Essays on Bounded Rationality in Decision-Making Case Study

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The paper "Bounded Rationality in Decision-Making" is a great example of a Management Case Study. When ‘ Jude Palace’ restaurant started its operations, it offered only fast foods such as French fries, burgers, pizzas, pastries, pies, wafers, pancakes, cooked meats, and chicken nuggets. After a few weeks, the restaurant management became aware of a number of customers who checked out their menus and then left without placing an order. The management sought to know their reasons and discovered that they left because there were no healthy food options offered in the restaurant.

The management realized that whereas some customers were happy with the low prices and unique tastes of the fast foods, others were concerned with its healthiness. As a result, the management responded to the growing consumer concerns regarding the unhealthy aspects (high in calories and fat) of the fast food and made a decision to replace 90% of the fast foods they sold with healthier menu items. This decision was implemented thirty days after the establishment of the restaurant. The management aimed to re-optimize their menu and to modernize the customer experience by offering healthy foods as the customers were becoming more conscious about the calorie and fat content of the foods they consumed.

It was a tactical decision to deal with some customer complaints and to increase the customer base. This decision caused the restaurant to lose some of the customers that it had previously captured. The management failed to realize that every consumer had different tastes and preferences and hence not all consumers were conscious about consuming healthy foods – the restaurant did not cater to all the customers’ needs.

The outcome of this decision was that the organization was able to capture the customer base that preferred healthier foods; however, the larger customer segment that preferred fast foods was lost. This led to the loss of revenues for the company, which even led to the closure of some of its branches. The theory of bounded rationality asserts that the decision-makers normally wish to achieve goals and use their mind and possible to that end; they are intendedly rational- adaptive and goal-oriented, however, due to human emotional and cognitive architecture, they at times fail, occasionally in important decisions (Nielsen, 2010).

Consequently, there is a mismatch between the choices of the decision-maker and the decision-making environment (Gigerenzer & Selen, 2002). ‘ Jude Palace’ responded to changes in tastes and preferences of its customer base- the management saved cognitive effort and time by accepting the first alternative that met the minimum threshold. The restaurant management limited its options to a manageable set and selected the first acceptable alternative without conducting an exhaustive search for alternatives. They relied on customers’ responses to make the rash decision to offer healthy foods and did not conduct a wide search before making its decision; they focused their search on only the customers that visited their restaurant, and they accepted the first recommendations that these customers offered, hence failing to choose the best option and maximizing on potential outcomes.

Simon Hebert in advancing the bounded rationality theory noted that people finite or limited mental capacities, together with external influences over which they have little or no control, prevent them from making entirely rational decisions (Kahneman, 2003). This was the case in ‘ Jude Palace’ decision to replace fast foods with healthier foods.

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