Decision Making Typologies

Simon’s normative model of decision making

Simon’s model can be characterised by two main themes: the notion of bounded rationality of the decision makers and the sequence of intelligence gathering, the design of a model of the problem with criteria and alternatives, the choice which includes or might include a sensitivity analysis and a detailed plan for the final phase, implementation.

Bounded rationality in my understanding is simply elevating a realistic human factor into the science of economics. It affects all four steps of the normative model, as depicted in Diagram 1.

Diagram 1:

So, what is outside of bounded rationality? Of course, it is boundless rationality: the homo economicus, Bill Gates, Angela Merkel and Jim Jefferies. Not me.

I recently decided to move to Broome and my thinking can be closely aligned to the model. I used all the rational techniques I had at hand: my existing knowledge of the topic, the knowledge of tools and means to gather more information, tried to assess the outcomes of the decision for middle and long term and also listing all the options I had after receiving a permanent resident visa in February. I have a great track record of making fabulous decisions based on my rationality. However, I have another track record of my failed decisions based on my rationality. Hmmm.

Anyways, my options were to stay in Perth, to move to Broome or to move to Brisbane (Sydney is too metropolitan, Melbourne is too cold, except when it is too hot, except when it is too windy). Once I fixed my options, I started to gather information: I used the internet but I also relied heavily on commentaries of friends and acquaintances. Based on that information I tried to work out how the future will unfold in each of the choices and if they meet my criteria and match my ideas of living happily ever after. When that was done, I made my choice, opting for the best looking version and made preparations for the implementation of this choice (buying a 4WD, transferring to distance learning, obtaining useful certifications to support myself while living in Broome and travelling in the northern areas). And then I went through all the preparations and set off towards Cable Beach.

Diagram 2: stopover on the trip to Broome in the Karijini NP, Hancock Gorge, Kermits Pool

“Clash of the Titans”

When in the design phase, I asked myself questions that I couldn’t answer and had to go back and gather more information multiple times. After I made my choice, I found I really need to learn more about Broome – and then the more I did learn the less sure I became of the choice and started gathering relevant information about my other choices and updating my scenarios. This means that when complexity and/or uncertainty arises the decision model will not be linear, sequential but a zigzag pattern will emerge.

I think the model is still very useful in two ways:

- reminding ourselves about having bounded rationality is GREAT! Decision makers tend to forget that in my experience and routine, gut decisions could be reviewed using it as a sort of double checking if the environment is still the same

- it can be a powerful tool when facing linear but broad information based projects (financial investment, tropical garden, building project).

References:

Simon, H. A., 2000. Bounded Rationality in Social Science: Today and Tomorrow, Mind & Society, 1, 2000, Vol 1, pp 25-39.

Simon, H. A., 1959. Theories of decision-making in economics and behavioural science, The American Economic Review, Vol XLIX, June 1959, Number Three