Read and respond to the 2 parts below. Label the response PART 1 and PART 2. Rather than evaluate how the writer answered the prompt, respond to their thoughts and ask any questions you feel are left unanswered. Use the same source provided for each PART The prompt is:
Explain what Bounded Rationality is.
Then discuss how this concept can affect the data analysis below: You are the lead consultant for the Diligent Consulting Group. It is mid-October. One of your top clients, Sunshine Floor Barn, has just closed the books for the first three quarters of the year (January through September). Sunshine Floor Barn requests that you analyze the sales performance of its 5 product lines over this 3-quarter period. From past consulting work you have done for the company; you know that Sunshine Floor Barn has 4 regions and 18 total store locations. Each Regional Manager at the company has compiled the data for his/her region. The raw data provided consists of the sales revenue for each of the 5 premium flooring lines for all 4 regions and 18 locations for the first three quarters of the current year.
Also discuss how this concept can affect the decision situation in below: Scenario: You are the Vice President of Franchise Services for the Lucky restaurant chain. You have been assigned the task of evaluating the best location for a new Lucky restaurant. The CFO has provided you with a template that includes 6 criteria (attributes) that you are required to use in your evaluation of 5 recommended locations. The following are the 6 criteria that you will use to evaluate this decision: Traffic counts (avg. thousands/day)—the more traffic, the more customers, and the greater the potential sales. Building lease and taxes (thousands $ per year)—the lower the building lease and taxes, the better. Size of building (square feet in thousands)—a larger building is more preferable. Parking spaces (max number of customers parking)—more customer parking is preferable. Insurance costs (thousands $ per year)—lower insurance costs are preferable.
Discussion Part 1
Bounded rationality is the term given to decision-making that attempts to make sense of the world by the way an individual takes in and processes information to create preferences and choices (English, 2016). It is based on the concept that most individuals are only partly rational, which means that they are irrational in all of their remaining actions. In other words, our rationality is bounded by bias and models such as trial and error that we often use to make sense of something. We base our decisions largely on the value that decision will achieve no matter if the context is personal or business-related. When values are assigned based on preference and/bias, that value is considered subjective and that is when the concept of bounded rationality is in play.
Take the scenario in SLP 3 for example: we are asked to complete an analysis for choosing the best location of a new franchise restaurant based on a list of criteria and the data that had been compiled. The majority of the criteria is straight forward enough, offering numbered values by which we can easily rate how the various locations measure up against each other. There is one that is purely subjective and that is the ease of access criterion. Not only is that criterion subjective but so is the entire step where we are asked to establish a weight for each of the criteria. Those weights are established based on the bias/preference of the decision maker; therefore, the exercise as a whole is considered subjective as the selection of best location will change depending on those weights that are assigned subjectively.
Similarly in Case 3, we are given the task of generating pivot tables and charts in order to better analyze the large amount of raw data. Once the analysis is complete, a recommendation is to be given as to how the business should proceed in the future. Again, you can see how bias and subjectivity can shape that analysis as well as the following recommendation.
The similarity in both situations is that there is subjectivity and bias used in not only forming criteria by which we will measure potential for success or continued success, but also in the recommendation that is being requested in those two scenarios.
English, A. (2016). Understanding Bounded Rationality and Satisficing. Retrieved on Aug 14, 2018, from https://medium.com/homeland-security/understanding-bounded-rationality-and-satisficing-175e787955d6.
Response Part 1
I agree with you that bounded rationality is the term which is used for making sense of individual decisions, preferences, and choices. The theory is based on the assumption that not all individuals take rational decisions and not all decisions are rational. You are right here by saying that rationality is bounded by barriers and limitations which make the individuals make use of the limited abilities and make a decision which gives the most value. It is true for both personal and corporate decisions. The value, on the other hand, is a subjective matter and has a different reality for different situations and individuals. In the scenario of SLP 3, the analysis of choosing the best location for the Lucky restaurant has to fulfil a list of six criterions as required in this discussion. These criteria are subjective and are also asked for prioritization. It can vary as per the individual capability, understanding, and perception of each person in charge. Even though the criteria of the selection are quite straightforward the weighting of the criteria would have the margin of biases from the decision maker. I have the same point of view as you have that the ease of access criterion is truly a subjective criterion. Ease of access cannot be measured as numerous factors are involved in providing ease of access to the customers and the data provided is insufficient. The whole exercise is subjective; however it is to be noted as well that the three constraints of bounding rationale are present for each of the criteria (English, 2016).
In the other scenario in which the analysis of the data is to be done for the last three quarters, the analysis part is pretty straightforward. However, your recommendation part is highly subjective and based on the cognitive ability of the consultant. The similarity is the subjectivity and the constraints that limit the analyst and decision maker in making an informed and rational decision. Overall, your discussion is very impressive and enriched with information on the topic.
Reference
English, A. (2016). Understanding Bounded Rationality and Satisficing. Retrieved from https://medium.com/homeland-security/understanding-bounded-rationality-and-satisficing-175e787955d6.
Discussion Part 2
According to Dr. Elson (n.d.), Bounded Rationality is the process, when you have time, to make a slow decision about the future based on data and the ability to analyze that data. The boundaries are constrained by a few factors: time and an individual’s intellectual ability to compute the data.
In the example of Case 3, even though we will rely on the pivot table to organize the data, this information was collected by individuals who chose those specific criteria. Thus, the start of the bias. Then it is up to us to make a rational decision, based on the data as to which strategy is best going forward to improve sales performance. In my opinion your weighing profit or immediate savings over the possible revenues based on other factors that will create opportunities.
In the SLP 3 you have multi attributes, again, designed to assist with your decision. However, you must weigh the options between the most desirable based on what could possibly have the most traction, for example traffic flow, or what could save the business the most money, for example a savings in insurance costs.
The similarities between the two (Case and SLP) are you have data, the ability to analyze, and time is not of the essence.
Dr. Elson (n.d.) Introductions to Decision Making. http://permalink.fliqz.com/aspx/permalink.aspx?at=d55a346d20aa466d84ffd99b15f7d128&a=5fae3cf0f1624f39b0341263a6541ea0
Response Part 2
I agree with your definition of bounded rationality as the process in which the individual has the time to decide for future actions based on the ability to analyze the data, and the quality of the data is shown. The boundaries are well explained as the intellectual ability of the individual, the time provided and the quality of the data.
You have analyzed the scenario perfectly in this context. The use of the pivot tables will enable effective analysis of the data. However, the data in it have been collected by individuals who are bound by the restraints of time, data and intellectual ability. Your are absolutely right here by indicating that the decision made as based on this data would also be facing the limitations of data quality, intellectual ability of the decision maker and the time given. It is true that it is up to us to make a rational decision. However, we are also constrained from rational decision making regarding the three constraints.
I appreciate and agree with you that in the SLP 3 scenario, the multiple attributes needed are designed for the support of the decision. However, an important point is here that it would yield a situation in which one would have to weigh against different attributes like a location with low insurance costs against a location with a large parking space; which one would be preferable. It now totally depends on the intellectual ability and preference of the decision maker and the time and data provided. Both cases show the function of analysis is based on data, time and intellectual ability and thus this can act as the boundaries for rational decision making. Therefore, one can say that it is true that decisions made in these multifunctional situations cannot be rational (Dr. Elson). I like your whole discussion as it is very informative and thoughtful for the readers.
Reference
Dr. Elson (n.d.) Introduction to Business. Retrieved from http://permalink.fliqz.com/aspx/permalink.aspx?at=d55a346d20aa466d84ffd99b15f7d128&a=5fae3cf0f1624f39b0341263a6541ea0
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