rational decision making model essay

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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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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…

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.

The Ultimate Guide to Rational Decision-Making (With Steps)

Making decisions is an integral part of our lives. However, how many times do we really stop to think whether our choices are rational or not?

This article dives deep into the concept of rational decision-making, its importance, real-life examples, steps involved, factors influencing it, ways to enhance your skills, potential challenges, and how cognitive biases impact it. Let’s dive in.

What is Rational Decision-Making?

Rational decision-making, at its core, is a multi-step process used to make choices that are logical, informed, and objective. It involves identifying a decision problem, gathering information, evaluating alternatives, and selecting the most rational choice. This is a stark contrast to decisions based on subjectivity or intuition, which may often rely on feelings, emotions, or personal biases.

The goal of rational decision-making is to reach decisions that support your objectives in the most optimal way. The basis of this process is rationality—a concept that propels us to make decisions that provide the maximum benefit or, in other words, the best possible outcome. Rationality encourages us to follow a path that aligns with our goals and values while making decisions. It’s an antidote to impulsive choices or decisions clouded by bias and personal emotions.

While intuitive decisions can sometimes lead to effective outcomes, especially in situations demanding quick responses, rational decision-making allows us to consider all available options, analyze their potential consequences, and make an informed choice. This often leads to decisions that are more aligned with our long-term goals and less likely to result in unintended consequences.

Why is Rational Decision-Making Important?

Rational decision-making is the cornerstone of effective problem-solving and critical thinking. It helps us to make informed choices that are not only beneficial but also ethical, a crucial aspect in both personal and professional life.

In business, rational decision-making can lead to strategies that maximize profit, minimize risk, and promote organizational growth. It ensures resource optimization by aligning decisions with business objectives. Rationality ensures that every decision is data-driven, increasing the likelihood of successful outcomes.

On a personal level, rational decision-making can help us make better choices about our health, finances, relationships, and more. It enables us to make choices that align with our values and life goals, improving our overall quality of life.

Examples of Using Rational Decision-Making

Let’s see how rational decision-making manifests in various spheres.

Business: A company looking to launch a new product will employ rational decision-making. They’ll conduct market research, analyze competitor products, evaluate their resources, and predict potential profits before making a decision. This ensures the decision is based on facts and not just intuition.

Leadership: Leaders use rational decision-making while shaping policies or resolving conflicts. A school principal, for instance, may have to decide whether to enforce a strict no-mobile policy.

They’ll consider the pros and cons, consult with teachers, parents, and students, and make a decision that is most beneficial for the school’s academic environment.

Personal Finance: An individual considering their retirement savings plan would utilize rational decision-making. They might begin by understanding the importance of saving for retirement and gathering information about various options like 401(k)s, IRAs, or traditional savings accounts.

They would evaluate these alternatives, considering factors like potential growth, risk level, and tax benefits. The decision would be based on their financial situation, retirement goals, and risk tolerance, ensuring their choice is not impulsive but grounded in careful consideration and analysis.

Steps Involved in Rational Decision-Making

The rational decision-making process comprises several key steps. Here’s a rundown:

1. Identify the Decision

The first step in rational decision-making is acknowledging that a decision is required. The decision is usually a problem but can also be an opportunity. This is the foundational stage where the problem or situation is recognized, and the need for a decision becomes apparent.

You can’t make a rational decision unless you know exactly what the problem is and the context of the decision that needs to be made. Ask yourself questions such as:

• Why does a decision need to be made?
• What consequences will unfold if no decision is made?
• What desired outcome are we aiming for?
• What stands in the way of achieving it?

Take, for instance, a business observing declining profits. The company identifies the problem and realizes that strategic decisions need to be made to address this issue.

It might ask: What is the reason behind the decreasing profits? What will happen if the situation is not addressed? What are our financial goals, and what is impeding us from achieving them? This level of detailed understanding and clarity sets the stage for the subsequent steps of the decision-making process.

2. Gather Information

Once the decision has been identified, the next step is to gather relevant information about it. This could include data analysis, research, consultations with experts, surveys, etc.

Using the previous example, the business might look into financial statements, assess market trends, and consider feedback from customers. A thorough and unbiased collection of data is critical as it forms the backbone of a rational decision.

3. Identify Alternatives

The third step involves generating a list of potential alternatives. There is often more than one way to address a problem or situation, so it’s important to consider different approaches and options.

For the business facing decreasing profits, alternatives could include cost-cutting, investing in new marketing strategies, introducing new products, or even merging with another company. Creativity and open-mindedness are key in this stage to ensure a wide range of options.

4. Evaluate Alternatives

After generating alternatives, the next crucial step is to evaluate each one. This stage involves a systematic analysis of the pros and cons, feasibility, potential impact, and other factors pertinent to each option. Here, establishing your decision criteria—such as cost-effectiveness, scalability, risk level, and potential return—is key. Once established, these criteria need to be weighed based on their importance to solving the problem at hand.

For example, a business might establish criteria like cost, projected return, and alignment with company values. These criteria would be applied to evaluate the potential impact of different marketing strategies, the feasibility of cost-cutting measures, or the implications of a merger.

This systematic evaluation process, underpinned by established and weighted decision criteria, enables a business to compare and contrast different options effectively. It assists in determining which alternative aligns best with the defined criteria and thus holds the highest potential for success.

5. Choose an Alternative

This step involves making the actual decision among the evaluated alternatives. Typically, the best alternative is the one with the greatest likelihood of solving the issue, paired with the lowest degree of risk.

It’s where the business might choose the most cost-effective marketing strategy that is expected to reach the widest audience. While this stage concludes with a decision, the rational decision-making process is not yet complete.

6. Take Action

This is where the chosen alternative is implemented. It involves carrying out the decision and monitoring its progress.

For the business, this would mean launching the selected marketing strategy and keeping a close eye on metrics such as customer engagement, sales, and profit margins. It’s important to remember that this stage might involve overcoming obstacles and making adjustments as necessary.

7. Review the Decision

The final step of the process is to review and evaluate the results of the decision. This includes analyzing whether the decision has resolved the problem or situation and, if not, considering what adjustments need to be made.

In our business example, this could mean assessing whether the new marketing strategy has indeed increased profits. If it hasn’t, the business might need to revisit previous steps of the process to identify and implement a new decision.

These steps make up the backbone of the rational decision-making process, enabling us to systematically approach our choices, ensuring they are backed by logic and evidence.

Assumptions for Using a Rational Decision-Making Model

To effectively utilize the rational decision-making process, it’s necessary to make several key assumptions. These assumptions create a baseline for the decision-making process and help ensure its effective implementation:

• Complete Information: One must assume that all the information needed to make the decision is available and accessible. This includes details about the problem, potential solutions, and their outcomes.
• Decision-Maker Rationality: The person making the decision is assumed to be rational, meaning they are objective, logical, and aim to make the best choice based on the information available.
• Clear Objectives: The decision-maker is assumed to have clear and consistent objectives or goals that guide the decision-making process.
• Time and Resources: It’s assumed that the decision-maker has adequate time and resources to gather information, evaluate alternatives, and make a decision.
• Decision-Maker Independence: The decision-maker is assumed to have the freedom and authority to make the decision without undue influence or restrictions.
• Stable Environment: The environment in which the decision is being made is assumed to be stable, allowing for reliable predictions about the consequences of each alternative.
• Logical Evaluation: It’s assumed that the decision-maker can logically evaluate the pros and cons of each alternative, weigh them against each other, and make a rational choice.

Other Rational Decision-Making Models

While the steps above cover the basics of rational decision-making, there are several rational decision-making models that have been developed by scholars and researchers over the years.

These models provide structured approaches to making decisions based on logical reasoning and analysis. Here are a few examples:

• The Rational Economic Model: This model assumes that individuals make decisions by maximizing their utility or satisfaction, considering all available information, and weighing the costs and benefits of different alternatives.
• The Bounded Rationality Model: Proposed by Herbert Simon, this model recognizes that humans have limitations in processing information and making fully rational decisions. It suggests that individuals make decisions that are “good enough” rather than optimal, taking into account their cognitive constraints and the available information.
• The Normative Decision Model: This model focuses on the ideal decision-making process, providing a step-by-step framework for making rational decisions. It emphasizes gathering complete information, considering all alternatives, and evaluating the potential outcomes before selecting the best option.
• The Garbage Can Model: This model views decision-making as a chaotic process that occurs in organizations. It suggests that decisions often result from a combination of problems, solutions, participants, and circumstances coming together in a “garbage can” and being resolved opportunistically.
• The Prospect Theory: Proposed by Daniel Kahneman and Amos Tversky, this model challenges the assumptions of rational decision-making by considering how individuals assess and weigh potential gains and losses. It suggests that people tend to be risk-averse when it comes to gains but risk-seeking when it comes to losses.

These are just a few examples of rational decision-making models. Each model offers a unique perspective and set of principles for approaching decision-making tasks. The choice of model depends on the context, problem complexity, available information, and the decision-makers preferences and constraints.

Factors Influencing Rational Decision-Making

While the idea of making a completely rational decision sounds perfect, in reality, our decisions are often influenced by various factors.

• Information Availability: The amount and quality of information at our disposal can greatly influence our decisions. With limited or incorrect information, we may end up making less-than-optimal decisions.
• Time Constraints: Often, we are pressed for time while making decisions. Under such constraints, we might not go through the full rational decision-making process.
• Cognitive Limitations: Our cognitive capacity to process information and make decisions is limited. We can be overwhelmed with too many alternatives or complex decision scenarios.
• Emotions: Our emotions often play a part in our decisions. We might make irrational choices under emotional distress.

Impact of Cognitive Biases on Rational Decision-Making

Cognitive biases can seriously impact our rational decision-making abilities. These mental shortcuts or “biases” can lead us to make decisions that are not in our best interest.

For instance, confirmation bias can make us pay more attention to information that confirms our pre-existing beliefs and ignore contradicting evidence. Similarly, the anchoring bias can cause us to rely heavily on the first piece of information we receive when making decisions.

Cognitive biases often lead to irrational choices. Being aware of these biases is the first step towards mitigating their impact on our decision-making process.

Potential Challenges in Rational Decision-Making

Rational decision-making, despite its merits, isn’t without its challenges. Some of these include:

• Information Overload: In an age of data deluge, filtering through massive amounts of information to make decisions can be overwhelming.
• Analysis Paralysis: Overanalyzing or overthinking can lead to indecision or delays in decision-making.
• Unpredictable Outcomes: Even with a thorough analysis, outcomes can be unpredictable due to the dynamic nature of our environment.

Developing Rational Decision-Making Skills

Wondering how to become better at making rational decisions? Here are some tips to get you going:

• Improve Critical Thinking: Critical thinking allows us to objectively analyze information and logically derive conclusions. By developing your critical thinking skills, you can better evaluate decision alternatives.
• Practice Mindfulness: Being aware of your thoughts and emotions can help you identify when they are clouding your decision-making process.
• Use Decision-Making Models: Decision-making models can provide a structured approach to rational decision-making. They can help guide you through complex decision scenarios.

Remember, developing rational decision-making skills takes time and practice. Stay patient and keep practicing.

Frequently Asked Questions

Rational decision-making is a structured, logical process that uses evidence and analysis. Intuitive decision-making relies on instinct and gut feelings.

Yes, rational decision-making can be applied in personal situations like choosing a career, managing finances, or making health-related decisions.

Yes, decision-making models like SWOT analysis, decision trees, or cost-benefit analysis can provide structured approaches to enhance rationality.

Wrapping Up

Rational decision-making is a skill that can transform our personal and professional lives, steering us toward more informed and effective choices. Though challenges exist, with awareness and practice, we can significantly improve our decision-making prowess.

By understanding the nuances of rational decision-making, we not only enhance our decision-making abilities but also become better thinkers, planners, and problem-solvers. Now, isn’t that a step towards a more informed and empowered life?

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Introduction

Six steps rational model.

The rational model of decision making, since its introduction, has been used to make calculated decisions from business firms and companies. It is through this pure rational, calculated-numerical, process that the companies tend to make business plans for their future (Taylor, 2006, p. 4). As a manager of a financial service offering company I had to make several decisions based on this model. But the latest financial and economic crisis has shown the limitations of this methodology. This is the situation I found myself in at the beginning of this year and that we will discuss below.

At the beginning of this year I had to find ways out of the financial crisis for my company or we would face failure. Thus I turned to Bazerman and Moore’s six steps model for help. The problem was that customers were turning away from our financial service offerings and revenues were going down. Our criteria were that we had to find new ways of re-building back customer confidence and increase our revenues. How to do that? In order to build positive customer confidence you have to make your company customer-friendly and take into consideration customers’ needs before your own needs. In order to improve the revenues you have to offer them high-quality services with the lowest cost possible. One alternative would be to launch a new marketing campaign explaining in the friendliest way possible our services. Another would be to make several staff training sessions to improve customer relations and company’s image in the public.

Yet a third alternative would be to launch new low-cost financial services along with a survey to get to know better customer needs. Since in the present situation customer confidence in the industry is low the first alternative would not generate the desired effects. The second would improve customer relations but the services offered would still be costly and the end result would not be an increase in revenues. And the third alternative could still not be effective without proper marketing support. If the newly launched low-cost services could not reach the customers the effort would become pointless.

Thus the ideal solution was to merge the three alternatives in a combined strategy. The launch of a survey to know customer needs would precede the launch of new low-cost services. Then a marketing campaign would advertise to the public these services, meanwhile the staff would be trained to a more customer-focused attitude.

The difference between the three alternatives taken alone and the ultimate decision of a combined strategy rest in the fact that the previous would not reach the effect of ‘involving’ the public. Customer involvement in a business strategy is essential for the success of that strategy (Gomez-Mejia et al., 2008, p. 56). The problem with the final decision was that it was based purely on logical evaluation. Unfortunately, many empirical studies have shown that logical, rational, decision-making has a high rate of failure (). This is because many consumers do base their decisions not only on purely logical premises. Many do make their decisions based on emotional or ideological premises (Miller, 2006, p. 4). This is the case in nowadays financial industry. Customers can be well informed regarding the low-cost services you may offer but they lack confidence in the future of the industry. They fear that another crisis, like the one we are passing, could damage them again. And the problem of the rational decision-making in our case is this: how to ‘calculate’ human fear logically? This is why you have to take other non-rational steps, like becoming more customer-friendly or seeing more environmental caring, etc.

Taylor, W. (2006). Introduction to Management. Ninth Edition. Prentice Hall: New Jersey.

Gomez-Mejia, Luis R.; David B. Balkin and Robert L. Cardy (2008). Management: People, Performance, Change. 3rd edition. New York: McGraw-Hill.

Miller, K. (2006). Organizational Communication: Approaches and Processes. 4th edition. McGraw-Hill Company: London & New York.

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11.3 Understanding Decision Making

Learning objectives.

• Define decision making.
• Understand different types of decisions.

What Is Decision Making?

Decision making refers to making choices among alternative courses of action—which may also include inaction. While it can be argued that management is decision making, half of the decisions made by managers within organizations fail (Ireland & Miller, 2004; Nutt, 2002; Nutt, 1999). Therefore, increasing effectiveness in decision making is an important part of maximizing your effectiveness at work. This chapter will help you understand how to make decisions alone or in a group while avoiding common decision-making traps.

Individuals throughout organizations use the information they gather to make a wide range of decisions. These decisions may affect the lives of others and change the course of an organization. For example, the decisions made by executives and consulting firms for Enron ultimately resulted in a $60 billion loss for investors, thousands of employees without jobs, and the loss of all employee retirement funds. But Sherron Watkins, a former Enron employee and now-famous whistleblower, uncovered the accounting problems and tried to enact change. Similarly, the decisions made by firms to trade in mortgage-backed securities is having negative consequences for the entire U.S. economy. Each of these people made a decision, and each person, as well as others, is now living with the consequences of his or her decisions.

Because many decisions involve an ethical component, one of the most important considerations in management is whether the decisions you are making as an employee or manager are ethical. Here are some basic questions you can ask yourself to assess the ethics of a decision (Blanchard & Peale, 1988).

• Is this decision fair?
• Will I feel better or worse about myself after I make this decision?
• Does this decision break any organizational rules?
• Does this decision break any laws?
• How would I feel if this decision was broadcast on the news?

Types of Decisions

Despite the far-reaching nature of the decisions in the previous example, not all decisions have major consequences or even require a lot of thought. For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. You probably do not spend much time on these mundane decisions. These types of straightforward decisions are termed programmed decisions; these are decisions that occur frequently enough that we develop an automated response to them. The automated response we use to make these decisions is called the decision rule . For example, many restaurants face customer complaints as a routine part of doing business. Because this is a recurring problem for restaurants, it may be regarded as a programmed decision. To deal with this problem, the restaurant might have a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. Making strategic, tactical, and operational decisions is an integral part of the planning function in the P-O-L-C (planning-organizing-leading-controlling) model.

However, decisions that are unique and important require conscious thinking, information gathering, and careful consideration of alternatives. These are called nonprogrammed decisions . For example, in 2005, McDonald’s became aware of a need to respond to growing customer concerns regarding foods high in fat and calories. This is a nonprogrammed decision because for several decades, customers of fast-food restaurants were more concerned with the taste and price of the food, rather than the healthiness. In response, McDonald’s decided to offer healthier alternatives, such as substituting apple slices in Happy Meals for French fries and discontinuing the use of trans fats. A crisis situation also constitutes a nonprogrammed decision for companies. For example, the leadership of Nutrorim was facing a tough decision. They had recently introduced a new product, ChargeUp with Lipitrene, an improved version of their popular sports drink powder, ChargeUp. But a phone call came from a state health department to inform them that several cases of gastrointestinal distress had been reported after people consumed the new product. Nutrorim decided to recall ChargeUp with Lipitrene immediately. Two weeks later, it became clear that the gastrointestinal problems were unrelated to ChargeUp with Lipitrene. However, the damage to the brand and to the balance sheets was already done. This unfortunate decision caused Nutrorim to rethink the way decisions were made under pressure so that they now gather information to make informed choices even when time is of the essence (Garvin, 2006).

Figure 11.5

To ensure consistency around the globe such as at this St. Petersburg, Russia, location, McDonald’s trains all restaurant managers (over 65,000 so far) at Hamburger University where they take the equivalent of two years of college courses and learn how to make decisions. The curriculum is taught in 28 languages.

Wikimedia Commons – McDonalds in St Petersburg 2004 – CC BY-SA 1.0.

Decision making can also be classified into three categories based on the level at which they occur. Strategic decisions set the course of organization. Tactical decisions are decisions about how things will get done. Finally, operational decisions are decisions that employees make each day to run the organization. For example, remember the restaurant that routinely offers a free dessert when a customer complaint is received. The owner of the restaurant made a strategic decision to have great customer service. The manager of the restaurant implemented the free dessert policy as a way to handle customer complaints, which is a tactical decision. And, the servers at the restaurant are making individual decisions each day evaluating whether each customer complaint received is legitimate to warrant a free dessert.

Figure 11.6 Decisions Commonly Made within Organizations

In this chapter, we are going to discuss different decision-making models designed to understand and evaluate the effectiveness of nonprogrammed decisions. We will cover four decision-making approaches starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision-making model.

Making Rational Decisions

The rational decision-making model describes a series of steps that decision makers should consider if their goal is to maximize the quality of their outcomes. In other words, if you want to make sure you make the best choice, going through the formal steps of the rational decision-making model may make sense.

Let’s imagine that your old, clunky car has broken down and you have enough money saved for a substantial down payment on a new car. It is the first major purchase of your life, and you want to make the right choice. The first step, therefore, has already been completed—we know that you want to buy a new car. Next, in step 2, you’ll need to decide which factors are important to you. How many passengers do you want to accommodate? How important is fuel economy to you? Is safety a major concern? You only have a certain amount of money saved, and you don’t want to take on too much debt, so price range is an important factor as well. If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you’ve identified the decision criteria. All of the potential options for purchasing your car will be evaluated against these criteria.

Figure 11.7

Using the rational decision-making model to make major purchases can help avoid making poor choices.

Lars Plougmann – Headshift business card discussion – CC BY-SA 2.0.

Before we can move too much further, you need to decide how important each factor is to your decision in step 3. If each is equally important, then there is no need to weight them, but if you know that price and gas mileage are key factors, you might weight them heavily and keep the other criteria with medium importance. Step 4 requires you to generate all alternatives about your options. Then, in step 5, you need to use this information to evaluate each alternative against the criteria you have established. You choose the best alternative (step 6) and you go out and buy your new car (step 7).

Of course, the outcome of this decision will be related to the next decision made; that is where the evaluation in step 8 comes in. For example, if you purchase a car but have nothing but problems with it, you are unlikely to consider the same make and model in purchasing another car the next time!

Figure 11.8 Steps in the Rational Decision-Making Model

While decision makers can get off track during any of these steps, research shows that limiting the search for alternatives in the fourth step can be the most challenging and lead to failure. In fact, one researcher found that no alternative generation occurred in 85% of the decisions studied (Nutt, 1994). Conversely, successful managers are clear about what they want at the outset of the decision-making process, set objectives for others to respond to, carry out an unrestricted search for solutions, get key people to participate, and avoid using their power to push their perspective (Nutt, 1998).

The rational decision-making model has important lessons for decision makers. First, when making a decision you may want to make sure that you establish your decision criteria before you search for all alternatives. This would prevent you from liking one option too much and setting your criteria accordingly. For example, let’s say you started browsing for cars before you decided your decision criteria. You may come across a car that you think really reflects your sense of style and make an emotional bond with the car. Then, because of your love for this car, you may say to yourself that the fuel economy of the car and the innovative braking system are the most important criteria. After purchasing it, you may realize that the car is too small for all of your friends to ride in the back seat when you and your brother are sitting in front, which was something you should have thought about! Setting criteria before you search for alternatives may prevent you from making such mistakes. Another advantage of the rational model is that it urges decision makers to generate all alternatives instead of only a few. By generating a large number of alternatives that cover a wide range of possibilities, you are likely to make a more effective decision in which you do not need to sacrifice one criterion for the sake of another.

Despite all its benefits, you may have noticed that this decision-making model involves a number of unrealistic assumptions. It assumes that people understand what decision is to be made, that they know all their available choices, that they have no perceptual biases, and that they want to make optimal decisions. Nobel Prize–winning economist Herbert Simon observed that while the rational decision-making model may be a helpful tool for working through problems, it doesn’t represent how decisions are frequently made within organizations. In fact, Simon argued that it didn’t even come close!

Think about how you make important decisions in your life. Our guess is that you rarely sit down and complete all eight steps in the rational decision-making model. For example, this model proposed that we should search for all possible alternatives before making a decision, but this can be time consuming and individuals are often under time pressure to make decisions. Moreover, even if we had access to all the information, it could be challenging to compare the pros and cons of each alternative and rank them according to our preferences. Anyone who has recently purchased a new laptop computer or cell phone can attest to the challenge of sorting through the different strengths and limitations of each brand, model, and plans offered for support and arriving at the solution that best meets their needs.

In fact, the availability of too much information can lead to analysis paralysis , where more and more time is spent on gathering information and thinking about it, but no decisions actually get made. A senior executive at Hewlett-Packard admits that his company suffered from this spiral of analyzing things for too long to the point where data gathering led to “not making decisions, instead of us making decisions (Zell, et. al., 2007).” Moreover, you may not always be interested in reaching an optimal decision. For example, if you are looking to purchase a house, you may be willing and able to invest a great deal of time and energy to find your dream house, but if you are looking for an apartment to rent for the academic year, you may be willing to take the first one that meets your criteria of being clean, close to campus, and within your price range.

Making “Good Enough” Decisions

The bounded rationality model of decision making recognizes the limitations of our decision-making processes. According to this model, individuals knowingly limit their options to a manageable set and choose the best alternative without conducting an exhaustive search for alternatives. An important part of the bounded rationality approach is the tendency to satisfice , which refers to accepting the first alternative that meets your minimum criteria. For example, many college graduates do not conduct a national or international search for potential job openings; instead, they focus their search on a limited geographic area and tend to accept the first offer in their chosen area, even if it may not be the ideal job situation. Satisficing is similar to rational decision making, but it differs in that rather than choosing the best choice and maximizing the potential outcome, the decision maker saves time and effort by accepting the first alternative that meets the minimum threshold.

Making Intuitive Decisions

The intuitive decision-making model has emerged as an important decision-making model. It refers to arriving at decisions without conscious reasoning. Eighty-nine percent of managers surveyed admitted to using intuition to make decisions at least sometimes, and 59% said they used intuition often (Burke & Miller, 1999). When we recognize that managers often need to make decisions under challenging circumstances with time pressures, constraints, a great deal of uncertainty, highly visible and high-stakes outcomes, and within changing conditions, it makes sense that they would not have the time to formally work through all the steps of the rational decision-making model. Yet when CEOs, financial analysts, and healthcare workers are asked about the critical decisions they make, seldom do they attribute success to luck. To an outside observer, it may seem like they are making guesses as to the course of action to take, but it turns out that they are systematically making decisions using a different model than was earlier suspected. Research on life-or-death decisions made by fire chiefs, pilots, and nurses finds that these experts do not choose among a list of well-thought-out alternatives. They don’t decide between two or three options and choose the best one. Instead, they consider only one option at a time. The intuitive decision-making model argues that, in a given situation, experts making decisions scan the environment for cues to recognize patterns (Breen, 2000; Klein, 2003; Salas & Klein, 2001). Once a pattern is recognized, they can play a potential course of action through to its outcome based on their prior experience. Due to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work. If they run through the mental model and find that the solution will not work, they alter the solution and retest it before setting it into action. If it still is not deemed a workable solution, it is discarded as an option and a new idea is tested until a workable solution is found. Once a viable course of action is identified, the decision maker puts the solution into motion. The key point is that only one choice is considered at a time. Novices are not able to make effective decisions this way because they do not have enough prior experience to draw upon.

Making Creative Decisions

In addition to the rational decision making, bounded rationality models, and intuitive decision making, creative decision making is a vital part of being an effective decision maker. Creativity is the generation of new, imaginative ideas. With the flattening of organizations and intense competition among organizations, individuals and organizations are driven to be creative in decisions ranging from cutting costs to creating new ways of doing business. Please note that, while creativity is the first step in the innovation process, creativity and innovation are not the same thing. Innovation begins with creative ideas, but it also involves realistic planning and follow-through.

The five steps to creative decision making are similar to the previous decision-making models in some keys ways. All of the models include problem identification , which is the step in which the need for problem solving becomes apparent. If you do not recognize that you have a problem, it is impossible to solve it. Immersion is the step in which the decision maker thinks about the problem consciously and gathers information. A key to success in creative decision making is having or acquiring expertise in the area being studied. Then, incubation occurs. During incubation, the individual sets the problem aside and does not think about it for a while. At this time, the brain is actually working on the problem unconsciously. Then comes illumination or the insight moment, when the solution to the problem becomes apparent to the person, usually when it is least expected. This is the “eureka” moment similar to what happened to the ancient Greek inventor Archimedes, who found a solution to the problem he was working on while he was taking a bath. Finally, the verification and application stage happens when the decision maker consciously verifies the feasibility of the solution and implements the decision.

A NASA scientist describes his decision-making process leading to a creative outcome as follows: He had been trying to figure out a better way to de-ice planes to make the process faster and safer. After recognizing the problem, he had immersed himself in the literature to understand all the options, and he worked on the problem for months trying to figure out a solution. It was not until he was sitting outside of a McDonald’s restaurant with his grandchildren that it dawned on him. The golden arches of the “M” of the McDonald’s logo inspired his solution: he would design the de-icer as a series of M’s! 1 This represented the illumination stage. After he tested and verified his creative solution, he was done with that problem except to reflect on the outcome and process.

Figure 11.9 The Creative Decision-Making Process

How Do You Know If Your Decision-Making Process Is Creative?

Researchers focus on three factors to evaluate the level of creativity in the decision-making process. Fluency refers to the number of ideas a person is able to generate. Flexibility refers to how different the ideas are from one another. If you are able to generate several distinct solutions to a problem, your decision-making process is high on flexibility. Originality refers to an idea’s uniqueness. You might say that Reed Hastings, founder and CEO of Netflix, is a pretty creative person. His decision-making process shows at least two elements of creativity. We do not exactly know how many ideas he had over the course of his career, but his ideas are fairly different from one another. After teaching math in Africa with the Peace Corps, Hastings was accepted at Stanford University, where he earned a master’s degree in computer science. Soon after starting work at a software company, he invented a successful debugging tool, which led to his founding the computer troubleshooting company Pure Software in 1991. After a merger and the subsequent sale of the resulting company in 1997, Hastings founded Netflix, which revolutionized the DVD rental business through online rentals with no late fees. In 2007, Hastings was elected to Microsoft’s board of directors. As you can see, his ideas are high in originality and flexibility (Conlin, 2007).

Figure 11.10 Dimensions of Creativity

Some experts have proposed that creativity occurs as an interaction among three factors: (1) people’s personality traits (openness to experience, risk taking), (2) their attributes (expertise, imagination, motivation), and (3) the context (encouragement from others, time pressure, and physical structures) (Amabile, 1988; Amabile, et. al., 1996; Ford & Gioia, 2000; Tierney, et. al., 1999; Woodman, et. al., 1993). For example, research shows that individuals who are open to experience, are less conscientious, more self-accepting, and more impulsive, tend to be more creative (Feist, 1998).

There are many techniques available that enhance and improve creativity. Linus Pauling, the Nobel prize winner who popularized the idea that vitamin C could help build the immunity system, said, “The best way to have a good idea is to have a lot of ideas.” One popular way to generate ideas is to use brainstorming. Brainstorming is a group process of generated ideas that follows a set of guidelines that include no criticism of ideas during the brainstorming process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking). Research shows that the quantity of ideas actually leads to better idea quality in the end, so setting high idea quotas where the group must reach a set number of ideas before they are done, is recommended to avoid process loss and to maximize the effectiveness of brainstorming. Another unique aspect of brainstorming is that the more people are included in brainstorming, the better the decision outcome will be because the variety of backgrounds and approaches give the group more to draw from. A variation of brainstorming is wildstorming where the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible (Scott, et. al., 2004).

Ideas for Enhancing Organizational Creativity

We have seen that organizational creativity is vital to organizations. Here are some guidelines for enhancing organizational creativity within teams (Amabile, 1998; Gundry, et. al., 1994; Keith, 2008; Pearsall, et. al., 2008; Thompson, 2003).

Team Composition (Organizing/Leading)

• Diversify your team to give them more inputs to build on and more opportunities to create functional conflict while avoiding personal conflict.
• Change group membership to stimulate new ideas and new interaction patterns.
• Leaderless teams can allow teams freedom to create without trying to please anyone up front.

Team Process (Leading)

• Engage in brainstorming to generate ideas—remember to set a high goal for the number of ideas the group should come up with, encourage wild ideas, and take brainwriting breaks.
• Use the nominal group technique in person or electronically to avoid some common group process pitfalls. Consider anonymous feedback as well.
• Use analogies to envision problems and solutions.

Leadership (Leading)

• Challenge teams so that they are engaged but not overwhelmed.
• Let people decide how to achieve goals , rather than telling them what goals to achieve.
• Support and celebrate creativity even when it leads to a mistake. But set up processes to learn from mistakes as well.
• Model creative behavior.

Culture (Organizing)

• Institute organizational memory so that individuals do not spend time on routine tasks.
• Build a physical space conducive to creativity that is playful and humorous—this is a place where ideas can thrive.
• Incorporate creative behavior into the performance appraisal process.

And finally, avoiding groupthink can be an important skill to learn (Janis, 1972).

The four different decision-making models—rational, bounded rationality, intuitive, and creative—vary in terms of how experienced or motivated a decision maker is to make a choice. Choosing the right approach will make you more effective at work and improve your ability to carry out all the P-O-L-C functions.

Figure 11.11

Which decision-making model should I use?

Key Takeaway

Decision making is choosing among alternative courses of action, including inaction. There are different types of decisions, ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Structured decision-making processes include rational decision making, bounded rationality, intuitive, and creative decision making. Each of these can be useful, depending on the circumstances and the problem that needs to be solved.

• What do you see as the main difference between a successful and an unsuccessful decision? How much does luck versus skill have to do with it? How much time needs to pass to answer the first question?
• Research has shown that over half of the decisions made within organizations fail. Does this surprise you? Why or why not?
• Have you used the rational decision-making model to make a decision? What was the context? How well did the model work?
• Share an example of a decision where you used satisficing. Were you happy with the outcome? Why or why not? When would you be most likely to engage in satisficing?
• Do you think intuition is respected as a decision-making style? Do you think it should be? Why or why not?

1 Interview by author Talya Bauer at Ames Research Center, Mountain View, CA, 1990.

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Principles of Management Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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4 Rational Decision Making Models To Make Good Choices

Life is filled with tough decisions, and many of them seem impossible to get past. Some of us put them off for months, or make an emotional spur-of-the-moment decision that we later regret. The smartest among us use rational decision making—a logical, deliberate way to understand and make difficult choices to get the best possible outcome, whether personal or business-related.

In this article, we explore the psychology behind our decisions, what rational decision making is, and some models that you can use to make good choices.

How do we make decisions?

We make decisions using two psychological systems:

• Our instincts, which are made up of emotion and beliefs. They are fast, often unconscious, and use little energy.
• Reason, which is logical. This is slow, conscious, and uses a lot of energy.

Psychologist Daniel Kahneman called these “System 1” (instincts) and “System 2” (reason). 1 He discovered that we make a surprisingly large number of decisions based on System 1, which can lead to biases that affect our ability to make good choices, especially if they are complex. Once we’ve made an instinctive emotional decision, only then do we rationalise it using logic. We concoct a sensible cover story about why we chose that particular car, that particular meal, or that particular career, because we like to think of ourselves as rational decision makers. Before Kahneman’s (and his colleague Amos Tversky’s) work, economists and psychologists believed that our decisions were mostly rational. Kahneman turned that on its head, and won the Nobel prize for his efforts.

When we make important decisions, we need to remove as much bias as possible. We can’t really trust our instincts because they are made up of persuasive emotions and deep-set beliefs that can cripple our logic, leading us to a terrible choice with big consequences.

The higher the decision’s risk, the more we need to be rational. This includes risks of all types—financial, reputational, and health risks, to name a few. Heightened emotion simply isn’t a good way to make this kind of weighty choice where risks are extreme, and where there’s no going back. When we’re low, we often want to choose something just to get rid of the stress, which voids potential opportunities because we don’t have the mental strength to see them. When we’re elated, we tend to focus too much on the positives and ignore possible risks, which can lead us down a dangerous road. Emotional prejudices like confirmation bias are a major reason why some people believe the earth is flat—they are so emotionally invested in the idea that they only seek out information that confirms their beliefs, which makes it all but impossible to be reasonable or to make good choices.

When a decision is simple, it’s usually fine to use your gut—you can’t go through a complex decision making process about every little choice. But when the decision is harder or more serious, and you’re in danger of facing decision paralysis because the stakes are too high, the best way to handle it is with rational decision making.

What is rational decision making?

Rational decision making is using data, analysis, and logic to make objectively good choices. It considers the most relevant and important factors so that the decision is made with the best information using rational System 2 thinking. It’s all about thinking critically, and inhibiting our instincts as much as possible. There’s a variety of rational decision making models, including pros and cons, mind mapping, and decision trees, each with their own effectiveness and times to complete. We explore these later.

In rational decision making, emotion is limited so that the choice isn’t made in fits of passion or bouts of gloom, and biases are curbed because you’re using real-world information rather than memories or beliefs, many of which may be unconscious. We don’t want to make important decisions based on instinct because it’s an obscure force that can’t be extrapolated or explained, and strongly influenced by biases and logical fallacies that we aren’t aware of. Instead, we want to make rational, well-informed choices that follow a proven model that helps to limit emotion.

Instinct isn’t the only issue when it comes to making complex decisions. Often, these decisions have many different aspects, as we don’t have the brainpower or inclination to identify, assess, and evaluate every detail. Instead, we usually fall back to System 1 because it requires less energy. We sacrifice a rewarding outcome because we don’t want to experience stress. The results are obvious. If the decision doesn’t need to be made in just a few seconds, a rational decision making model can help you to make much better choices in both your professional and personal lives. It can help business executives, marketers, salespeople, school leavers, people thinking about getting married, or anyone who has to make a decision with important consequences.

Here’s a few more reasons why rational decision making can help you to make good choices:

• It simplifies complex decisions, makes them more manageable, and gives you the courage to face them. You can then move forward with confidence.
• It drastically reduces the chances of making emotional decisions based on instinct.
• It helps to illuminate the risks involved in a big decision, and their consequences.
• It can help you to make good business choices that spur the growth of your business.
• It can encourage teamwork and innovation.
• It can result in a happier, healthier you.

4 rational decision making models to help you make good decisions

These are four excellent rational decision making models that can bring key information to light, help you assess risks, and understand the consequences of your possible choices. They vary by speed and effectiveness, allowing you to pick a method that suits your specific circumstance.

Before you start on any of these processes, it’s necessary to think about how you currently feel about your decision to determine whether you’ve already made a choice. As we mentioned above, most decisions are made based on emotion and then justified afterwards. If that’s already the case for you, all you’ll be doing is rationalising as you work through the process, coming up with solutions that match your emotional choice. So try to peer into your own mind to see if you’ve already decided, and try to start the process being as open as possible for the solutions that you come up with. It also helps to involve other people, especially those who know about the subject, and who aren’t biased or invested in the decision themselves.

Now that’s cleared up, here are the four rational decision making models that can help you to make good decisions:

1. Pros and cons

Effectiveness: 2/5 Speed: 5/5

Pros and cons are the age-old method for weighing up decisions. You should already be familiar with them—you make two lists: one for pros, and one for cons, and then think of as many as you can for each. Sometimes, a pro will have a related con, so some people like to do this process in a table side-by-side so they can be easily compared.

Once your ideas are exhausted, review the lists to give yourself a better idea of the right decision. If you’d like to make the process more accurate, you can consider adding a weighting system so that it’s clearer which items are more important than others. This can be as simple as a scale of one to three, with one being the least important, and three being the most important.

Here’s an example of how this might work for a school leaver wondering whether to go to university:

Pros and cons can work well for simple “A or B” decisions, but they fail if the decision is highly complex with lots of contingencies. It doesn’t have a way for you to chart a flow of choices and their consequences, which you may need for something like a marketing strategy.

2. Mind mapping

Effectiveness: 3/5 Speed: 3/5

Mind mapping (or brainstorming) is another familiar method for generating ideas, and can also be extended for rational decision making by creating “branches” with additional related ideas or contingencies, as shown in the image below.

In this example, a marketing manager might create this mind map as a way to rationally figure out which strategies to adopt. It could be extended to include the potential costs and ROI of each technique, skills and infrastructure needed to accomplish them, and how long they might take to mature into profitable campaigns. This would require plenty of time and research to complete, and can certainly be done just as effectively as a report, but mind maps allow you to see all of your options on one page, which can make the decision feel less overwhelming. Some people much prefer this kind of visual process.

As you can see, this technique can be used for simple “A or B” choices or more complex decisions. If certain ideas are related, you can also create links between them and create further branches if needed. It’s a free-flowing way for coming up with plenty of ideas, which is why it’s so popular in business meetings (but it can be used for personal decisions too).

3. Research and analysis

Effectiveness: 3/5 Speed:  2/5

This is a logical step-by-step process that aims to understand the problem, come up with possible solutions, and then pick one to test. It’s more research-heavy than pros and cons and mind maps, but should help you to become more familiar with the problem itself, why it’s happening, and the result that you want, which is helpful for finding a solution that fits.

Here’s how it works.

1. Define your problem

The first thing you’ll need to do is make a clear statement of the problem, and evidence that it actually exists.

Let’s say you’re a business executive who wants to know why your new Surfacebook laptop isn’t selling. You’ve invested a lot of money into development and marketing, but people just aren’t buying it. Your problem statement is: sales are low for the new Surfacebook. And your evidence is clear from sales reports.

Next, you’ll need to extend the problem statement to include the result that you want. In this case, the executive may already have the sales numbers needed to break even on the Surfacebook’s production costs. So the statement becomes: sales are low for the new Surfacebook, we need to sell 1000 units in the next 12 months.

2. Research potential causes

List all of the possible causes for your problem. For the laptop, this might include:

• Marketing campaigns are failing
• The laptop doesn’t meet the needs of our buyer personas
• A competitor has a similar laptop that is better (or cheaper)
• Our brand is not well known

Turn each of these causes into headings, and then try to find or confirm evidence for them. If you suspect your marketing campaigns are failing, do you have the necessary marketing-specific data to back that up? If you suspect customers don’t want or need the laptop, can you return to your product research and spot any holes, or interview some customers and get their thoughts?

This is the hardest and most time-consuming part of this process. You’ll need to be extremely diligent with your research and use a combination of quantitative and qualitative techniques to discover why your problem exists. When you know why, your potential solutions will be much more effective.

3. List solutions

List as many solutions as you can that may fix the problem and help you to achieve your result. These could be brand new ideas, or updates to existing solutions that you have in place.

The laptop firm might decide to try an entirely new marketing campaign, or make improvements to their current campaigns. Some of their customers may have told them that the Surfacebook is a little ugly, in which case some design changes could be in order. This is why research is so important, because you have valuable information to help you come up with informed solutions.

If you have a team to work with, you can try a mind mapping to come up with ideas, or just write them on a whiteboard as you go. Every idea should be encouraged. If you’re struggling to list options, try a bounded rationality technique where you list choices that are satisfactory rather than optimal.

4. Pick three solutions to explore further

Pick three solutions that you believe are promising. Now you’ll need to identify the potential costs and risks of each, some pros and cons, and their feasibility.

First, try to calculate roughly how much this solution will cost. If you’re going through this process for a personal decision like which career to choose, you can consider financial costs as well as possible psychological costs. If they are calculable, you should also try to pin down potential returns for the solution.

Next, identify the biggest risks of the solution, and try to consider it from as many angles as possible. The laptop firm may have chosen to redesign certain parts of the machine to make it prettier, in which case there’s an investment risk, a risk of disrupting other projects, and a risk of new marketing campaigns failing. Try to grade the severity of each risk, and get a basic understanding of what is at stake. You’ll also need to know whether it’s a genuine risk rather than just a perceived risk.

For pros and cons, you should already be familiar with what to do. Create a two column table and list every pro and con that you can think of. Grade them by importance if it helps.

Finally, try to assess the feasibility of each solution. How easy will it be to hire the extra staff you need to complete the project? Is it really possible for you to move to an entirely new city and start a new life? What is the likelihood of actually qualifying as an astronaut?

5. Pick an option

Now you have plenty of solid information on your three choices, sleep on them. Sleep organises our memories and processes information that we’ve been experiencing, and may help to make a good choice.

When you’ve had some decent rest, pick the best solution for your desired result.

6. Execute and measure results

Execute the solution, and keep a close eye on its performance. If the results aren’t as you expect, and you haven’t already invested too much, go back to your options and try another. It’s crucial that you continually measure how the solution is going. Otherwise you won’t know whether you’re failing or succeeding.

4. Decision trees

Effectiveness: 5/5 Speed: 2/5

Decision trees are useful for mapping out decisions with lots of contingencies. They use a flowchart like structure to work through the various choices and options that are involved in a complex decision, with the purpose of coming up with multiple solutions that you can choose from. They typically start with a single node (often a question), that then branches out into a tree structure based on the possible values and choices that can be made. Below is a simple decision tree on how to borrow $1000:

Image from Why Change Consulting

Here’s a funnier decision tree from a book called Inconsequential Dilemmas that uses simple yes/no conditions:

You can introduce mathematical probabilities into decision trees to determine both the solutions and the likelihood of them occurring. Monetary values can be included too, to figure out which solution might make the most money. These techniques are complex and you’ll likely need to use decision tree software to build the model accurately. But they are one of the most effective ways to make complex business decisions with high levels of investment or risk. Here’s a simple example:

Rational decision making—summary

Rational decision making allows you to get past some of life’s most difficult choices, and move forward with confidence. You can select from a variety of effective techniques to suit your situation, or even combine them to create something truly powerful.

• Daniel Kahneman, 2011, Thinking Fast and Slow , Farrar, Straus and Giroux

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.

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

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.

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.

• Rational Decision Making. Authored by : Aaron Spencer, David Thompson, PhD, and Lumen Learning. License : CC BY: Attribution
• Image: Rational Decision Making Process. Authored by : Aaron Spencer and Lumen Learning. License : CC BY: Attribution
• Image: DanielKahneman.jpg. Authored by : Unknown. Located at : https://en.wikipedia.org/wiki/File:Daniel_KAHNEMAN.jpg . License : Public Domain: No Known Copyright
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How to Make Rational Decisions in the Face of Uncertainty

• Cheryl Strauss Einhorn

A four-step approach.

We’re all used to operating with a degree of uncertainty, but between the Covid pandemic and a contentious election year, 2020 is shaping up to be even more unpredictable than usual. When we feel such heightened uncertainty, our decision-making processes can break down, and we may act based on bias, emotion, and intuition instead of logic and fact.  The author offers a four-step framework to pause and assess ambiguous data: 1) Identify which data you’re working with; 2) Recognize which cognitive biases might accompany that data; 3) Invert the problem to identify what you really need to know; and 4) Formulate the right questions to get the answers you need.

As we’re battling a virus that scientists still don’t fully understand, watching the stock market sink, then soar, then sink again, and facing a contentious election, the future seems completely unpredictable (instead of merely as unpredictable as it has always been). When we feel such heightened uncertainty, our decision-making processes can break down. We may become paralyzed and afraid to act, or we may act on the basis of bias, emotion, and intuition instead of logic and facts.

• Cheryl Strauss Einhorn is the founder and CEO of Decisive, a decision sciences company using her AREA Method decision-making system for individuals, companies, and nonprofits looking to solve complex problems. Decisive offers digital tools and in-person training, workshops, coaching and consulting. Cheryl is a long-time educator teaching at Columbia Business School and Cornell and has won several journalism awards for her investigative news stories. She’s authored two books on complex problem solving, Problem Solved for personal and professional decisions, and Investing In Financial Research about business, financial, and investment decisions. Her new book, Problem Solver, is about the psychology of personal decision-making and Problem Solver Profiles. For more information please watch Cheryl’s TED talk and visit areamethod.com .

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Decision Making: a Theoretical Review

• Regular Article
• Published: 15 November 2021
• Volume 56 , pages 609–629, ( 2022 )

Cite this article

• Matteo Morelli 1 ,
• Maria Casagrande   ORCID: orcid.org/0000-0002-4430-3367 2 &
• Giuseppe Forte 1 , 3  

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Decision-making is a crucial skill that has a central role in everyday life and is necessary for adaptation to the environment and autonomy. It is the ability to choose between two or more options, and it has been studied through several theoretical approaches and by different disciplines. In this overview article, we contend a theoretical review regarding most theorizing and research on decision-making. Specifically, we focused on different levels of analyses, including different theoretical approaches and neuropsychological aspects. Moreover, common methodological measures adopted to study decision-making were reported. This theoretical review emphasizes multiple levels of analysis and aims to summarize evidence regarding this fundamental human process. Although several aspects of the field are reported, more features of decision-making process remain uncertain and need to be clarified. Further experimental studies are necessary for understanding this process better and for integrating and refining the existing theories.

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Morelli, M., Casagrande, M. & Forte, G. Decision Making: a Theoretical Review. Integr. psych. behav. 56 , 609–629 (2022). https://doi.org/10.1007/s12124-021-09669-x

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