$2.$ Rational Choice Decision$-$Making Process $($Keyboard Navigable Alternate Version$)$

Rational Choice Decision$-$Making Process

This activity is important because decision making is a core management activity. Managers are taught to use logic and all available information to explore all of their options and then choose the alternative with the highest expected value. In theory, this approach leads to the best decision. However, managers are human beings with limits on their ability to follow this approach.

The goal of this activity is to review the rational choice paradigm, which will help you to better understand this logical approach to making decisions. As you complete the exercise, consider the way you make decisions. You may discover that you're not as rational as you think!

The rational choice paradigm predicts that decision makers will select the alternative with the highest subjective expected utility. Observations from organizational behavior research indicate that a variety of factors, such as stakeholder framing, mental models, decisive leadership, solution$-$focused problems, and perceptual defense limit decision makers' abilities to be completely rational. A bounded rationality view of decision making, in which people compare alternatives to an implicit favorite and satisfice rather than maximize, more accurately portrays how decisions are actually made.

Match each issue to its corresponding step of the rational choice decision$-$making model.

Identify the problem or opportunity Implement the selected choice Select the choice with the highest value Discover or develop possible choices Choose the best decision process Evaluate the selected choice

Match each of the options above to the items below.

Some employees think the problem is increased competition; others think it is decreased customer demand. After a careful market analysis, the problem is identified as a substitute product that costs less.

No answer

This is the first time the company has faced declining sales, so deciding on a solution is new for everyone. You decide to keep the full management team on board until a decision is reached and implemented.

No answer

The team arrives at four potential solutions: redesigning the product, bundling the product with a bonus item, dropping the price, and increasing marketing to boost brand identity.

No answer

The best solution appears to be bundling the product with a bonus item because it keeps the price up$,$ but also increases customers$$ perceptions of value.

No answer

The team takes action to implement the chosen solution. It first bundles the product with a bonus item in a limited test market.

No answer

An analysis of test market sales indicate bundling the product with a bonus item increased sales to the previous levels. Given the cost of the bonus item, however, net profits are slightly lower.