BOUNDED RATIONALITY

BOUNDED RATIONALITY


This concept suggests that the managers may not always be perfectly rational in decision-making. Their decision-making ability may be limited by certain factors like Cognitive capacity and Time Constraints. The concept of bounded Rationality was offered as a framework to facilitate better understanding of the actual process of managerial decision-making. According to the concept of Bounded Rationality, the following factors commonly limit the degree to which manager are perfectly rational in making decision:

(i) Decision makers may have inadequate information about the nature of the issue to be decided. They may also not possess enough information about possible alternatives and their strengths and weaknesses.
(ii) The amount of information that can be gathered in regard to particular decision is limited by time and cost factors.
(iii) Decision makers may overlook or ignore critical information because of their perceptions about the relative importance of various pieces of data.
(iv) The degree to which decision makers can determine optimal decisions is listed by the individual’s capacity and intelligence.
(v) The inability to remember large amount of information is another factor that limits the ability of the managers to make rational decisions.