Second Year

Topics: Decision making, Decision theory, Flipism Pages: 10 (3020 words) Published: March 25, 2013
Rational Decision-making -- Basic Information and Three Issues Undermining Its Effectiveness


Rational decision-making plays a significant role in business (Schwartz et al, 2010). This essay will first give some basic information of this model. Then this article will focus on three issues that can undermine the effectiveness of rational decision-making and how to overcome them.

JURÁSOVÁ and ŠPAJDEL (2011) think that ‘rational decision-making is a tendency to make a normative decision’. To complete rational decision-making, managers should follow six steps, including identifying the problem, considering standards, weighting and analyzing alternatives, choosing the best option, finishing decision and giving feedback (Robbins et al, 2012, pp.60-63). There are also six assumptions of this model which consist of completely rational decision-makers, explicit problem, clear objectives, consistent view of criteria and weights, known alternatives and predictable results (Robbins et al, 2012, pp.64-65). The following text will analyze environmental munificence and dynamism, false-consensus effect and stereotype threat which affect rational decision-making and how to overcome these three issues.

Environmental munificence and dynamism

Magnanimous and dynamic environment always makes the problem unclear (Goll & Rasheed, 1997). Goll and Rasheed (1997) state that environmental munificence and dynamism not only influence even all stages of management such as tactic, structure and consequence, but also play a moderating role in the relationship between rational decision-making and business performance. This paragraph will analyze three typical dynamic environmental factors and their impacts on rational decision-making, including rapidly developing technology and science, uncertain financial statement and changeable social values. Firstly, it is obvious that ‘over the past 25 years, the technique revolution has changed the way we work and play almost beyond recognition’ (Ernst & Young, n.d.). Riley (2012) holds the view that technological development affects the business decision-making in many fields such as production, provision of services and positions. No company can win the cruel competition unless it can follow the trend of the development of science and technology correctly. For example, as a ‘British location-specific telephone service’, Rabbit performs weakly in the competition against other cell phone corporations such as Apple Inc (Wikipedia, 2012). Managers of this company ignore or estimate incorrectly the fast development of cell phone technology when they decide their flagship product and this mistake leaves a debt of $1 Billion to Rabbit. Secondly, Clements (n.d.) says that the success of a rational strategic decision mostly relies on the careful analysis of changeable financial statements. Some companies failed due to the fugitive financial environment such as Laker Airways which used to be one of the biggest airlines in the UK (The Open University, 2011). Laker decided to purchase US dollars to defend its profit against sterling-dollar exchange rate fluctuations. However, during the recession in early 1980s, this corporation meets growing problem because its decision-makers failed to anticipate the rate for the winter season in 1981 and this fault cause a series of problems which partly result in the collapse of this company (Wikipedia, 2012). In addition, Joseph (n.d.) supports that besides earning money, business performance should also accord with social values and benefit consumers. For instance, Cadbury which is a famous candy company in the word once met problem because their decision-makers paid even all attention to profit except of healthy situation of children (The Open University, 2011). This mistake quite made the company lose face and decreased its profit.

There are four major suggestions for decision-makers to adapt to the magnanimous and dynamic environment and make...
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