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IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

A Mumbai-based life insurer's executive committee must decide whether to acquire a small digital distribution start-up. Information is incomplete, the deadline is near, and the committee settles on the first option that meets its minimum acceptable standards rather than searching for the best possible option. Which model of decision making does this describe?

This is satisficing, a form of bounded rationality. Because time and information are limited, the committee accepts the first option meeting its minimum standards instead of seeking the optimal choice, which would require exhaustive search and complete information that it does not have.

  1. AOptimising, fully rational decision making
  2. BSatisficing, a form of bounded rationalityCorrect
  3. CDecision making by random selection
  4. DIncremental budgeting
  5. Zero-based decision making

Explanation

Satisficing, associated with bounded rationality, means accepting the first option that meets minimum criteria because time and information are limited. An optimising approach would search exhaustively for the best option, which the committee did not do.

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