COMMERCE 1BA3 Lecture Notes - Lecture 11: Bounded Rationality, Risk Aversion, Synergy Group
27 Nov 2017
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Document Summary
Decision making: the process of developing a commitment to some course of action (the escalation of commitment theory). Escalation of commitment: the more resources you commit, the more you are committed. The difference between rational vs. bounded decision-making (ie. what prevents you from making rational decisions) The rational decision making process: identify problem, search for relevant information, develop alternative solutions to the problem, evaluate alternative solutions, choose the best solution, implement chosen solution, monitor and evaluate chosen solution. The problem: this is not what happens: ideal: described how they should be made, but things get in the way, suggests that decision are based off of careful and calculated understanding of all the alternatives. Perfect rationality: decision strategy that is completely informed, perfectly logical and oriented towards economic gain (ie. an economic person). Perfectly rational characteristics don"t exist in real decision-makeres. Bounded rationality: relies on limited information and reflects time constraints and political considerations.
