There are two parts to this question; be sure to answer both. Explain four of the hindrances to perfectly rational decision making, and explain how each might apply to a manager who is trying to decide whether to start sourcing some of its products from overseas markets.
What will be an ideal response?
There are seven common hindrances to perfectly rational decision making:
(1) Complexity: The problems that need solving are often exceedingly complex, beyond understanding. Sourcing products from foreign markets means dealing with exchange rates, foreign laws and ways of doing business, and possible tariffs and import quotas. In short, the decision to source from overseas is quite complex.
(2) Time and money constraints: There is not enough time or money to gather all relevant information. There may be any different sources of inputs around the world; no manager has the time to investigate all of them.
(3) Different cognitive capacity, values, skills, habits, and unconscious reflexes: Managers aren't all built the same way, of course, and all have personal limitations and biases that affect their judgment. This manager may strongly believe that company profit is the most important criterion for doing business, but she may also feel strongly that a US company should source products from within the United States, not from abroad.
(4) Imperfect information: Managers have imperfect, fragmentary information about the alternatives and their consequences. No matter how much information the manager obtains about possible foreign suppliers, that information will never be perfect.
(5) Information overload: There is too much information for one person to process. In the case of international sourcing, the manager must literally deal with a world of information. That is too much information for one person to process.
(6) Different priorities: Some data are considered more important, so certain facts are ignored. The decision to source from overseas may be driven by profit. But managers may not pay attention to certain important facts, such as the fact that many foreign companies produce a huge amount of pollution, produce an inferior product, or manufacture their products in ways that do not meet US standards.
(7) Conflicting goals: Other managers, including colleagues, have conflicting goals. While one manager sees all the benefits of sourcing from another country, a different manager may see all the drawbacks.
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