Rational decision making

Rational decision making
See also
Decision making Conditions of decision-making Impact of information on decision-making Analysis of preferences Decision process models Decision tree Decision point Decision making process Selection process in conditions of certainty and uncertainty

Rational decision making - it is a style of decision making based on objective data and a formal process of analysis. It excludes acting based on subjective feelings and intuitive approach. The model assumes that deducting decisions with full information and all alternatives allows for the creation of cognitive skills that allow the evaluation of all possible options and then the selection of the best one. Furthermore, a given decision model assumes that people will always choose to make decisions that will allow them to maximize profit and significantly reduce costs. It is worth mentioning that this is a multi-level process aimed at excluding all inadequate alternatives and indicating the most appropriate decision based on the available data.

Initiating rational decision making process

Starting rational planning should be about carrying out a proper preliminary research. At the outset, identify the problem and the related main and side topics. Then, using all available sources, tools, and data, it is important that the person/team in charge of the decision making aggregates all the information in a synthetic summary.

It is worth noting that the implementation of this model is usually called the economic model of rationality. It consists in the fact that many economists define a problem about consumers, namely their choices or investments, and then, based on available data, make decisions on the identification of a given phenomenon.

It is possible to divide decision making into two segments:

• emotional decision-making process,
• rational decision-making process.

As it is indicated in the literature, from the perspective of decision-making routines, this model is very often used to carry out recruitment, integrate internal environments or make difficult sales or HR decisions. Taking away emotions connected with e. g. human tragedy, loss of a large amount of money or growing conflicts, rational decision making allows us to trace all the positive and negative sides of possible solutions and then provide a response based on cold calculations. Alternatively, it is called strategic management of an organization's or individual's thought process.

Rational decision making in groups

The process of rationalizing decision-making is less popular among individuals. This is because very often they are not able to confront their thought process with a different one. Therefore, despite the collection of relevant data, they are not able to eliminate the emotional factor. Also, they are more exposed to emotional decision-making.

Given the above, research shows that group decision-making is more rational. This is because by confronting thoughts or attempts to find a compromise, the cooperating individuals have to compare their views with each other and then work out the most optimal solutions. In this case, the most convincing process is to give rational arguments that are not based on emotions. Otherwise, the group will very quickly reject these arguments and will not take them into account, as they, too, have had to get rid of these emotions to obtain a common position.

Examples of Rational decision making

• Economic decision making: Economic decision making involves making decisions based on rational analysis of financial data and costs. Economic decision making is used by businesses and other organizations to decide how to allocate resources for maximum efficiency and profit. For example, a business may use economic decision making to decide whether to invest in new equipment or hire additional staff.
• Strategic Planning: Strategic planning is a form of rational decision-making that involves analyzing a situation, evaluating potential options and selecting the best course of action based on the results of the analysis. Strategic planning involves setting goals and objectives, evaluating progress and making adjustments as needed. For example, a company may use strategic planning to decide how best to respond to a new competitor entering the market.
• Political Decision Making: Political decision making is a form of rational decision making that involves evaluating different options and selecting the best course of action based on the objectives and interests of the decision-makers. Political decision making often involves multiple stakeholders and involves weighing factors such as public opinion, political alliances, and economic interests. For example, a politician may use rational decision making to decide how to vote on a particular bill.

Advantages of Rational decision making

Rational decision making has numerous advantages over other decision-making styles. These include:

• Increased accuracy and reliability of the decision, since it is based on objective analysis of data.
• Improved efficiency, since the model focuses on eliminating inadequate alternatives and selecting the best one.
• Reduced decision making time, since the model encourages the use of systematic, structured processes.
• Increased confidence that the decision is the best one, since it is based on a thorough evaluation of all available options.
• Increased clarity and understanding of the decision, since all decisions are based on a logical and objective approach.
• Improved decision-making skills, since the process encourages the use of cognitive skills to evaluate all possible options and select the best one.

Limitations of Rational decision making

Rational decision making has several limitations:

• It requires a significant amount of time and resources to make the decision, since it involves gathering and analyzing data from all possible alternatives.
• It also assumes that people always act in their own self-interest, which is not necessarily true. Additionally, decisions may be biased due to personal preferences.
• Rational decision making relies heavily on logical analysis and does not take into account subjective factors that may be relevant to the decision.
• Additionally, the model may not be applicable in situations that involve complex, multivariate decision making. In such cases, intuition and experience may be more useful.

Other approaches related to Rational decision making

Other approaches related to rational decision making include:

• Decision Tree Analysis (DTA) – this approach relies on breaking down complex decisions into smaller, more manageable options and then assessing the consequences of each. It uses graphical representation of decision options and results to help identify the most suitable choice.
• Cost-Benefit Analysis (CBA) – this approach seeks to compare the costs and benefits associated with each decision option in order to identify the most profitable one. It is based on quantitative data and economic principles, allowing for a more thorough assessment of the alternatives.
• Analytical Hierarchy Process (AHP) – this approach uses a structured way of organizing and evaluating decision options. It incorporates multiple criteria to prioritize alternatives and assess their relative importance.
• Simulation Modeling – this approach uses computer-based models to simulate real-world situations and assess the consequences of different decisions. It is particularly useful in complex and dynamic environments where data is scarce or uncertain.

In summary, rational decision making is a multi-step process based on objective data and formal analysis. Other approaches related to it include Decision Tree Analysis, Cost-Benefit Analysis, Analytical Hierarchy Process and Simulation Modeling, each of which provides a different way of evaluating the alternatives and determining the best course of action.

References

• Cabantous L., Gond J-P. (2011), Rational Decision Making as Performative Praxis: Explaining Rationality's Éternel Retour, Organization Science, 22(3), pp. 573-586
• Fiori M., Lintas A., Mesrobian S., Villa A.E.P. (2013), Effect of Emotion and Personality on Deviation from Purely Rational Decision Making, T.V. Guy et al. (Eds.): Decision Making and Imperfection, SCI 474, p. 129–161.
• Kugler T., Kausel E. E., Kocher M. G. (2012), Are groups more rational than individuals? A review of interactive decision making in groups, CESifo Working Paper, No. 3701, Center for Economic Studies and Ifo Institute (CESifo), Munich, p. 10-14

Author: Marta Cader