CMA Foundation · Fundamentals of Business Economics and Management · Decision-making - Types and Process
A firm's manager chooses the first alternative that meets her minimum acceptable profit target, without searching for every possible alternative, because time and information are limited. Which concept of decision-making does this describe?
This is satisficing under bounded rationality. Because time and information are limited, the manager accepts the first alternative that meets a minimum acceptable standard instead of searching exhaustively for the optimal solution.
- AOptimising under perfect rationality
- BSatisficing under bounded rationalityCorrect
- CProgrammed decision by rule
- DGroup decision by consensus
Explanation
Herbert Simon's bounded rationality holds that managers have limited time, information and processing ability, so they accept a satisfactory solution rather than the best one. This is satisficing. Optimising would require full search of all alternatives, which the manager did not do.
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