rational decision making essay

Rational Decision-Making Model: Meaning, Importance And Examples

What is the rational decision-making model? Rational decision-making is a method that organizations, businesses and individuals use to make the…

Rational Decision Making Model

What is the rational decision-making model? Rational decision-making is a method that organizations, businesses and individuals use to make the best decisions. Rational decision-making, one of many decision-making tools, helps users come up with the most suitable course of action. In this blog, we will look at the meaning of rational decision-making, the importance of rational decision-making and study some rational decision-making examples.

Rational decision-making is a process in which decision-makers go through a set of steps and processes and choose the best solution to a problem. These decisions are based on data analysis and logic, eliminating intuition and subjectivity.

Rational decision-making means that every variable factor, every piece of information about all the available options, has been taken into account. 

What Is The Rational Decision-Making Model Used For?

What is the rational decision-making process, non-rational decision making.

The most basic use of the rational decision-making model is to ensure a consistent method of making decisions. This could be used as a standardized decision-making tool across an organization or to ensure that all managers receive the same information to make decisions. The rational decision-making process can be used to maintain a structured, step-by-step approach for every decision.

What Is The Rational Decision-Making Process ?

How the rational decision-making model is implemented can be explained in seven steps:

(There is also an example to help you understand the importance of rational decision-making)

1. Understand and define the scope

Just stating that a problem exists isn’t enough. Solid, accurate data is required to understand and analyze the problem in depth. This lets you know how much attention it requires.

It’s vital to collect as much relevant and accurate data around the problem as possible.

Here’s a rational decision-making example:

Your social media posts aren’t translating to conversions. What could the problem be? Once the analytics reports come in, you realize there isn’t enough engagement. The issue isn’t that your posts are not reaching the right audience, it’s that they don’t engage them. This sets up the next step: figuring out why the problem exists. Why is user engagement low?

2. Research and get feedback

The next step in the rational decision-making process is to delve into the problem. Find out what is causing the problem and how it can be solved. You could start with a brainstorming session and find out what your team thinks.

Rational decision-making example continued:

The budget is good, there are enough views and likes on the posts. So, why is there a lack of engagement? Why aren’t users interacting with the post? Why aren’t they clicking on the CTA?

You might need new types of posts; perhaps the current posts aren’t trendy. Maybe the posts don’t evoke an emotional response from the audience. Or they don’t convey what the product can do for the audience.

Now that you know what the causes could be, you are a step closer. It’s time to collate the data.

The team comes together with their opinions and findings. After a few customer surveys, the major issues are identified as follows:

  • Potential consumers don’t know how the product will add value to their lives.
  • Potential customers don’t understand the posts’ objectives and aren’t clear on what the product is.

3. List your choices

There are bound to be a host of opinions and innumerable choices about how to address the issue. Consider all of them so that you don’t create more problems later.

This is where you start to use rational decision-making:

Now that the problem has been understood, it’s time to list your options.

You could create a post that showcases what the product does.

You could have an informative GIF that shows that product in action.

You could create additional whitepapers to showcase how the product adds value and thus is beneficial for the customer to buy.

The analytics show that traffic isn’t the issue, so you don’t have to focus on garnering more traffic. Your focus has to be on conversions.

Your color schemes and CTA could be a little more impactful.

Maybe video clips are the way to go?

4. Analyze your options carefully

Now that you have all the options in front of you, cross out the ones that don’t add value or don’t solve the problem. Understand how each of the potential solutions could turn out and what other effects they could have.

Point 6 is about having a back up plan. Once you’ve chosen the plan that is likely to serve you the best, choose the second best option as well. You could use that as your back up, in case things don’t go according to plan.

While it’s great to get a quick solution to a real problem, the solution should be permanent or at least solve the majority of the issue.

The example of the rational decision-making process continued:

This is where you set about deciding the benefits of each of your choices mentioned above.

A video clip post would mean additional costs.

Redesigning the graphics may lead to more views and interaction but dilute your following.

A whitepaper is a good idea, but it doesn’t help with conversions. It’s ideal for customers to click on the CTA.

While GIFs are very popular, the image you choose has to convey the right information and be impactful. You may need to rework the branding for this to work.

While it would be great to have a post that showcases how the product works, it can’t be overly technical.

5. Understand the results you want

This is where the importance of rational decision-making comes into play. Understand what you expect from the solutions. There has to be a clear outcome because of the decision that is made. Knowing what you expect from your actions is important. It’s always a good idea to test the solution to see if it resolves the problem entirely.

Rational decision-making model example continued:

The best course of action might be to assign different teams for the different potential solutions.

One team could create a GIF, while the other works on the video clip and another on the ‘how to use’ post.

Once the teams have all made rough drafts, a productive critiquing session could be conducted. The teams can then look at each others’ solutions and point out the merits and drawbacks of each.

This way a general consensus can be reached and the best option or options can be selected. It is also advisable to use predictive social media tools. There are algorithms and equations that could help predict the success of a post to some degree.

6. Have a backup plan

While this may not always be necessary and can be a little cost-intensive, it may be worthwhile to have a backup plan if the solution doesn’t give you the intended results. This means that you should either have another strategy in place, created using the rational decision-making model .

Even though your plan has been made after careful thought, there is a chance that it either does not go as per plan or that an external factor interferes and throws your plan into chaos.

Try to have a back-up plan to make sure that your business isn’t impacted.

Now that you’ve decided to go with a combination of a GIF and an information-based post, go ahead and begin drafting your white paper as well.

7. Implement

Once the team has done all the work and created the solution, implement it. Implementing this plan means that everyone has to be on board. This means that everyone should be informed and be willing to contribute in executing the plan. The plan won’t work if everyone isn’t working toward the same goal.

As logic and data have been used to reach the decision, it’s likely going to be the most effective one.

Non -Rational Decision-Making

Non-rational decision-making is quite simply the opposite of rational decision-making . Non-rational decision-making is generally used when there isn’t enough information available or when there isn’t enough time to carry out the research and analysis required to employ rational decision-making methods.

Non-rational decision-making can be used when the person or team making the decisions has experienced that issue before or their collective experience allows them to predict what the outcome of their decision would be.

To sum it up, rational decision making can be the difference between a high performance culture driven by results and an unorganized setting. If you would like to drive decisions that guarantee results, you have to employ strategies that kindle organizational objectives based on real data. Let’s sum up the steps explained in this post about the importance of rational decision-making.

  • Understand and define the scope
  • Research and get feedback
  • List your choices
  • Analyze your options carefully
  • Understand the results you want

Now that you have some idea of what the rational decision-making process is, you may be curious to find out how to make better decisions for your business. To understand more about the importance of rational decision-making , take a look at Harappa’s Making Decisions course. It delves deep into how the best decisions can be reached. The course is for you if you’re looking to get into business and learn how to use rational decision-making.

Explore Harappa Diaries to learn more about topics such as How To Define Problem , Steps involved in Ethical Decision Making , Importance Of Decision Making and How To Overcome Indecisiveness to classify problems and solve them efficiently.

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Rational Decision-Making Model

The rational decision-making model, pros and cons of the rational decision-making process, evaluation of my decision making.

The rational decision-making model provides a systematic approach to making decisions using logic and cognitive functions such as creativity and imagination (Morcol, 2006). The word “rational” means that the process applies logic and aims to get the most feasible solution to a problem. The method can be used by individuals and organizations to ensure that discipline and consistency are vital parts of their decision-making processes.

The rational decision-making model comprises several steps that follow each other in a coherent style. For instance, the first step involves the identification of a problem that needs to be addressed, while the last step involves the enumeration of actions that need to be taken in order to implement the decision made (Morcol, 2006). The process commences with the identification of a problem or an opportunity that needs to be addressed.

This is followed by information gathering regarding the issue. In the second step, it is imperative to identify the criteria for the process and the desired outcome in order to complete the remaining steps successfully. The third step involves the analysis of the situation using the information gathered. The fourth step involves the development of possible solutions, options, or alternatives (Ahlstrom & Bruton, 2009). This is a critical step and consumes a lot of time.

The fifth step involves the evaluation of these options and their effectiveness in satisfying the specific criteria chosen form the process. The strengths and weaknesses of each solution are considered against the background of the problem or opportunity being addressed.

Finally, the best option is chosen after conducting a thorough analysis of possible solutions and their future implications (Ahlstrom & Bruton, 2009). A comparison of solutions is conducted using several methods that include the decision grid, decision matrix, and the selection matrix. This method can be used to determine the most effective way of reducing employee turnover.

The rational decision-making process has several pros. First, it provides a structured approach that is easy to use (Morcol, 2006). Therefore, anybody can use it successfully to address any issue. Second, it ensures that a full range of factors is considered, thus reducing errors that lead to poor decisions. A thorough evaluation of information and other critical factors results in good decisions (Morcol, 2006).

Third, it creates discipline and ensures that logic reigns in finding solutions to various issues (Ahlstrom & Bruton, 2009). Fourth, it can be applied in both individual and group settings. The model has cons too. It functions under the assumption that a perfect solution to any problem exists. It seeks to find the best outcome or solution (Ahlstrom & Bruton, 2009). This search for perfection is a hindrance to speedy decision-making and could affect the effectiveness of the process by causing delays.

Moreover, the model presupposes that it is possible to consider all possible solutions and accurately determine their future implications (Ahlstrom & Bruton, 2009). However, the future is unpredictable, and this model could endorse solutions that fail to solve a specific problem effectively. The model requires an evaluation of a lot of information.

Therefore, it is time-consuming and tiresome. Finally, it is limited by the cognitive capabilities of the individuals involved in the process (Morcol, 2006). For instance, decisions are based on factors such as creativity and imagination.

After taking a quiz to evaluate my decision making, my total score was 56. The sub-scores were different in various areas of the process. The sub-scores were as follows: establishing a positive decision-making environment (11 out of 20), generating potential solutions (13 out of 15), evaluating alternatives (8 out of 15), deciding (9 out of 15), checking the decision (6 out of 10), and communicating an implementing (12 out of 15).

The score means that my decision-making process is satisfactory. I am knowledgeable with regard to the basics of decision making. However, I need to improve and become more practical by focusing on generating more solutions and assessing the risk associated with each alternative. There are several practical steps I can take to improve my decision making.

They include developing a habit of making decisions, learning different techniques of brainstorming and generating solutions, learning how to evaluate the risks, consequences, and feasibility of each solution, improving my creativity and imagination and developing ways of determining the rationale behind every decision made. I had low scores in certain parts of the decision-making process, namely evaluating alternatives, deciding, and checking the decision.

In order to improve my ability to evaluate alternatives, I need to gain more knowledge on how to evaluate the risk, consequences, and feasibility of a solution. This can be achieved by taking a short course on decision making. It is necessary to determine whether the solutions are pragmatic and feasible.

Before starting the decision-making process, I need to determine what the outcome is in order to improve the accuracy of the decision. This can be achieved by learning different ways of brainstorming and generating ideas. Finally, I need to learn how to check a decision to determine its effectiveness and validity. This can be accomplished by learning how to use different methods of comparing outcomes. Creativity and imagination can be improved by taking a creative writing course.

Ahlstrom, D., & Bruton, G. (2009). International Management: Strategy and Culture in  the Emerging World . New York, NY: Cengage Learning.

Morcol, G. (2006). Handbook of Decision Making . New York, NY: CRC Press.

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Decision-Making

Reviewed by Psychology Today Staff

Chocolate or strawberry? Life or death? We make some choices quickly and automatically, relying on mental shortcuts our brains have developed over the years to guide us in the best course of action. Understanding strategies such as maximizing vs. satisficing , fast versus slow thinking, and factors such as risk tolerance and choice overload, can lead to better outcomes.

  • The Art of Decision-Making
  • How to Make Good Decisions
  • Avoiding Bad Decisions

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When making a decision, we form opinions and choose actions via mental processes which are influenced by biases, reason, emotions, and memories. The simple act of deciding supports the notion that we have free will . We weigh the benefits and costs of our choice, and then we cope with the consequences. Factors that limit the ability to make good decisions include missing or incomplete information, urgent deadlines, and limited physical or emotional resources.

When people are put in a familiar situation, their decisions are often fast and automatic , based on longtime experience with what works and what doesn’t. However, when encountering a situation they’ve never been in before, they have to take time to weigh the potential benefits and risks when choosing a course of action. They are more likely to make mistakes and face negative consequences.

The ability to think critically is key to making good decisions without succumbing to common errors or bias . This means not just going with your gut, but rather figuring out what knowledge you lack and obtaining it. When you look at all possible sources of information with an open mind, you can make an informed decision based on facts rather than intuition .

A satisficing approach to making decisions involves settling for a good-enough outcome, even if it’s flawed. A maximizing approach, on the other hand, waits for conditions to be as perfect as possible to minimize potential risks. People who make good decisions know when it’s important to act immediately, and when there’s time to wait and gather more facts before making their choice.

Leszek Glasner/Shutterstock

How do we choose between two or more options that seem equally appealing on the surface? Decision-making usually involves a mixture of intuition and rational thinking; critical factors, including personal biases and blind spots, are often unconscious , which makes decision-making hard to fully operationalize, or get a handle on.

However, there are steps to ensure that people make consistently excellent choices, including gathering as much information as possible, considering all the possible alternatives, as well as their attendant benefits and costs, and taking the time to sleep on weightier decisions.

In life, there is often no “right” decision. When surrounded by an abundance of options, it’s easy to experience decision paralysis or feel less satisfied with your decisions. You may even blame yourself when really you are going through “choice overload.” The key is to find ways to simplify your decision and not ruminate over the many roads not taken.

Decision-making can be stressful , and follow-through is essential. You may need to accept that panic , fear , and lack of self-confidence are often part of the decision-making process. It’s crucial to get enough sleep, so you can think clearly. Try to keep your priorities straight. Carefully weigh the trade-offs, commit to a decision, and then follow through on it.

Slow down the decision-making process to prevent impulsive choices. Be aware of common sales strategies like nudges and the decoy effect, which introduces a trick option to get individuals to make a certain decision. Gather as much information as you can, and don’t allow the desires of others to dictate your decision.

baranq/Shutterstock

The field of behavioral economics demonstrated that people are not always rational when it comes to decision making. Fortunately, most personal and professional choices have few or no long-term, negative consequences. However, sometimes a person has to make a decision that will have a profound impact on their future—from who they marry to where they live to how they manage their professional career . In these cases, it’s important to avoid the common pitfalls that can lead to poor decision-making. These can include doing too little or too much research, mistaking opinions for facts, decision fatigue, a failure to learn from past errors, and more.

Don’t try to make the decision you would make, or railroad them into simply acting quickly if they are vacillating about an important matter. Rather, help them cultivate qualities of mind that will serve beyond just this moment, and encourage them to think through their options by simply and respectfully asking questions.

There are two types of rationalization that people commonly engage in: prospective and retrospective. Prospective rationalizing refers to rationalizing a decision before making it, whereas retrospective rationalizing refers to rationalizing a decision after the fact.

In the 2000s, Barry Schwarz coined the phrase the paradox of choice to describe the fact that American consumers have so many choices from which to choose that they often waste time and mind-space second-guessing themselves and comparing trivial differences.

When a large number of people are involved in making a decision, the process can be usurped by groupthink . Groupthink is when well-intentioned individuals make poor or irrational choices out of a desire to conform or avoid dissent. As a result, group members may feel pressured to ignore ethical considerations and refrain from expressing natural doubts and concerns.

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The people around us have a stronger influence on our decisions and actions than we realize. Here’s what research reveals about our networks’ gravitational force.

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Module 5: Decision Making

Rational decision making vs. other types of decision making, what you’ll learn to do: explain the concept of “rational decision making” and contrast it with prospect theory, bounded rationality, heuristics, and robust decisions.

Though everyone makes decisions, not everyone goes about the process in the same way. In fact, not everyone even uses a “process” to make decisions. There are various decision-making styles, and we will focus on the rational decision-making model. We will also become familiar with a common process that many groups and individuals follow when making decisions. Though almost everyone will agree that decision making should be rational, there are also some important contrasting ideas that often balance out the “rational” aspects to the process.

Learning Outcomes

  • Summarize the steps in the rational decision-making process.
  • Differentiate between prospect theory, bounded rationality, heuristics, and robust decisions.

The Rational Decision-Making Process

The rational decision-making process involves careful, methodical steps. The more carefully and strictly these steps are followed, the more rational the process is. We’ll look at each step in closer detail.

The graphic shows the rational decision-making process with each step in a box in sequential order from left to right. The steps in the boxes include Identify the Decision; Gather Information; Identify Alternatives; Evaluate Alternatives; Choose Solution; Take Action; and Evaluate Outcome.

Step 1: Identify the Problem

Though this starting place might seem rather obvious, a failure to identify the problem clearly can derail the entire process. It can sometimes require serious thought to find the central issue that must be addressed. For example, you have taken a new job and you may initially decide you need to find a new car for commuting back and forth from work. However, the central problem is that you need a reliable way to commute to and from work.

Step 2: Establish Decision Criteria

In this step, the decision maker needs to determine what is relevant in making the decision. This step will bring the decision maker’s, and any other stakeholder’s, interests, values and preferences into the process. To continue our example, let’s assume you are married. Some of the criteria identified might include budget, safety, functionality, and reliability.

Step 3: Weigh Decision Criteria

Because the criteria identified will seldom be equally important, you will need to weight the criteria to create the correct priority in the decision. For example, you may have weighted budget, safety, and reliability as the most important criteria to consider, along with several other slightly less critical criteria.

Step 4: Generate Alternatives

Once you have identified the issue and gathered relevant information, now it is time to list potential options for how to decide what to do. Some of those alternatives will be common and fairly obvious options, but it is often helpful to be creative and name unusual solutions as well. The alternatives you generated could include the types of cars, as well as using public transportation, car pooling and a ride-hailing service.

Step 5: Evaluate Alternatives

After creating a somewhat full list of possible alternatives, each alternative can be evaluated. Which choice is most desirable and why? Are all of the options equally feasible, or are some unrealistic or impossible? Now is the time to identify both the merits and the challenges involved in each of the possible solutions.

Step 6: Select the Best Alternative

After a careful evaluation of alternatives, you must choose a solution. You should clearly state your decision so as to avoid confusion or uncertainty. The solution might be one of the particular options that was initially listed, an adaptation of one of those options, or a combination of different aspects from multiple suggestions. It is also possible that an entirely new solution will arise during the evaluation process.

Practice Question

Data, logic, and facts.

Rational decision making is defined not only by adherence to a careful process, but also by a logical, data-driven manner of following the steps of that process. The process can be time-consuming and costly. It is generally not worthwhile on everyday decisions. It is more useful for big decisions with many criteria that affect many people.

In the evaluation stage, the process usually requires numeric values.  The next stage will use these to calculate a score for each alternative. Some properties are not easily measured, and factors that rely on subjective judgment may not be trusted. If they are not fully weighted, the final analysis will lean toward whatever is easiest to measure. In a company, the final decision usually belongs to an executive, who takes the analysis as a guide but makes his own decision.

Ideas that Complement and Contrast with Rational Decision Making

Though most decision makers will recognize much that is commendable in the rational decision-making process, there are also reasons to consider complementary or even contrasting ideas. Taken to its extreme, the rational method might entirely discount factors that are of known and obvious value, such as emotions and feelings, experience, or even ethical principles. This danger, along with other limitations of the rational method, has led to the development of the following concepts to provide a more balanced and holistic approach to decision making:

Prospect Theory

A photograph of Daniel Kahneman standing in front of shelves of books

Daniel Kahneman is one of the developers of prospect theory.

An epoch-making idea in the field of behavioral economics, prospect theory is a complex analysis of how individuals make decisions when there is risk involved. Most strictly rational approaches to questions of financial risk rely on the principle of expected value, where the probability of an event is multiplied by the resulting value should the event occur. Notice the numerical and logical approach to that analysis.

However, Daniel Kahneman and Amos Tversky, the developers of prospect theory, demonstrated through various experiments that most people alter that approach based on their subjective judgments in any given situation. One of the common examples of this is that many individuals think differently about the risk of financial loss than they do when considering situations where different levels of financial gain are concerned. In a purely rational approach, the numbers and calculations involved work the same way regardless of whether the situation is one involving potential gain or potential loss.

Graphical illustration of how prospect theory describes individuals' subjective valuations of profit and loss.

This graph shows how prospect theory describes individuals’ subjective valuations of profit and loss. Notice that the value curve is not a straight line and that the positive “gains” section of the curve is not symmetrical to the negative “losses” section of the curve.

Prospect theory is a description of how people made actual decisions in experiments. It doesn’t say whether this is right or wrong. It is in the hands of decision makers to determine whether these tendencies are justifiable or if they should be overridden by a rational approach.

Bounded Rationality

Another theory that suggests a modification of pure rationality is known as bounded rationality. This concept revolves on a recognition that human knowledge and capabilities are limited and imperfect. Three specific limitations are generally enumerated:

  • Decision makers do not have access to all possible information relevant to the decision, and the information they do have is often flawed and imperfect.
  • Decision makers have limited analytical and computational abilities. They are not capable of judging their information and alternatives perfectly. They will inevitably make misjudgments in the evaluation process.
  • Decision makers do not have unlimited time to make decisions. Real-life situations provide time constraints in which decisions must be made.

In light of these limitations, the theory of bounded rationality suggests that decision makers must be willing to adapt their rational approach. For example, they must determine how much information is reasonable to pursue during the information-gathering stage; they cannot reasonably expect to gather and analyze all possible information.

Similarly, decision makers must content themselves with a consideration of only a certain number of alternative solutions to the decision.

Also, decision makers being far from perfect in their abilities to evaluate potential solutions must inevitably affect their approach. They must be aware of the possibility that their analysis is wrong and be willing to accept evidence to this effect. This especially includes situations in which they’re relying on predictions of an uncertain future. Uncertainty and inaccuracy often arise in efforts to predict the future. For example, your career decision is fraught with uncertainty as you don’t know if you will like the work or the work environment. What are decision makers to do when they are uncertain about potential results from their actions? This makes a strictly rational approach difficult and less reliable.

One of the approaches that might stem from a recognition of bounded rationality is the use of heuristics. These are analytical and decision-making tools that help simplify the analysis process by relying on tried and tested rules of thumb. A heuristic simplifies a complex situation and allows the decision maker to focus only on the most important pieces of information.

For example, a business might use their proven experiences and that of many other companies to conclude that a new product line requires a certain amount of time to gain market share and become profitable. Though there are many complex factors involved in market analysis, the business might use this proven rule to guide its decision making. When a proposed decision contradicts this rule, the company might discard it even if a complex and seemingly rational analysis might seem to support it.

Of course, there are exceptions to most rules, and the use of heuristics might prevent a company from following courses of action that would be beneficial. Likewise, heuristics that were once reliable rules might become obsolete because of changing markets and environments. Nonetheless, most analysts recognize heuristics as useful tools when used properly.

Robust Decisions

One final adaptation of the rational process that is becoming more prominent, especially in areas such as energy production and natural resource preservation, is the practice of making “robust” decisions.

Robust decisions revolve around the inability to predict the future with certainty. Rather than rely on an imperfect analysis to determine the “best” decision, a robust decision provides a plan that will work in light of numerous uncertainties. It supposes that a number of situations are all possible and provides a solution pathway that will be successful if any of those situations should arise. This pathway could potentially be a single solution that works in any of the likely future scenarios, or it might provide separate responses to be enacted depending on how the future uncertainties unfold.

PRactice Questions

Check your understanding.

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does  not  count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

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BUS401: Management Leadership

Problems with the rational decision-making model.

Compare and contrast Prospect Theory and Bounded Rationality. In your journal, discuss which theory you believe to be more valid and why.

Critics of the rational model argue that it makes unrealistic assumptions in order to simplify possible choices and predictions.

LEARNING OBJECTIVE

Summarize the inherent flaws and arguments against the rational model of decision-making within a business context

  • Critics of the rational decision-making model say that the model makes unrealistic assumptions, particularly about the amount of information available and an individual's ability to processes this information when making decisions.
  • Bounded rationality is the idea that an individual's ability to act rationally is constrained by the information they have, the cognitive limitations of their minds, and the finite amount of time and resources they have to make a decision.
  • Because decision-makers lack the ability and resources to arrive at optimal solutions, they often seek a satisfactory solution rather than the optimal one.

A framework for understanding and often formally modeling social and economic behavior.

The idea that decision-making is limited by the information available, the decision-maker's cognitive limitations, and the finite amount of time available to make a decision.

One who seeks a satisfactory solution rather than an optimal one.

Critiques of the Rational Model

Critics of rational choice theory – or the rational model of decision-making – claim that this model makes unrealistic and oversimplified assumptions. Their objections to the rational model include:

  • People rarely have full (or perfect) information. For example, the information might not be available, the person might not be able to access it, or it might take too much time or too many resources to acquire. More complex models rely on probability in order to describe outcomes rather than the assumption that a person will always know all outcomes.
  • Individual rationality is limited by their ability to conduct analysis and think through competing alternatives. The more complex a decision, the greater the limits are to making completely rational choices.
  • Rather than always seeking to optimize benefits while minimizing costs, people are often willing to choose an acceptable option rather than the optimal one. This is especially true when it is difficult to precisely measure and assess factors among the selection criteria.

Alternative Theories of Decision-Making

Prospect theory.

Alternative theories of how people make decisions include Amos Tversky's and Daniel Kahneman's prospect theory. Prospect theory reflects the empirical finding that, contrary to rational choice theory, people fear losses more than they value gains, so they weigh the probabilities of negative outcomes more heavily than their actual potential cost. For instance, Tversky's and Kahneman's studies suggest that people would rather accept a deal that offers a 50% probability of gaining $2 over one that has a 50% probability of losing $1.

Bounded Rationality

Other researchers in the field of behavioral economics have also tried to explain why human behavior often goes against pure economic rationality. The theory of bounded rationality holds that an individual's rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. This theory was proposed by Herbert A. Simon as a more holistic way of understanding decision-making. Bounded rationality shares the view that decision-making is a fully rational process; however, it adds the condition that people act on the basis of limited information. Because decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality to a set of choices that have already been narrowed down by the absence of complete information and resources.

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Decision Making Essay

Introduction.

Decision-making is undoubtedly a fundamental practice the management of corporations. It denotes the progression of choosing and executing options, which are in tandem with an aspiration. It also connotes a string of actions commencing with a broad objective, trickling down to generating, appraising, choosing and executing favourable options.

Decisions made in organizations may have in-depth upshots on the firm and its employees. Such judgements in organizations are distinctive in terms of the risks involved, reservations managers have on them, their importance and contribution to the attainment of the firm’s broader objectives.

Some are tricky and requires insight thought, and may include setting of new policies, reorienting firm’s purposes and objectives, and large-scale ventures with a potential to impact on the economy of the firm. On the other hand, routine decisions also form part of a firm (Martin & Fellenz 2010, p. 227).

Rational model is a conventional representation of making decisions, and it leans on realistic financial hypothesis where the concerned members think of what constitutes best way of arriving at a judgement. Managements regularly use this model to make fiscally sensible decisions, which are capable of contributing to organization’s financial growth.

The model helps delineate how managers should make decisions. In addition, it presents guidelines, which enable decision maker to reach a favourable panacea for organizational development. The mould also negates the decision makers from applying their personal interests while searching for favourable outcomes.

It is highly applicable on decisions characterised by assurances and possibilities since suitable information is accessible. Furthermore, the model exposes opportunities to computations. For instance, usage of Information Technology to automate programmed decisions such as airline companies apply it is seat bookings, flight routes, and services pricing.

It is worth noting that decision-making techniques relying on quantitative information benefit processed in computers enable the model to gain usage. The model; however, has assumptions including decision makers’ ability to fulfil goals already agreed on and setbacks critically prepared and definite.

The decision makers also aim to attain certainty and collect relevant data, options and prospective outcomes computed. Procedure for evaluating options is clear and those able to optimize fiscal returns chosen. Finally, it assumes that the decision maker is logical and can use judgment to choose options, which will optimize economic gains.

The model describes the six stages of decision making as identifying a dilemma or opportunity. Daft and Marcic note that organizations face problems when they underperform and opportunities when administrators realize potentials of improving performance past existing echelon. This becomes the initial step in decision-making and warrants company’s inner and external forces surveillance (Daft & Marcic 2010, p. 188).

The managers utilize internal fiscal reports to forecast on possible threats and openings. Information gathering is another crucial stage that follows. This normally guarantees the manager an opportunity to analyze the possible causes of problems identified. This is tenable when decision makers, through creativity, develop questions reading the problem and opportunity state (Griffin, & Moorhead 2010, p. 198)

. The third stage is to develop alternatives, which seeks to generate potential optional answers to react to the requirements of the condition and give feedback on the basic reasons. It is easy to discover realistic options within the firm’s regulations since the decision-making is based on certainties and threats.

The identified options are deemed to ease the disparities regarding current state of affairs against conditions considered necessary.

Selection of desired options becomes the fourth step, which seeks to select among the options, the most realistic alternative that can best respond to the firms broad objectives. It is imperative to assert that the best attainable option must be requiring minimal resources to attain the needed outcomes. Furthermore, decision maker selects an option with the lowest quantity of uncertainties and threats.

This would aid in avoiding errors in the process. The fifth step is implementing the selected option, which requires corporation from the organization’s stakeholders. The managers, administrators and other staff work together to implement the option.

The ultimate step is to evaluate and present feedback on the status of implementation. Decision makers collect data on the effectiveness of the option in responding to the objectives. This final step is important since decision-making is an uninterrupted cycle. Therefore, the provision of feedback forms the benchmark for future decision-making.

There are factors, which influence decision-making course thus leading to a deviation from the rational form discussed above. Individuality personality and values is one of the leading parameter that affects the process. Different attributes of people manipulate decision-making choices. It is normal to discover that various individuals become nervous, worried, and agitated while in the crucial stages of decision-making.

Such attributes normally leads to fallacious interpretation in the process. It is crucial to declare that being nervous compromises reasoning; therefore, a manager may fail to arrive at the best decision. The attitudinal traits also interfere with decision in an organization. Some managers have fixed thoughts concerning what happens at the organization.

They believe that specific employees or figures must be present whenever there is a crucial matter to make decision. This implies that they have preset minds that such individuals are the best decision makers. This normally prompts the organization to believe such people contribute, regardless of the impacts they present on the organization.

Various managers possess different personalities. Some possess elevated self-esteem, which is motivational in during decision-making. Managers with strong personalities normally dominate the discussion during the process. This may flaw the process since their juniors may fear to contribute. This offers fewer options on the best way of solving organizational problems. This is incoherent with the rational model.

Preconceived fears about the consequences of the decisions would have on the organization normally send chills in the managers, and other concerned parties. This refers to emotional attributes of an individual. Griffin and Moorhead outline that perceived impacts, as well as post resolution effects may impair decision-making.

Furthermore, cognitive ideals such as outright biases have an effect on decision-making (Griffin, & Moorhead 2010, p. 202). Values that an individual embrace also influence decision making, and many counter the rational model. It is factual that managers espouse divergent principles and would attempt to maintain them in every situation. People would always propose what they like regardless of what impact it has on others.

Group relationship is another important parameter that influences decision making to a greater deal. The success of making decisions in groups is subject to the extent of understanding among members forming the team. Martin and Fellenz, posit that the group must have the right intensity of diversity thus enabling them to iron their differences.

Group decision making is highly applicable in organizations where it intricate issues, which can only be managed by a team with varied knowledge backgrounds (Martin & Fellenz 2010, p. 284). Group polarization connotes the way people react to situations of decision-making. People normally arrive at decision-making meetings with different views; however, they tone down to borrow the ideas of their fellows.

Therefore, a group that comprises of people with deep understanding of the dynamics that exists normally makes rational decision. Nonetheless, some groups might not arrive at a decision easily owing to the divergent notions members possess. This may be due to the everlasting differences that exist amongst members.

The level and kind of relationship within a group normally dictates how people make decisions. Superior relationship may prompt others to seek support from their fellows; however, this may flaw the process thus leading to irrationality. Group decision-making in organizations enable extra people to sustain influential contributions during the process than they would achieve individually.

Another issue is group thinking, which happens a when a decision making team is greatly involved in a discussion and the motivation to evaluate options is cancel out by their unanimity. This fails to support the rational model of decision-making since it thwarts other possible options that are crucial in the process.

Rational model upholds that divergent group may arrive at better conclusion than a group that has similar interest. Therefore, a divergent group, where people have good relation, but varied interest, would offer beat avenue of exploring many options.

The peak management makes tactical decisions within the organization. Varied aspects of power and its availability in any firm, coupled with inter personality conditions give rise to the relationships (Venkatachalam & Sellappan 2011, p. 97). Managers can influence decision making as they comment on what qualifies for discussions.

Power relations contribute to decision making through the engagement of organization staff on involvement in undertaking activities. Managers merely comply with the already set standards while leading other people. Whenever this takes place, the managers hold discussions with the relevant people to make decisions collectively on work aimed at meeting company goals (Venkatachalam & Sellappan 2011, p. 97).

Power leads to conflict in the organization, which needs adequate deliberation to decide on the best move. Different echelons of power requires transmitting information from pinnacle to bottom, which may cause damaged communication due to structural circumstances of those involved. Decisions making is necessary to solve the predicaments resulting from such conflicts.

Furthermore, power denotes leadership, which requires excellent qualities including superior decision-making ability. Managers must be able to identify threats and solutions to problems when options, facts, and goals are unclear. Managers ought to encourage shared decision-making. This is a way of empowering subordinates to be able to take part in an advice-giving decision making processes.

Power ought to organize the team members involved in decisions making. However, managers sometimes misuse their powers while engaging employees on making decisions about certain issues.

Decision choice less is the situation of managers seeking the opinion of the junior employees on vital organizational development agendas. The employees provide their information, which the manager discards and cannot include as one of the options for improving conditions in the organization (Shapira 2002, p. 145)

Political behaviour refers to as actions displayed by people in organizations; moreover, it depicts the requirements in such organizations. Political issues among some decision makers are an important aspect of decision-making. The politics include how managers use power to influence decision-making or the behaviour of employees while agitating for better remunerations.

It concentrates on designing and utilizing power in firm to ensure people who lack power get it to organizational level. The impact of political behaviour on managers includes the possibility of drawing up new policies for an organization upon learning the prevailing political happenings (Robbins, Judge, Odendaal & Roodt 2009, p. 358).

The managers take advantage of political unrest in an organization to destroy critical documents, which might be relevant for decision-making. People view political behaviour as a way of democratic decision-making, communicating demands for performance.

However, political behaviour in firms also presents dark side including intentionally telling lies, and intimidation. Political behaviours within an organization may thus impair decision following the divides it creates. Every political move has adverse impact in the process thus thwarting the rational model.

In conclusion, decision-making refer to a progression of choosing and executing options that are consistent with one’s inspirations. Rational model has contributed immensely to the decision-making in various organizations since it tend to eliminate all external forces that may hinder the course.

It is notable that myriads of parameters may influence the process. Personage personality and values normally may affect decision within the organization. Some managers hold particular values that they may not sacrifice in the process of decision-making. Self-esteem and other emotional attributes also affect decision. Anger, aggression and being overjoyed may compromise reasoning since they interfere with the psychology.

Making decision under such pressures may hinder the process, but soberness may lead to appropriate decision-making. Group relationship is another parameter that hinders decision since it influences individual thinking. Power relationship in an organization influences decision, as employees view high cadre to dominate during the process. This would allow them to offer options and easily convince people to consider their ideas.

The politics within corporations normally hinders decision-making, as it may lead to intergroup formations with competing attitudes. Decision-making should thus occur in a rational setting, which allows for adequate and rational consideration of every option.

List of references

Daft, R. & Marcic, D. (2010) Understanding Management , 7 th Ed. Ohio, OH. Cengage Learning.

Griffin, R. & Moorhead, G. (2010) Organizational Behavior: Managing People and Organizations, 9 th Ed. Ohio OH. Cengage Learning.

Martin, J. & Fellenz, M. (2010) Organizational Behaviour & Management . Ohio, OH. Cengage Learning.

Robbins, P. Judge, T. Odendaal, A. & Roodt, G. (2009) Organizational Behaviour: Global and Southern African Perspectives , 2 nd Ed. Cape Town.Pearson South Africa.

Shapira, Z. (2002) Organizational Decision Making . New York, NY. Cambridge University Press.

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Essay On Rational Decision Making Process

Type of paper: Essay

Topic: Politics , Finance , Democracy , Theory , Thinking , Decision Making , Decision , Model

Words: 1300

Published: 11/04/2019

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This paper is going to assess the analysis reviews decision theory, the political and rational models and their impacts, financial or otherwise to the various levels of government. Rational decision theory holds that decisions are made on their financial impacts. When a decision is deemed financially hazardous to the situation at hand then such is not made while if it financially safeguards the interests of a certain department or any level of government the decision holds. Political model on the other hand reiterates the making of decisions based on their political impacts: political correctness. Decisions made on such basis are always having negative long term impacts to the subjects bearing that no critical reasoning was done to evaluate the impacts of the decision while it was done to please others. This paper is going to zero in to these two models of reasoning with a key consideration on how they impact on the various levels of government. It however, worth saying that political decisions in most cases have impacts in almost all levels of government. Considering that it tries to reach a compromise between two sides without reckoning the essence of such decisions. This paper will also, as the main point of focus, try to unravel the in-depth application of the two models at the different government levels.

The rational approach to decision making process is clear in evaluation, logical in selection of available options as well as straight forward in nature. This is majorly contributed by the manner in which the model is handy in the selection of cost beneficial and satisfactory alternatives among many that might exist.

This is made possible by a thorough evaluation of available options based on its cost effectiveness. Therefore rational decision making will try to determine which alternative amongst the available is best suited to address a given issues, the cost to be incurred in the selection of an option as well as the benefits that can be derived from an alternative. This approach is very handy in the making of decisions by the government especially where financial issues are core. It can be used to examine key programs so as to critically evaluate on the basis of cost-benefit whether they are worth of implementation or not.

Any program that negatively influences the financial capability of a nation is thus considered as an ill option that will have devastating effects on the country’s economy.

Pron’s of this model

  • It is economical in approach, and can this be used while drafting budgets at the various levels of government.
  • It is a straight forward model, which limits ambiguity in the evaluation of alternatives hence making selection of the best option much easier.
  • The approach facilitates an in-depth understanding of a range of alternatives as it allows for specification of alternatives that are relevant to solving a particular problem.
  • It use enables choice of an option that guarantees maxi mum value both in the present as well as in the future.
  • Its major focus on the beneficial cost of an option ensures that self interests are kept at bay while making decision in all the levels of government. As a result the government’s efficiency in service provision is greatly improved.

Con’s of the model

  • The model’s greatest undoing is its complex nature. A lot of financial calculations have to come into play before a decision is arrived at.
  • The models evaluates options on cost benefit basis alone, without the inclusion of other factors tends to weaken the decision making process since other humanitarian factors might be critical in the evaluation of an option and should not be ignored.

POLITICAL MODEL

The course of action of agreeing with others consequences on finding the middle ground position not based on scrutiny of expenses and reimbursement. On this statement upon making of any decision, the process that it undergoes is not the same as the political model where reached where the few individuals who the citizens elected to represent them make decisions on behalf of the people who chose them. This makes it easy for a person who never had any ill will to exploit on this divine opportunity to make decision that will suit their needs which is not fair compared to the political model.

For the reason that of the parleying process, ultimate situation are practicable now but are not enduring solutions. These manners of resolution are not always those of enduring to the reason behind the enactment or the adoption of the various decisions made. Upon the representation of personal interest without the interest of people at heart the possibility of the resolutions arrived at is not likely to enjoy an enduring value to the problem that lead to its adoption.

Persons whose pose botched anticipate the subsequently subject to a chance to renegotiate their stand. This though some aspect of democracy is considered where there is always another chance, but this does not always favor everybody because not the interest of everybody is represented. This leads to some aspect of demoralization because one upon presentation of his arguments upon something that will favor the majority, if disputed by the base formed and a loss is not a guarantee that the next time you will present the same there are some adjustments are embrace to suit your predicaments. Which is not the case; because the system is one and the obvious procedure is what is always being pursued when coming up with critical decisions based on facts suiting the interest of the few.

The evidential advantage of this model is that it is quite favorable in solving problems that need immediate resolutions.

The major demerit of this case is that upon evaluation of facts that they have to reach upon an agreement, the manipulation of the facts among the few individuals is evident by the model adopted by the system. This will not favor the long-term issues that are likely to occur.

As has been discussed above, it is evident that though both models are applied at almost all, if not all, levels of government with the national level having the most interesting mixture. Different interests come to play while decisions are being made considering that the rule of democracy ought to apply. This is ensured by the leaders who are more politically inclined than rationally ready to analyze the situations. On the other hand, the economic situation of the country is equally important. The leaders are put in check by the public to account for any economic disability arising during their reign. This provides a rather complex situation to the leaders; the bid to please their electorate and to make decisions based on the common good of the country.

Recommendations

Though the two decision making models should be considered while coming up with decisions affecting the country, it would be rational for the leaders to concentrate more on the rational model as in most cases the decisions based on political agendas favor only the political elites. Though it solves the current political problems but it doesn’t give a lasting solution that will benefit the entire society e.g. the entire country.

Mintz, A. (2002). Intergrating cognitive and rational theories of foreign policy decision making. New York: Palgrave.

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Charlie Munger: These ‘basic rules’ made me successful in life—‘with Warren Buffett, I had all 3’

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Charlie Munger died on Nov. 28 at age 99. These reflections on his life and career, which he wrote for CNBC Make It, are among his final writings.

One's journey to career satisfaction is not always linear. After graduating from Harvard Law School, I joined a well-regarded firm in California. I built a home and a family, and I worked hard for years.

Even so, I wanted to earn more than what a senior law partner could expect. I started investing in stocks, businesses and property development before starting a law firm with some of my colleagues.  

I spent many successful years at the firm, but I wasn't satisfied practicing law. I liked the independence of a capitalist. I liked figuring things out and making bets. I preferred making the decisions and gambling my own money. I usually thought I knew better than the client anyway, so why should I have to do it his way?

One evening, at a dinner party in Omaha, I was introduced to a fellow named Warren Buffett. Warren and I shared many ideas when it came to business, finance, history and investing. He persuaded me to quit the law at the earliest point I could afford to do so. We eventually agreed to go into business together, which turned out to be an incredibly good decision. 

I have three basic rules for career satisfaction that have always helped me. I believe they can help any young person evaluating a career decision. While meeting all three is nearly impossible, you should try anyway. 

1. Don't sell anything you wouldn't buy yourself.

The safest way to try to get what you want is to try to deserve what you want. It's such a simple idea. It's the golden rule. You want to deliver to the world what you would buy if you were on the other end.

There is no ethos, in my opinion, that is better for any person to have. By and large, the people who have had this ethos win in life, and they don't win just money and honors — they win the respect and the deserved trust of the people they deal with.

Plus, there is huge pleasure in life to be obtained from getting deserved trust. Reputation and integrity are your most valuable assets — and can be lost in a heartbeat. 

2. Don't work for anyone you don't respect and admire.

You particularly want to avoid working directly under somebody you don't admire and don't want to be like. It's dangerous. We're all subject to control to some extent by authority figures, particularly authority figures who are rewarding us. Dealing properly with this danger requires both some talent and will.

I coped in my time by identifying people I admired and by maneuvering, mostly without criticizing anybody, so that I was usually working under the right sort of people. A lot of employers will permit that if you're shrewd enough to work it out with some tact.

Generally, your outcome in life will be more satisfactory if you work under people whom you correctly admire.

3. Work only with people you enjoy.

I've found that intense interest in any subject is indispensable if you're really going to excel. I could force myself to be fairly good in a lot of things, but I couldn't excel in anything in which I didn't have an intense interest or enjoy.

If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest alongside people whose company you enjoy. 

Another thing you have to do is have a lot of assiduity. I like that word because to me it means: "Sit down on your ass until you do it." I've had marvelous partners, full of assiduity, all my life. I think I got them partly because I tried to deserve them, and partly because I was shrewd enough to select them, and partly because there was some luck. 

I have been incredibly fortunate in my life when it comes to these basic rules. With Warren Buffett, I had all three. 

Charlie Munger  was Vice Chairman of Berkshire Hathaway, and Warren Buffett's closest business partner and right-hand man. As a legendary and pragmatic investor and active philanthropist, Munger was a Harvard Law graduate and was known for his wide-ranging wisdom across a multitude of disciplines — including psychology, economics, biology, history and physics. Munger served as a director of Costco Wholesale Corporation and as chairman of the Daily Journal Corporation. An abridged version of his book, " Poor Charlie's Almanack ," is being released by Stripe Press on December 5, 2024.

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    decision that is substantively rational (i.e., will enable people to achieve their goals and lead successful and satisfying lives) and what the impediments to substantive rationality are. Decision making research has answered an easier question, namely, what it means to make a decision that is formally rational and what the impediments to that ...

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    Data, Logic, and Facts. Rational decision making is defined not only by adherence to a careful process, but also by a logical, data-driven manner of following the steps of that process. The process can be time-consuming and costly. It is generally not worthwhile on everyday decisions. It is more useful for big decisions with many criteria that ...

  11. BUS401: Problems with the Rational Decision-Making Model

    The theory of bounded rationality holds that an individual's rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. This theory was proposed by Herbert A. Simon as a more holistic way of understanding decision-making.

  12. The Rational Decision Making Of People Philosophy Essay

    Classical decision theory was mostly developed within the first sixty years of the 20th century. This focuses on how humans can most easily attain their desires with regard to their beliefs. Decisions can occur under varying circumstances; certainty being one, with a completely assured end result.

  13. Decision Making Models

    This paper will focus on a discussion of rational decision-making model, and then delve into its application in the advertisement area of the hotel industry. Discussion Rational decisional making model takes an approach of highlighting the best decision among a number of alternatives.

  14. The Rational Decision Making Model

    The "rational decision-making is a normative approach to making optimal and perfect decisions" (Bateman & Snell, 2007). Furthermore, "this model is characterized by making consistent, value-maximizing choices within specified constraints" (Robbins & Judge, 2009). Based on this student's spouse understanding, applying the rational ...

  15. The Power of Rational Decision Making Essay

    The rational decision-making model is comprehensive in the fact that it requires the decision maker to define the problem, identify criteria for making the decision, weight the criteria, develop alternatives, evaluate alternatives and finally select the best alternative (Robbins, S.P., Judge, T.A. 2009).

  16. Rational Decision Making Essay

    Rational Decision Making Essay. 1846 Words8 Pages. According to Trewatha & Newport (1982: 148), decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem. Decision making arises when alternative solutions can solve a particular problem.

  17. Decision Making

    Rational model is a conventional representation of making decisions, and it leans on realistic financial hypothesis where the concerned members think of what constitutes best way of arriving at a judgement. Managements regularly use this model to make fiscally sensible decisions, which are capable of contributing to organization's financial growth.

  18. Essay On Rational Decision Making

    Rational decision making is defined as a systematic approach to long term decision making. As the word rational suggests, the approach brings logic and order to decision making. Rational decision making involves six main steps to achieve the desired solution. The first step is identifying a problem or opportunity.

  19. Rational Decision-Making Essay

    Rational Decision-Making Essay Superior Essays 1765 Words 7 Pages Open Document Essay Sample Check Writing Quality Show More Decision making is is the process of making choices by setting goals, gathering information, and assessing alternative occupations (umassd.edu 2016).

  20. Rational Decision Making Essay

    Benefits or rational Decision Making: As stated above, rational decision making is based on scientifically obtained information, so this decision making model can reduce the chance of errors, uncertainties, assumptions, subjectivity and distortions.

  21. The Rational Decision-Making Model

    The rational decision-making model provides a structured and reasonable approach to deciding within an organizational setting. By choosing to make decisions rationally, the model equips decision makers with specific knowledge regarding available options.

  22. Rational Decision Making Process Essay

    Rational decision theory holds that decisions are made on their financial impacts. When a decision is deemed financially hazardous to the situation at hand then such is not made while if it financially safeguards the interests of a certain department or any level of government the decision holds.

  23. Charlie Munger: These 'basic rules' made me successful in ...

    I have three basic rules for career satisfaction that have always helped me. I believe they can help any young person evaluating a career decision. While meeting all three is nearly impossible ...

  24. Rational Decision-making synonyms

    Another way to say Rational Decision-making? Synonyms for Rational Decision-making (other words and phrases for Rational Decision-making).