Essay Example on Decision Making Theories

When it comes to making a decision, some different models and theories will help decision-makers come up with the desired decision. Decision-making theories can range from objective rational decision making, where individuals will make the same decision given the same information and preferences, to subjective rational decision making, where certain contexts matter in the decisions that the individuals make (Nitta, 2013). Rational choice and bounded rationality are some of the normative theories that can help decision-makers to arrive at the best decision. The rational choice theory states that decision-makers make decisions that are most aligned with their personal goals (Amadae, 2016). Contrastingly, bounded rationality states that decision-makers have limited rational decision-making due to three factors: limited knowledge, time constraint, and cognitive limitations (Boyce, 2021). Both theories are highly practiced by many disciplines, such as economics and psychology (Tyson, 2013). Yet, they both have their advantages and disadvantages, which will be discussed soon. 

In rational choice theory, decision-makers will study alternatives, evaluate consequences from each alternative, and decide on what they believe has the best consequences for themselves. Rational choice theory is most effective when information is maximized. This theory can often be seen in the stock market where investors would quickly buy any stocks that are priced lower than what would be expected and short sell any stocks that are priced too high (Ganti, 2021). This is to guarantee that the investors get the maximum profit and minimal loss. This theory, however, does not apply well to new acquisition systems, where information about the systems can be extremely limited. This theory only works when all the information is presented for the decision-maker to make a complete preference. 

Contrastingly, bounded rationality addresses some of the major flaws in the rational choice theory by heavily emphasizing the limitations of humans’ ability to process and optimize information (Boyce, 2021). The main advantage of employing this theory is that it is more realistic compared to rational choice theory. As stated earlier, it is extremely difficult to obtain the perfect information nowadays. Therefore, when facing such a situation, decision-makers may opt to satisfice instead of spending time and effort analyzing the situation. By making a satisficing decision, the outcome is acceptable for the problem rather than optimal. This theory can be found when making decisions on acquisition systems that have limited information available to analyze. Many leaders in the government sector have made decisions based on the known information along with experience and subject matter expert’s opinions. However, this theory only works if all the risks and uncertainties were identified and analyzed correctly. If not done correctly, the decision can give serious consequences that would result in loss of money, time, and effort. 

In general, there are many different types of models and theories that can help one to arrive at the best decision. However, the decision context needs to be seriously considered before applying the chosen theory. Both theories have both advantages and disadvantages, hence, it is recommended that the decision-makers should only utilize the mentioned theories based on a certain situation. 

References

Amadae, S. M. (2016, November 2). Rational choice theory | Definition, Examples, & Facts. Encyclopedia Britannica. https://www.britannica.com/topic/rational-choice-theory

Boyce, P. (2021, February 16). Bounded Rationality (Definition and 3 Examples)—BoyceWire. https://boycewire.com/bounded-rationality-definition/

Ganti, A. (2021, July 21). Rational Choice Theory Definition. Investopedia. https://www.investopedia.com/terms/r/rational-choice-theory.asp

Nitta, K. (2013, March 29). Decision making. Encyclopedia Britannica. https://www.britannica.com/topic/decision-making

Tyson, C. J. (2013, January 13). Bounded rationality. Encyclopedia Britannica. https://www.britannica.com/topic/bounded-rationality.