- Explain what Bounded Rationality is.
- Then discuss how this concept can affect the decision situation in SLP 3.
- Also discuss how this concept can affect the data analysis in Case 3.
- Explain your logic for both of your arguments. Are there any similarities between these two situations?
2. Explain what Bounded Rationality is.
Bounded rationality is a psychological term that deals with the mind. It is the mind trying to take in all the information and then be able to make a rational decision in a short period of time. “Rationality is bounded because there are limits to our thinking capacity, available information, and time (Simon, 1982)” (Behavioraleconomics.com, n.d.). So, in other words bounded rationality is the brain cannot absorb all the information and is impossible to make a clear and concise decision of all the information that is available.
Then discuss how this concept can affect the decision situation in SLP 3.
Bounded rationality can affect the decision process in the SLP because with all the information that must be gathered to best place the Lucky restaurant things could be forgotten because the brain can only retain so much information. If one little aspect of the information is forgotten, then a decision could result in placing the restaurant in the wrong location.
Also discuss how this concept can affect the data analysis in Case 3.
So, with Case study bounded rationality can have a huge impact on the decision analysis. With all the different locations, figures for sales, different quarters, product lines and regions there is a lot of room to forget to add some of the data in the analysis and that could have a huge impact on decision making process for the Sunshine Floor Barn.
Explain your logic for both of your arguments. Are there any similarities between these two situations?
For both situations there are similarities between the two. Both have a lot of information to retain and with that there could be some information that was left out and that could have an impact on the decision making for both. The mind can only take in so much information at once and over loading the brain with huge amounts of information like both the SLP and Case study have things could be missed.
Bounded Rationality is the idea that one makes decisions that are rational, but within the limits of the information available to one and his/her mental capabilities (Tyson, n.d.). To sum up bounded rationality, it is the idea that there is only a limited amount of information available when making a decision and not all of that limited information is correct and that you cannot plan properly for each and every variable. In SLP 3, this way of thinking is true when you think about what will actually work for a location of a restaurant. While we were given information about each location, we were only given information in data form with no background to actually make the decision properly. The assignment was to make a choice for the best location on the data available, but it does not account for demographics in the area and how well the type of restaurant may do, or if the food will actually be popular.
In SLP 3 we have 6 attributes that we are using to evaluate 5 recommended locations. The data that is provided to make a recommendation allows a rational decision to be made. Knowing that my decision is in the best interest of the Lucky restaurant change my decision would be based on what would be best for the organizations.
In case 3 the information provided is sales and locations, with this information a rational decision can be made, but it does not take into account a number of variables. This analysis and recommendation in case 3 will have a higher degree of ambiguity than SLP 3 due to the fact that the case 3 data does not provide as much information.
The similarities between these two situations are that both lack crucial information of data. For the SLP 3 situation, the data lack information about the quality of the food, which impacts the traffic of the customer as well. For the Case 3 situation, the data lack information on the actual number of sales, which impacts the sales performance for its 5 product lines over the 3-quarter period. Therefore, it’s difficult to make a decision between two situations.