Rationality through Heuristics
Discuss about the Master of Business Administration for Human Decision Processes.
The purpose of this essay is to provide a brief introduction about the application of decision making process initiated by the human mind in order to solve complex situations present in real world. The essay explains the quote given by Herbert A. Simon for the decision making process of an administrative leader in the environment. Simon explained the concept about rationality in terms of the heuristics; further the report also explains three discrete concepts that evaluate the bias in decision making process that are bounded rationality, availability and representative. It should be noted that the theory of organization cannot subsist without the rational choice of the theory, which is best described as intendedly rational based on two types of economic man, consumer and entrepreneur (Thompson, 2018).
Heuristics refers to the mental decision taken by the people present in the society with an aim to solve the complex issues present with them. Talking about the quote, it should be noted that with this quote Simon, aims to explains that the human minds holds very little capacity to solve the complex problems by themselves. These complex issues are regarded as major issues for which the human mind is incapable to successfully implement activities (Appendices 1). The solution of these problems is required for the objectively rational behavior in real world. The aspect of bounded rationality explains that how the judgment is being made by the person in the environment, apart from evaluating the outcomes of the decision, it also evaluates the class of environments in which the judgments might fail or succeed (Zsolnai, 2017). These decisions are fast and do not depend on any aspect resulting to which, there might be a chance of error in this type of decision making process. Whereas, on the other hand rational behavior refers to the process of decision making that is dependent on various factors. Due to the presence of such diversified aspects the human being initiated a decision that provides benefit to them in both monetary as well as non-monetary terms. The benefits can be attained either in monetary terms or through fulfillment of emotional needs whereas Simons under this case constantly attempt to create a theory that involves human behavior and other several characteristics of heuristics (Wittmer, 2016).
Availability heuristic is dependent upon the way to form a judgment for an issue. The decision might be dependent upon the profitability margin of the company that might not provide accurate decision. For instance, people assume higher percentage in the cases of crimes that includes violence irrespective of the actual account. This type of decision of people is based on the past records, opinions etc. (Ajzen, 2015). The concept explained Simon stated that it is important for people to think rationally in order to take decisions according to the satisfaction level of people in the environment. He also explained in the theory that the capacity of the mind of an individual in solving the problem with respect to the actual real-problem is really less (Appendices 2). The people do not have enough capacity to look at all the available aspects analyze them and take the right decision (Marshall, Ambrose, McIvor, & Lamming, 2015).
Bounded Rationality, Availability and Representative in Decision Making
Source: (https://aspirantforum.com/2016/06/13/simons-concept-of-decision-making/)
Further, one of the types of heuristic is the representative heuristic that is also called as the mental shortcut for decision making process by comparing the real information with the mental prototype of a human being. For instance, if an elder woman gives love and care to the person in the environment, then it is regarded as the love and care of their grandmother. Thus, it should be noted that in the cases of Representative Heuristic, the person uses different dimensions and categories to implement a judgment. According to Simon, this type of skill of implementing decision is based on the rationale of a person and is limited to an individual if compared as a relative problem (Cuesta, et. al., 2015). Further, bounded awareness rationality refers to the economic behavior of a person towards the decision. The aspect of bounded awareness rationality covers thee different views between rationality and behavior. It should be noted that under this case, the behavior process requires selection of a choice that results in occurrence of various other alternatives of behaviors. Thus, the process of decision is initiated in the environment by selecting one of the possible alternatives of behavior and working accordingly. In this way a decision is initiated in the environment on the basis of bounded awareness rationality. Simon also defined bounded rationality as the relation between the pre-established ends and the ways to reach the expected ends (De Groot, Thogersen, & Schubert, 2016
. These expected ends have different specifications in terms of value due to which it is way beyond the scope of a person to attain them. Further, it should be noted that, this type of relation depends upon the question of facts, the evaluation of this question is based on three steps that are, (i) point out the list of the all possible outcomes, (ii) identification of the outcomes that will follow the alternative options listed out and lastly, (iii) measuring all the alternatives and evaluating the outcomes for the each set of alternative options (Filippini, Hirl, & Masiero, 2016).
In the administrative Behavior, Simon gave important to the variance between the effective and theoretical behavior with the assumption of global nationality that includes the recognition of all the possible options related to the behavior. This aspect also includes anticipation of the consequences of the behavioral options and the valuation and measurement of the outcomes of the consequences of every aspect (Appendices 3). But the person faces a problem in evaluating the possible outcomes as the skills involved with the human mind is limited, resulting to which they face difficulty in evaluating all the possible outcomes and identify the correct and appropriate decision. Although there is presence of computers and different software in the environment but these tools are also used by the human in the environment due to which efficiency of these resources is also limited in the environment (Dhesi, & Ausloos, 2016).
Organizational Behavior in Rationality of a Business Environment
Further, apart from this, organizational behavior is the least natural but mostly rational unit present in the business environment that is associated with the decision making process of an economic man. However, organizational behavior is most hollow concept for the organization whose employees are perfectly rational individual. This occurs because of the restriction of the human mind and knowledge to attain a specific goal in the target market that is aimed by the way of communication or use of knowledge and skills in the environment to solve the problem in the organization or between the employees (Stockhammer, Qazizada, & Gechert, 2016).
The theory of organization for the rational behavior is mainly concerned with the attainment of the information of the limitations and drawbacks present in the organization that acts a barrier for the organization to achieve their desired goals and objectives. The entrepreneurial principles of the economic theory are only related to the external factors like the demand and supply, interest of the employees of competitor’s firm. Further, procedural rationality is the process of simplification of the system of choices that is being introduced and advanced by Simon. This aspect includes two major elements that are computation and satisfaction. The two elements of procedural rationality are social as well as psychic on the emotional and non rational factors of human behavior (Brown, & Zhang, 2016). This type of theory majorly focuses on the behavior of selection and the choices that are to be applied by people. These choices should be applied by the individuals in the environment on the basis of the outcomes of the events and the aspects taken into consideration. This theory majorly focuses on the selection behavior of the people and the choices that are to be applied by them in response to certain events. The general procedure of occurrence of uncertainty in the choice implemented by people on the basis of their assumptions present in the environment and their knowledge about the future aspects is defined in the form of probability distribution. With reference to the statements given by Simon for the rationality behavioral computation and the satisfaction, its elements are irrational and interrelated as well (Prasertsom, 2015).
Further, in order to manage the aspects of procedural biasness, a person has to evaluate their personal skills and rationality between the computation alternatives and satisfactory result that can be achieved. The procedural rationality explains the extent to which the values were evaluated in the computation of the information for the economic and behavioral theory. Moreover, the key to an effective and appropriate result is present in the substitutional goal. This process is initiated to find the best result of the event (Dryden, 2014). Thus, it should be noted that the above mentioned essay explained rational behavior in terms of the limitations present in knowledge and aptitude of a person with respect to the purpose of achievement of goals in the environment. This concept defined rational behavior with the help of three critical concepts namely availability, representativeness and bounded awareness (Tompkins, & Anderson, 2015). The essay also explained the behavioral rationality including the bounded rationality and procedural rationality. The essay explained that due to the presences in the human mind and thinking skills, it is difficult for people to initiate a qualitative decision that includes value for future along with monetary profitability.
Procedural Rationality
The purpose of this report is to provide a brief information about a real world case scenario under which the organization made a decision on the basis of the three heuristics. The report explains the decision making scenario of the organization, applicability of the three concepts and answer of the four questions given in the case. It should be noted that from the above mentioned essay, it was analyzed that the human mind is not capable to make effective decisions alone due to presence of limitation in the mind. In response to which the decision making process is biased to some aspects present in the environment (Bennett, & Pearson, 2015). The case in this report is being analyzed on the basis of three biases namely, availability, representativeness and bounded awareness.
The decision was implemented by the company Boeing in the year 1952 when the company bets big on the 707. Boeing is one of the most dominant company present in the aviation industry, the company has not made this image in the market so easily, but it took courage of the leader, hard work, contribution of the employees. In this way only the organization achieved a reputable position in the market. Talking about the time of 1952, the year following to the World War II, with the industry of US was retooling the civilian production, at that time Boeing was the only maker of the military aircrafts in the industry. The most famous products of the company B-52 bomber and the companion tanker had proven that the Seattle Company always uses the right products for enhancing their jet aircraft technology. But Jets were not commercially viable for the airlines as the conversion of jet technology requires high amount of investments that can easily blotch their bottom line (Paur, 2010). The safe choice for the company would have been that they would only produce defense industry knitting. However, the company did not planned the same; the president of the company William McPherson at that time made a prototypical decision, they made bet the company move on civil aviation producing a single product in the market. This was a major decision that was initiated by the company to switch from one product to another. Although, the company was earning well in the respective market, still the president of Boeing made such changes to enter in the civil aviation market.
The leader of the company was convinced that would definitely purchase the products from the company and this aspect will actually provide real growth to the company in the external target market. Through this act, the leader was risking the whole future of the company; one wrong decision in this case can make the company to suffer. In the same year, the management of Boeing convinced the Board of management of the company to invest $16 million in their organization so as to produce the Boeing 707 product. It was the first US transatlantic commercial jetliner and the plane that would totally change the course of Boeing history (Fortune Editor, 2018). The use of the 707 product increased with time and became a cultural icon as a transportation vehicle. This product was the greatest achievement of Boeing till date; the president of country along with some major organization praised the initiative of the company. It was told that Boeing invested $185 million in the year 707, however according to the article posted on Fortune in 1957; it was $36 million more than the previous year’s net worth of the company.
Thus, it should be noted that it was the biggest decision of all times to change the line for the company and produce new product in tough situations as well.
- Firstly, it should be noted that according to this aspect, the organization should initiate the opposite decision according to the statistics. While producing jets the company was earning profits only. However by producing the organization can gain first mover advantage. Further, availability biased refers to the bias in the decision making process under which the decision implemented by the leader becomes biased by looking at the profitability margin and numeric details of the company. In the current scenario, the bias is evaluated in such a way that the management of the company sees great future in the aviation industry (Schwartz, 2016). They aimed to gain first mover advantage by entering in this industry (Appendices 4).
- It should be noted that there are no certain ways to measure the availability bias in the decision, but it can be easily measured by the revenue earned by the organization. The higher level of revenue for the company increases the availability bias for the management to initiate such decision in the environment.
- The above mentioned aspects explained the bias in the scenario, further, it should be noted that the availability heuristics is making the decision effective to some extent (Bazerman, & Sezer, 2016). There is no need to implement effective strategies for the company to overcome bias as the company has already enacted according. Decision would be biased when the company would have not used the idea of creating airlines for the civilians. But, analyzing the future outcomes of the event, the profits that the company can get in future attracted the leader of the organization due to which they initiated such actions.
- As discussed above that the decision outcomes were already used as the best for the company (Maitland, & Sammartino, 2015).
- Representativeness refers to the mental shortcuts that the person forms by looking at the circumstances. Under this process the people generate a decision that is biased of an event that has low probability. The action is initiated accordingly when there is presence of strong context proposition behind the event. Further, the production of civil aircrafts for the people attracted the company due to strong representation of the products. As no company was present in that industry before that made the company think that they have high probability to earn (Noval, & Stahl, 2017).
- The biased can be measured with the help of common method bias in the environment.
- Talking about the ways to overcome the bias, it should be noted that, the management of the company should not form their personal opinion of the basis of the mental shortcuts. They should evaluate all the available circumstances and events and then initiate an action actively. As the Boeing 707 project looked interesting to the company, but they should not initiate this action leaving the jets production behind. Instead they should count the actual probability of the event and then initiate actions actively.
- This process can increase the extent of profits for the company. By focusing on producing jets and provide the defense services to the US military, the company should have gained differentiation in the market (Zeni, Buckley, Mumford, & Griffith, 2016).
- Bounded rationality bias says that the human mind will attempt to satisfy rather than optimize. The people in the environment attempt to make a decision that is good enough, rather than the decision that is best for the organization (Blumenthal-Barby, & Krieger, 2015). According to this aspect, the decision is biased because the organization has resources along with efficiency to increase the revenue of the company by producing jets in the market. But they chose other option that was good but not best (Appendices 5).
- There is no fixed method to measure or evaluate the biasness present in the scenario.
- Talking about the strategies, it should be noted that the company should look for the opportunity cost of the action implemented by them in the environment. The company has possibility to earn well then they are sticking to their products and gaining specialization in it (Dane, & Sonenshein, 2015).
- This process will help the company to gain specialization in the work that they perform and gain maximum profit as well.
Conclusion
Thus, in the limelight of above mentioned events, it should be noted that the company Boeing implemented the best decision according to the theory of decision making. There are several bias present in the environment relating to availability, representativeness and bounded rationality that affects the decision making process of the organization. The above mentioned report clearly relates the decision implemented by the management of Boeing with respect to these heuristics presents in the environment. The report justifies the requirements of the assessment.
References
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