Rational Economic Model by Herbert Simon, a Basis of Decision-making(Assumptions and Limitations)

Posted Date: 30-Jun-2010	Category: General
Author: Subir Majumdar	Member Level: Gold	Points: 15

This article illustrates the Rational Economic Model of Decision making developed by Herbert Simon. It considered as an important model for decision making.Assumptions and Limitations are described in this article too.

Rational Economic Model - a basis of Decision-making

Basis of Decision making

While taking any decisions, three basis are present which are kept in mind.
These are:
1. Experience 2.Experiment 3.Model
The Rational Economic Model comes under the third category.

Introduction

According to Herbert Simon,Rational Economic model is one which efficiently and effectively assures the attainment of the goals for which the means are selected.

It states that the decision-maker is an economic being who tries to take the maximum advantage by selecting the best or the optimum solution to a problem.

It follows a normative approach,as it is idealistic and advocates perfect and fully scientific decision-making.

Assumptions of the Rational Economic Model

The model holds the following assumptions-

1.The decision-maker has a clear and well-defined goal.
2.The decision-maker is fully objective and rational and not influenced by emotions.
3.The decision-maker understands the problem clearly and precisely.
4.He knows all the alternatives and their consequences. He has full knowledge and can analyse the alternatives intelligently.
5.He can rank all the alternatives according to the preference and knows which consequence is best.
6.He has full freedom to choose the alternative which he thinks will optimise the decision.

Limitations of the Rational Economic Man Model
Being highly prescriptive in nature,the model has some limitations. These are as follows:
1. Inadequate goal assumption.

2. Vaguely defined problems.

3. Inadequate knowledge.

4. Influence of power groups having considerable influence over the managers decisions.

5. Dynamic environment which keeps on changing with time disturbs this model's working.

Conclusion

As mentioned earlier as well,this model is prescriptive in nature and explains how decision makers should behave.
Although,it should be noted that complete rationality is a norm that can be aimed at but can not be achieved in actual practice. It goes without saying, decision-making is contingent upon various environmental factors.

Other related resources :
1. Routine and Strategic Decisions made in management
2.Programmed and Non-programmed decisions in management
3.Individual and Group decisions
3. Decision making process in Management
5. Feedback and Feedforward control

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