Models of decision making

Presented by:
Arundhathi M
T.Y.B.B.A. Sem VI
Management information system
 Three models of decision making

• The classical model

• The administrative model
• Herbert- Simon model
 The classical MODEL
• This is the earliest model of decision making developed as per organization’s best
economic interests.
• They believed that man is completely rational in his decisions, he always selects that
alternative which gives him the greatest advantage.
• This perspective model tells how the decision should be made. – Assumes managers
have access to all the information needed to reach a decision. – Managers can then
make the optimum decision by easily ranking their own preferences among
alternatives.
• Unfortunately, mangers often do not have all required information
• Approach assumes that managers are logical and rational.
• Approach assumes that managers’ decisions will be in the best
interests of the organization.
 The Administrative Model

[Link] Model of decision making Is Descriptive model describes how non-

programmed decisions are made in uncertainty/ambiguity situation.
[Link] model Challenges the classical assumptions that managers have information
about all process.
[Link] A Simon, a Nobel Prize winner in Economics, developed the model to describe
how decisions are often made rather than to prescribe how they should be made
[Link] that decision makers have incomplete and imperfect information, are
constrained by ‘bounded rationality’ and tend to ‘satisfiec’ when making decisions.
• Bounded rationality suggests that decision makers are limited by their values and
unconscious response, skills and habits.
• Satisficing is the tendency to search for alternatives only until one is found that meets
some minimum standard of sufficiency.
• Rather than conducting an exhaustive search for the best possible alternative, decision
makers tend to search only until they identify an alternative that meets some minimum
standard of sufficiency.
• The Administrative Model can be used by managers to develop a better understanding of
their inherent biases and limitations
Challenges the classical assumptions that
managers have and process all the information.
As a result, decision making is risky.
1. Bounded rationality: There is a large number of alternatives and
information is vast so that managers cannot consider it all. Decisions
are limited by people’s cognitive abilities

2. Incomplete information: most managers do not see all alternatives

and decide based on incomplete information. Why Information is
Incomplete Uncertainty & risk Ambiguous Information Incomplete
Information Time constraints & information costs
 The Herbert Simon’s Model
The decision Making process consists of following phases
1. Intelligence phase: thinking of the problem as it comes
a) Societal Environment
b) Competitive Environment
c) Organizational Environment
2. Design Phase: this consists for inventing, developing and analysing the likely solutions
a) Understanding the problem
b) generating the solution
c) Testing the feasibility of solution
3. Choice Phase: Selecting the specific alternative or solution and Put decision into effect;
allocate resources; control
Relevance of this model:
• Provide the decision process
• It provide the base for designing the MIS
Limitation of this model:
1) It is specifies the decision process and will not go beyond choice
2) This model does not includes the feedback phase and corrective
action.
Thank you