Posted: March 28th, 2022
Respond to at least two of your classmates’ initial posts. Your response should be substantive and further the discussion. It is OK to be critical and use critical thinking. That means you can question what your classmates say. Do they provide their own critical thinking and logic?
Bounded rationality is a conceptual idea proposed by the US Nobel-laureate economistHerbert Simon in his 1982 book, ‘Models Of Bounded Rationality And Other Topics In Economics.’ (Bounded rationality, n. d., n. p.). The idea Mr. Simon explained in his book describes the conditions in which decision makers are constrained to when approaching a decision which affects the business at hand. The first circumstance of bounded rationality is the availability of information surrounding the issue, Simon suggest it is often both limited and unreliable. His second condition is that humans are relegated to a limited capacity to actually process the information that is available and lastly the one finite resource which no business setting ever has enough of is time to adequately analyze the information based on the needs of the business and other related factors. Based on these three factors decision makers in the business world often make a rational choice versus the optimal choice. The results often provide gaps in the decision making which do not account for every possibility which ultimately may affect the decision and thus the business in a negative manner.
When relating bounded rationality to this modules’ SLP we should look at the three conditions in which Simon proposes which can cause the poor decision making. Information about the Building lease and taxes is limited and according to a Forbes magazine article by Mahlon Apgar,” Three factors drive occupancy costs: leasing, location, and layout” (Apgar, 1993, n. p.) None of the data provided further explains the conditions of the location leaving the data analyst without the proper information to make a sound decision of the location. There may be significant issue with the data provided in the traffic counts was this an Average Annual Daily Traffic (AADT) “It is the average of 24-hour counts collected every day of the year” (Khanzada, Kumwat, Khan, and Iraqui, 2015, p. 276). Was the data on traffic collected in this manner or was it a snap shot in time, how reliable is this information. The other factor to consider is we in this class have two weeks to formulate our response what is the actual time framing we are on a deadline for?
The task presented in the Module 3 case study can be a situation where one person’s perception of the data presented is completely different from another’s. Without further background information about the data assumptions will be made based on a myriad of individual notions. Solely based on the numbers provided there can be several outcomes. For both the SLP and the Case study we would have to question if the information provided leads us to the optimal answer.
Apgar, M. (1993, May & June). Uncovering Your Hidden Occupancy Costs. Retrieved from https://hbr.org/1993/05/uncovering-your-hidden-occupancy-costs
Bounded rationality. (n. d.). Retrieved from http://www.businessdictionary.com/definition/bounded-rationality.html
Khanzada, S., Kumwat, D., Khan, A., & Iraqui, A. A. (2015). Traffic Volume Studies and Analysis. Journal Of Advanced Research In Engineering Technology & Sciences, 2(3), 276-278. Retrieved from http://www.ijarets.org/publication/8/IJARETS%20V-2-3-57.pdf
Bounded rationality is, according to the Business Dictionary (n.d.), a concept in which decision makers are required to work under three universal and unavoidable restrictions:
In the case of SLP 3, there is a lot of data that has yet to be collected. Once the data is collected, the VP must then assess and, in some cases, assign a rank (1-4) to specific criteria. There is no indication as to when the recommendation/decision is required, but I would contend that the VP does not have an unlimited amount of time to come to a determination. Herbert Simon, the founder of the theory of bounded rationality, provide detail that decision makers will find something that is “good enough” in order to come to the conclusion (Economist, 2009). That is not to say that the VP will ultimately choose or otherwise concede that a location is just “good enough,” but there is a very real possibility. Perhaps a particular location is well suited in every area with the exception of insurance costs. To the VP, scoring well in five of the six criteria may be “good enough” if the location is something that he/she would really like to pursue.
Case 3, on the other hand, is a different story, in my view. The data is there, real and true from the managers that compile and track it. There is no indication that it is not trustworthy and with some relatively simple Excel magic, the consultant should be able to use that data to come to a swift and accurate assessment. That is not to say that bounded rationality will not play a role in this scenario, however. The data is compiled over a nine month period, from several different locations which will likely pose a challenge to the consultant. I do not think, though, that the consultant will be locked in a situation where bounded rationality will provoke his/her decision.
The reality is that the sales numbers from Sunshine Floor Barn are (should be) accurate and require an accurate assessment. The restaurant is somewhat subjective (“Ease of Access – subjective evaluation from observation”). In other words, the VP has some liberty in how he/she assesses a particular location. Therefore, it will likely include some level of bounded rationality.
Herbert Simon. (2009, March 20). The Economist. Retrieved from http://www.economist.com/node/13350892.
Bounded Rationality. (n.d.). Business Dictionary. Retrieved from http://www.businessdictionary.com/definition/bounded-rationality.html.
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