuals understand the complexities, within which they are entrapped. This is the reason for exposing resistance towards accepting the problems.
It is natural and obvious that humans would shed off their responsibilities from the potential problems, which they have to deal with. This approach might be considered as irrational, however, in terms of the behavioural psychology of the humans, it is obvious and rational (Deligianni et al., 2016).
This is the concept, which relates with the behavioural approach of the individuals towards decision-making. As per the opinions of Puranam et al., (2015), rationality and objective are the two components here. In this case, there are two types of binary relations, which can be established. Along with this, there are two conditions in this context: rationality of the people in terms of decision-making and the sense in which the decisions are undertaken. The main aim is to see that the extent to which the decision-maker can convince others for assessing the effectiveness, appropriateness and feasibility of the undertaken decisions. Example can be cited of the optical illusion, which seems to deceive the human mind. This is because optical illusion provides a hallucinating escape from the worldly responsibilities. When the individuals go through optical illusions, rationality takes a backseat. This is in terms of happiness for gaining an escape from drab monotony, no matter even if it is temporary. In terms of solving the optical illusion, individuals encounter traps, which are an obstacle in the process of learning. As a matter of specification, the individuals gain awareness about the demarcation between reality and the appearance, which relates with the aspect of cognitive bias.
System thinking and evaluation
Simon’s approach excavates three approaches towards decision-making: bounded rationality of the agents; quality of the decision maker and understanding towards decision making. Gershman, Horvitz and Tenenbaum, (2015) opines that analysis of these approaches helps in determining the appropriate approach needed for solving complex problems. However, materialistic complexities of the world can be correlated with the bounded rationality. This is in terms of the limitations, which aggravate the complexities for the individuals in terms of undertaking effective resolutions for solving the complex problems. In this sense, objective rationality is inapprorpriate, as the individual himself lacks the confidence about taking effective resolutions. This assertion reflects the variable functionality of the decision maker. Countering this, in the arguments of Gabaix, (2014), variability expands the scope and arena of the individuals. This expansion is necessary for enriching the knowledge, skills and competencies towards problem-solving and decision-making.
The approach of understanding decision-making brings cognitive theory into the discussion. Reference can be cited of the Freud’s stages of development. Ideas, thoughts, emotions and feelings are the agents, which assist the individuals in attaining mental growth and development. Simon does not support the concept of bounded rationality. This is because he feels that experiments do not suffice the need of support for the agents. Countering this, indulging in experiments diversifies the thought processes of the agent, bestowing differing and wide ranging ideas for resolving the problems. Moreover, the experiments are assistance for the agents in terms of deducing conclusions from the acquired and the collected facts (Li, Ashkanasy & Ahlstrom, 2014). These conclusions enable the agents to seek an insight into the intensity of the complexity levels of the problems. Example of rational behaviour is evaluation of the collected solutions for reaching to the most appropriate one. One of the other components of rationality is to adopt alternatives. This is in terms of saving the available time for acquiring relevant solutions for solving the problems. This step is effective in terms of solving wicked problems, which are complex. Biases in decision making can be explained through the aspect of cognitive bias. Usually, humans refrain from altering the decisions already taken. This reflects that rethinking is a complicated task and strenuous, as it put pressures in on the human mind in terms of synthesizing the known facts. Ignoring certain information is easier, which reflects the consideration regarding the threat of new information. This is the obvious characteristic trait of the humans, which confirms the ideas for decision making.
Size of the problem and risk assessment
Psychologists are of the view that rationality theories help in determining the behaviour of the agents regarding solving the problems. Psychologists are of the view that the discovered behaviour of the agents is entirely different from the expectations from the rational agents. However, Simon is of the view that humans practice bounded rationality in terms of taking effective solutions for the problems (Simon, 1957). The bases for his propositions are complicated circumstances, which limit the thought process of the individuals. Along with this, confusing learning system also acts as a challenge in terms of undertaking effective decisions for the solving the problems. Along with this, time and financial constraints limit the thought processes of the individuals in terms of undertaking effective decisions for solving the complex problems. Countering this with the arguments of Pippin, (2017), evaluation proves effective in terms of gaining an escape from the bondage of constraints. In this evaluation, mention can be made of the “uncertainty”, which is an inevitable aspect.
System thinking is an important concept in terms of enhancing the thought processes. Typical components of systems thinking are mind mapping, journey mapping, and rapid prototyping among others. Mind mapping helps the decision makers in enhancing the awareness about the proposed solutions. Babbitt, (2018) opines that diagrammatic representation of the concepts upgrades the knowledge about the problems and its complexities. This mind map, if linked with the proposed solutions, is assistance in terms of making estimates regarding their effectiveness. The sequential step is journey mapping, which helps the persons in recapitulating the analysis, which has been developed till the current stage. However, Gilboa, (2015), argues that this journey mapping is also assistance in terms of upgrading the skills, expertise and knowledge regarding the possible avenues, which can be adopted for reaching to the appropriate solution.
Bias in system thinking relates to the errors in the memories of the systems, which disrupts the judgmental decisions undertaken by the people. This aspect can be explained through the system 1 and system 2 thinking. System 1 is reflective and the system 2 is reflective. System 1 has no voluntary control. System 2 needs attention towards solving complex computation issues. Both these systems incorporate psychological bias, where social proof and liking bias occupy an important position.
Rationality is important in terms of enhancing the personality. This rationality determines the characteristics of the persons. Herein lays the appropriateness of behavioural theories. Seeking effective ways for gaining control over the thoughts, feelings and emotions is a planned behaviour in terms of reflecting maturity. This is also applicable in case of decision-making. Consideration of bounded rationality while making decisions is fruitful in terms of gaining awareness towards the constraints and the challenges. As per the opinions of Hoefer and Green, (2016), these constraints can be considered as the components of objective rationality. This is because of the complex problems, which the individuals need to deal with.
Materialistic objects of the world reminds the individuals of the responsibilities, which they have to fulfil for dealing with the survival strategies. Referring to external sources helps the persons to enhance awareness regarding the ways and means of solving the problems. The more diverse the reference is, the more is the number of possible solutions. Mere acquiring the solutions is not enough. Evaluation needs to be carried out in terms of reaching the appropriate solutions. On the other hand, Puranam et al., (2015) feels that for conducting the evaluation properly, the humans need to upgrade their learning processes through the means of system 1 thinking. This aspect brings cognitive learning theory into the discussion. The reflexive approach helps the individuals in gaining control over their expressions and actions. Herein, mention can be made of classical observation, which generates different ideas and thoughts on the minds of the individuals. This observation enriches the preconceived skills, expertise and knowledge of individuals.
One of the aspects here is the size of the problem, which enables the individuals to seek an insight into the complexity levels. Herein mention can be made of the risk assessment. Consciousness towards executing the risk assessment is an example of planned behaviour in terms of predicting the occurrence of the problems.
Apart from this, consideration of problem solving cycle is also helpful in terms of gaining effective resolutions for the problems (Gabaix, 2014). The integrated process of the cycle provides the necessary guidance and support to the individuals in terms of mitigating the risk and complexity levels of the problems.
Conclusion
Bounded rationality, objective rationality and systems thinking are the essential concepts in terms of decision-making. These components play a crucial role in determining the behaviour of the individuals towards decision-making process. Bounded rationality relates with the worldly responsibilities, which limits the thought process. Time and financial constraints adds to the limitations of the achieving effective resolutions. System thinking is one of an innovative solution for seeking an insight into the ways and means of emerging successful in solving the potential issues. Objective rationality enhances the awareness of the individuals regarding the demarcation between the reality and the appearance. Objective rationality expands the scope and arena of the judgments, assisting the individuals to enhance their reflexive and reflective approach.
References
Ayer, A. J. (2016). Free will and rationality. In Free Will and Reactive Attitudes (pp. 49-58). Routledge.
Babbitt, S. (2018). Impossible dreams: Rationality, integrity and moral imagination. Routledge.
Bazerman, M. H., & Sezer, O. (2016). Bounded awareness: Implications for ethical decision making. Organizational Behavior and Human Decision Processes, 136, 95-105.
Deligianni, I., Dimitratos, P., Petrou, A., & Aharoni, Y. (2016). Entrepreneurial orientation and international performance: The moderating effect of decision?making rationality. Journal of Small Business Management, 54(2), 462-480.
Gabaix, X. (2014). A sparsity-based model of bounded rationality. The Quarterly Journal of Economics, 129(4), 1661-1710.
Gershman, S. J., Horvitz, E. J., & Tenenbaum, J. B. (2015). Computational rationality: A converging paradigm for intelligence in brains, minds, and machines. Science, 349(6245), 273-278.
Gilboa, I. (2015). Rationality and the Bayesian paradigm. Journal of Economic Methodology, 22(3), 312-334.
Hoefer, R. L., & Green Jr, S. E. (2016). A rhetorical model of institutional decision making: The role of rhetoric in the formation and change of legitimacy judgments. Academy of Management Review, 41(1), 130-150.
Li, Y., Ashkanasy, N. M., & Ahlstrom, D. (2014). The rationality of emotions: A hybrid process model of decision-making under uncertainty. Asia Pacific Journal of Management, 31(1), 293-308.
Pippin, R. B. (2017). Hegel and institutional rationality. In GWF Hegel (pp. 59-84). Routledge.
Puranam, P., Stieglitz, N., Osman, M., & Pillutla, M. M. (2015). Modelling bounded rationality in organizations: Progress and prospects. The Academy of Management Annals, 9(1), 337-392.
Simon, H. A. (1957). Models of Man Social and Rational, Mathematical Essays on Rational Human Behavior in a Social Setting. Herbert A. Simon,… J. Wiley and Sons.
The concept of bounded rationality can be explained through the example of volatile stock market situations. The conditions of the market are constantly changing, making the process of setting the prices difficult. This difficulty aggravates the complexities of the investors. Usage of heuristics helps the investors to ease the process of decision-making (Psychopedis & Bonefeld, 2017). This is in terms of maintaining the pace with the varying nature of the stock market. Adherence to the norms and external reference is assistance in terms of mitigating the intensity of the risk and the complexity levels.
In case of bounded rationality, the bias is that of cognitive bias. This biasness relates with the learning process of the individuals in terms of decision-making and problem solving. Aligning within the example, other investors are waiting to invest in the stock market. He would be waiting for the environment to be suitable for gaining positive results. According to the opinions of Dietze, (2017), in such a scenario, providing opportunity to the other investors would be a bias. It would be a deprivation for the investor from his rights.
The approach of the investor indicates the biasness, he has faced. The variability of the stock market made him depressed. Ayer, (2016) feels that the most common expression is dejection in terms of achieving prospective results. He makes desperate attempts to search for avenues, which would lead him towards success.
Biasness in the example is measured in terms of risk assessment. After assessing the risks and the complexity levels of the stock prices, it needs to be transmitted to the investors. This is in terms of influencing the purchasing decisions of the investors. Adoption of risk assessment methods and risk assessment cycle proves beneficial in terms of exposing appropriate approach towards achieving effective resolutions (Puxty & Chua, 2015).
Planning for discussions and open forums is beneficial in terms of gaining an insight into the intensity of the problem and necessity to achieve solutions. Indulging in meetings with the higher authorities is assistance in terms of assessing the effectiveness of the proposed solutions. Along with this, consideration of design thinking process also adds diversification to the thought process. In the opinions of Yang, Toubia & De Jong, (2015), activities like mind mapping, journey mapping and rapid prototyping is necessary in terms of upgrading the knowledge towards the assumptions towards problem solving.
Mind mapping for the assumptions enhance the awareness towards problems and their complexity levels. Journey mapping is assistance in terms of projecting the path adopted for solving the complex and the wicked problems. Rapid prototyping proves beneficial in terms of diversity the technological skills in terms of solving the problems. Gigerenzer & Goldstein, (2017) feels that Graphs, charts and tables is assistance towards the projecting the future scope of the assumptions.
Here, the example considered for discussing the aspect of objective rationality is the different situations, which the investors encounter in the process of investing in the stock markets.
Upon encountering varying conditions of the stock market, it is natural and obvious that the investor would be in a difficulty. In addition to this, if he does not get conducive environment to invest, then he would feel incapable of exerting his purchasing power. Moreover, lack of support from the service providers makes the investor feels that the methods adopted for achieving positive results has been inappropriate (Felin, Kauffman, Koppl & Longo, 2014).
Conducting talks and sessions with the investors provides easy understanding towards their mindset. Herein lays the effectiveness of the therapies, which excavates the reasons behind such behaviour. Planned approach in this direction is adopting the means of survey and feedback from the clients regarding the stock market prices. AZccording to the arguments of Roehrich, Grosvold & Hoejmose, (2014), biasness in data collection would not be a reasoned approach in terms of regulating the thought process of the samples.
Strategies are a planned and reasoned action towards removing the bias. Rationality in the process of data collection is vital in terms of establishing reliability and validity regarding the creation of conducive environment of stock market. However, this creation is impossible due to the unpredictable conditions. Therefore, consideration of uncertainty avoidance would be effective in terms of exposing cautious approach towards dealing with differing, wide ranging and variable conditions of stock market (Skovgaard, 2014).
Rationality would reflect from the adoption of Data Protection Act (1998) while seeking an approach towards the mindset of the samples. Along with this, control over the emotions upon the response of the samples would reflect a rational approach. Maturity would be projected if time and financial constraints are taken into consideration. Within this, a leadership trait would be to calculate the uncertainties and unavoidable conditions. Involving the clients and the customers in meetings would help in preparing solutions for overcoming the inevitable issues. At the initial stage, it is obvious that the members would not take proactive initiatives towards proposing the solutions. This is natural and obvious, as they do intend to engage themselves in the complex situations. Romiszowski, (2016) opines that this is the stage for the managers in terms of acting the role of a leader in terms of motivating the investors. Rationality in the approach is bound to acquire the satisfaction of the investors, yielding good results in the stock market. Emerging capable in luring the investors is assistance in terms of influencing the decision-making process of the clients.
In order to explain the concept of system thinking, technological and judgmental skill development of the employees has been taken as an example.
In the modern competitive world, companies and organizations need automation. This is in terms of luring more and more customers. However, lack of proper technical skills compels the brands to encounter vulnerability in the market position. Even through the companies and organizations are using systems, absence of adequate skills stalls the productivity. However, in the arguments of Kaner, (2014), these issues reflect the need for system thinking in case of the personnel. Critics possess different views regarding the transmission of technical skills to the employees. This is in terms of improper skills, capabilities, competencies and capabilities towards grasping concepts like rapid prototyping, cloud computing among others.
Most of the companies conduct tests for assessing the capability of the employees towards making effective use of the systems. This is in terms of executing the allocated tasks in an effective and effective manner (Brown-Liburd, Issa & Lombardi, 2015). Typical example of this is the post training tests. Here, training can be related with the aspect of cognitive learning, as the employees learn to operate the systems through practical experiments. Mention needs to be mentioned about the different grasping power of the employees. Mostly, it is seen that the managers expose biasness in terms of awarding scores for the performance.
Counselling and training the employees is one of an effective means of measuring the biasness. This approach is a good practice, indicating rational decision making. If discussions and open forums are conducted by the managers, then they get an insight into the mindset of the employees. Kaner, (2014) also opines that focusing on the jobs generates boredom within the employees. Instead, if the managers intend to delve deeper into the mindset of the employees tactfully, it yields. This tactfulness improves the decision-making process of the managers. This tactfulness is considered as an essential behavioural trait of the managers in terms of preparing the employees for the real competitive market scenario.
Prior to the training, the managers need to conduct market research about the latest and the modern system. This research would upgrade their preconceived knowledge about technology. After this research, the managers can indulge in meetings with the board of directions for conducting mind mapping and journey mapping. On the other hand, Romiszowski, (2016) argues that sequentially, assessment needs to be done for the feasibility of the proposed solutions in terms of the identified aims and objectives. This assessment would seem fruitful in terms of making estimates about the progress with the current strategic condition. Conscious approach of the managers to upgrade their knowledge, before transmitting them to the employees, is a rational approach. Considering the time and the financial constraints would reflect the consideration towards bounded rationality.
Mind mapping and journey mapping are crucial in terms of enhancing the decision-making process of the managers. Mind mapping would upgrade the knowledge about the latest and modern software and its impact on the business operations as a whole. The branches in the diagrammatic representation would enrich the knowledge related to the contribution of system thinking on the business dynamics of the operational units (Skovgaard, 2014). Journey mapping would be effective in terms of informing the clients about the methods adopted for reaching juncture. Rapid prototyping would broaden the scope and arena of the knowledge horizons of the personnel. 3D representation of the proposed solutions would enrich the visual skills, improving the observation power. This enrichment would further act assistance in terms of preparing effective technological training for the employees. PowerPoint presentations on the financial constraints and the challenges would reflect the conjoined consideration of bounded rationality and objective rationality (Felin, Kauffman, Koppl & Longo, 2014).
References
Ayer, A. J. (2016). Free will and rationality. In Free Will and Reactive Attitudes (pp. 49-58). Routledge.
Brown-Liburd, H., Issa, H., & Lombardi, D. (2015). Behavioral implications of Big Data’s impact on audit judgment and decision making and future research directions. Accounting Horizons, 29(2), 451-468.
Dietze, G. (2017). The limited rationality of law. In Rational Decision (pp. 67-88). Routledge.
Felin, T., Kauffman, S., Koppl, R., & Longo, G. (2014). Economic opportunity and evolution: Beyond landscapes and bounded rationality. Strategic Entrepreneurship Journal, 8(4), 269-282.
Gigerenzer, G., & Goldstein, D. G. (2017). Reasoning the fast and frugal way: models of bounded rationality. In Risk (pp. 149-189). Sage.
Roehrich, J., Grosvold, J., & U. Hoejmose, S. (2014). Reputational risks and sustainable supply chain management: Decision making under bounded rationality. International Journal of Operations & Production Management, 34(5), 695-719.
Kaner, S. (2014). Facilitator’s guide to participatory decision-making. John Wiley & Sons.
Psychopedis, K., & Bonefeld, W. (2017). Human dignity: social autonomy and the critique of capitalism. In Human Dignity (pp. 9-18). Routledge.
Puxty, T., & Chua, W. F. (2015). 7 Ideology, Rationality and the Management Control. Critical Perspectives in Management Control, 115.
Romiszowski, A. J. (2016). Designing instructional systems: Decision making in course planning and curriculum design. Routledge.
Skovgaard Poulsen, L. N. (2014). Bounded rationality and the diffusion of modern investment treaties. International Studies Quarterly, 58(1), 1-14.
Yang, L., Toubia, O., & De Jong, M. G. (2015). A bounded rationality model of information search and choice in preference measurement. Journal of Marketing Research, 52(2), 166-183.
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