Rational Decision Making vs.

Bounded Rationality
 Decision-making Problems

1) Limited Information
– Bounded rationality is the notion that decision makers
simply do not have the ability or resources to process all
available information and alternatives to make an
optimal decision.
– Satisficing results when decision makers select the first
acceptable alternative considered.
 Decision-making Problems

2) Faulty Perceptions
– Selective perception is the tendency for people to see
their environment only as it affects them and as it is
consistent with their expectations.
– Projection bias is the belief that others think, feel, and
act the same way they do.
– Social identity theory holds that people identify
themselves by the groups to which they belong and
perceive and judge others by their group memberships.
– Stereotype occurs when people make assumptions about
others on the basis of their membership in a social group.
 Decision-making Problems
3) Faulty Attributions
- The fundamental attribution error argues that people have a
tendency to judge others’ behaviors as due to internal factors.
- The self-serving bias occurs when we attribute our own failures
to external factors and our own successes to internal factors.

Attribution Process
• Consensus: Did others act the same way under similar situations?
• Distinctiveness: Does this person tend to act differently in other
circumstances?
• Consistency: Does this person always do this when performing this task?
• An internal attribution will occur if there is low consensus, low distinctiveness,
and high consistency.
• An external attribution will occur if there is high consensus, high
distinctiveness, and low consistency.
Consensus, Distinctiveness, and Consistency
Why Do Some Employees Learn To Make Decisions
Better Than Others?
Effects of Learning on Performance and
Commitment
 Decision-making Problems

4) Escalation of commitment refers to the decision to

continue to follow a failing course of action.
 People have a tendency, when presented with a series of
decisions, to escalate their commitment to previous
decisions, even in the face of obvious failures.