Specifically, rational choice theory also claims that the decision maker knows all the potential alternatives and that s/he makes a decision after evaluating them all (Heath 2001).
Decision-making process in organizations can be distinguished as automatic— regular decisions made in accordance to established guiding principles—or non-programmed—choices necessitating new and innovative solutions (White 2006). Furthermore, decisions vary with regard to the level of risk present, ranging from those wherein the results of a decision are fairly definite to those wherein results are considerably indefinite. Indefinite circumstances are communicates as probability statements derived from either subjective or objective facts (Heath 2001). Rational choice theory portrays decision makers as systematically rummaging around appropriate and relevant information to make the best possible decision.
This essay will discuss the premises of rational choice theory, its implications on managerial decision making, and the validity of the argument that ‘individuals are rational and normally act as maximizing entrepreneurs’.
Rationality is revered in the Western world. A rational choice is one that arises in structured procedures and maximizes a value, regardless if it is marketability, controllability, reliability, efficiency, integrity, or any of numerous other values (Goodin 1998). Observance of any value requires upholding one alternative over another. According to rational choice theory there are major steps to making a rational decision (Allingham 2002). The endeavor is as crucial as the ultimate decision, due to the fact that each step affords an opportunity to re-evaluate the minimized and maximized values (Allingham 2002). The first step is problem definition. This entails identifying key variables under consideration and analyzing the ...