Why do two managers faced with the same problem make completely different decisions?
The answer lies in the theories of decision making—the frameworks that explain how decisions are made in the real world.
Introduction: Understanding the Mind Behind the Move
Decision making is at the core of all managerial activities. But it's not just about choosing between options—it's about how those choices are made.
Management scholars and psychologists have developed various decision-making theories that explain how individuals and organizations evaluate information, assess risks, and choose among alternatives.
This blog dives into the most important theories of decision making, their principles, and how they apply in real-world management situations.
1. Rational Decision-Making Theory
Concept:
This classical theory assumes that decision-makers are logical, objective, and goal-oriented. It follows a step-by-step approach: identify the problem, gather data, evaluate alternatives, and choose the best option.
Assumptions:
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Decision-makers have complete information
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All alternatives can be evaluated
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The decision is made in the organization's best interest
Example: A manager using cost-benefit analysis to select a supplier.
Best Used In: Structured environments, routine decisions, and data-driven organizations
2. Bounded Rationality Theory (Herbert Simon)
Concept:
Developed by Nobel laureate Herbert Simon, this theory recognizes that humans have limited information, time, and cognitive ability. So instead of the “best” decision, they settle for a satisfactory one—also called “satisficing.”
Assumptions:
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People work within cognitive limits
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Time and resources are constraints
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Decision-makers use shortcuts and approximations
Example: A startup choosing a software tool that’s “good enough” rather than perfect.
Best Used In: Fast-moving environments or limited-resource decisions
3. Intuitive Decision-Making Theory
Concept:
Sometimes decisions are made not through analysis, but by gut feeling or instinct, especially under pressure. Intuition is often based on deep experience and pattern recognition.
Example: A doctor instantly sensing a critical condition based on symptoms without formal tests.
Best Used In: Experienced professionals, high-risk situations, or time-sensitive decisions
4. Garbage Can Model
Concept:
This theory explains decision making in complex, chaotic environments like universities or public organizations. Decisions are seen as outcomes of random mixing of problems, solutions, participants, and opportunities.
Example: A policy suddenly getting approved just because the right people were in the room at the right time.
Best Used In: Unstructured organizations or highly unpredictable settings
5. Incremental Decision-Making Theory (Muddling Through)
Concept:
Rather than making large, strategic decisions all at once, this theory suggests that managers take small, logical steps, learn from outcomes, and make adjustments.
Example: A government implementing a policy in stages and tweaking it based on public feedback.
Best Used In: Public administration, policy-making, or uncertain environments
6. Political Decision-Making Theory
Concept:
This theory recognizes that organizations are full of diverse interests, power struggles, and alliances. Decisions are made through negotiation, persuasion, and conflict resolution.
Example: Senior leaders pushing competing agendas in a boardroom before reaching a consensus.
Best Used In: Large organizations, governments, or any environment with multiple stakeholders
Comparison Table: Decision-Making Theories
| Theory | Key Feature | Best Used In |
|---|---|---|
| Rational | Logical, step-by-step process | Structured environments |
| Bounded Rationality | Satisficing due to limits | Fast-paced, resource-limited settings |
| Intuitive | Gut feeling based on experience | Emergency or expert-driven decisions |
| Garbage Can | Random, chaotic decision-making | Universities, public offices |
| Incremental | Gradual, step-by-step adjustments | Government policies, trial-based decisions |
| Political | Power and negotiation-based | Multi-stakeholder organizations |
Conclusion: Choosing the Right Lens
No single theory can explain all decisions. The approach depends on the context, urgency, and resources available. Great managers often blend elements of these theories to make balanced and effective choices.
Whether it’s using logic, instinct, or negotiation, understanding decision-making theories can help leaders make smarter, faster, and more effective decisions.
Key Takeaways
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Rational theory promotes logic; bounded rationality accepts limits.
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Intuition works in emergencies; incrementalism suits gradual change.
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Garbage can applies to chaotic systems; political theory explains power play.
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No one-size-fits-all—context defines the best decision-making approach.
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Smart leaders are those who know when to use which theory.