Bounded Rationality and the Family Business Decision-Making Process

Which family business decision-making process will be most affected by bounded rationality?

  1. Collaborative
  2. Independent
  3. Autocratic
  4. Consensus
  5. Democratic

Among the choices, the correct answer is c. Autocratic. Let us explain these concepts further in this article.

Bounded Rationality and the Family Business Decision-Making Process

In any business opportunity, you juggle challenges and decisions left and right, none of them less important than the other. Whether you have planned for them for years or you have just encountered them an hour ago, your decision-making skills, among others, will always be put to the test.

Businessmen are no strangers to decisions; in fact, in any field, one will always encounter situations when they need to choose only one path to take. For entrepreneurs, however, they should have great instinct and/or well-developed skills so that they will be able to predict and select the best option possible. Even if they have time or people at their disposal to consult with, there are also moments when they need to decide on their own — this is a concept referred to as independent decision-making.

No decision has a negligible effect on our lives. From the daily question of what to eat, to even the life-changing inquiry of what job to apply for, decisions bring about change. Although when it comes to achieving success, one has to be firm in their choices and never backtrack once the dice have been rolled. Success can be attained by people who set goals for themselves and are willing to move on and learn from their mistakes. Those who are not sure of their decisions and are shifty or easily swayed are more likely to meet failure.

What are the Types of Decision-Making?

Decision-making, at its very core, is the process of making choices by identifying different decisions and possible alternatives. In organizations or groups, a leader usually has the final say when it comes to choosing a path to go with. A leader has to consider not only what’s best for themselves or a select few, but, more importantly, what’s for the best of the whole group.

Here, we will enumerate some of the most common types of decision-making processes.

  • Collaborative

The collaborative or collective decision-making process entails brainstorming among the members of the groups, including the leader. Each person’s opinions on the situation are put into consideration before the leader finalizes the group’s decision.

While it is time-consuming, this process strengthens camaraderie, as well as promotes engagement and creativity from the group mates. When teamwork has been heightened, there is a higher probability that the individuals in the group would invest more effort into making sure the solution would be a success.

  • Autocratic

In the process of autocratic (independent) decision-making, a lone figure oversees choosing the best possible option. Like what we skimmed over a few paragraphs ago, there are situations wherein an individual must evaluate all choices and alternatives, finalize plans, and give these plans to higher-ups. These are all accomplished without getting inputs from others.

We will discuss more on this style later on in the article.   

  • Consensus

The process of decision-making through a consensus involves the group taking full responsibility for the final choice made. While there is still a leader who will oversee the process, all the members of the group are heavily involved in it. They are required to agree to the leader’s final decision, regardless of their reservations towards it.

Unlike with the collaborative process (where getting the members involved in the planning and executing processes is a relatively easier task), the consensus style of decision-making is more time-consuming, since the participation out of the group members who are against the final decision may be harder to coax.

  • Democratic

Lastly, the democratic style of decision-making implicates the leader relinquishing their control over the final decision, instead of allowing a majority vote to determine it. This is said to be fairer and faster than the other styles; moreover, it offers a relatively higher degree of group partaking. However, because of this, there is less chance of developing responsibility for the decision, whether it be as an individual or as a group.

Features of Autocratic Decision-Making

Now we will focus on the correct answer to the question of which family business decision-making process will be most affected by bounded rationality, the autocratic decision-making process.

As was aforementioned, there is only one person who acts as an overseer in this decision-making process. The individual assesses all choices and possibilities, picks a final plan, and implements it without getting inputs from others.

The term “autocratic” is the adjective form of “autocrat,” which refers to a person who has unquestionable authority. It stems from autokrates, from the Greek words autos (self) and kratia (rule; from kratos, meaning strength or power).

Some of the style’s benefits include being fast-paced and having fewer obstructions. This is mainly because only one person is needed to execute the whole process. Moreover, having an autocrat means there will be minimal if at all, time spent on communicating and deliberating with a team. When time constraint is the biggest concern, opting for an autocratic approach is the best way to go, especially if the chosen autocrat (decision-maker) possesses sound judgment and a great instinct for success.

But with every benefit comes a downside, and autocracy is not a stranger to such. The whole group would be relieved of responsibility for the decision; instead, all of it would fall on the leader. Not only could this cause adversity within the group, but it could also make the members feel apathetic over the lack of input on the final decision. It is also probable that the leader would feel pressured with having full responsibility, for even the most capable person is still capable of making mistakes, which could be avoided if there are other people that could serve as ‘other sets of eyes,’ per se.

However, given this ‘one person do-all’ concept, it is inevitable that others consider it a dictatorship. Moreover, since no incentive or recognition is presented to any of the group members, low morale will surely follow. These make the concept outdated in the modern setting. In history, the autocratic style of decision-making (and, consequently, dictatorship) has been regarded as a villainous concept and is connected to figures like Adolf Hitler and Joseph Stalin. Autocrats are deemed to be overly powerful and, thus, are hard to remove from authority.

Bounded Rationality and Autocracy

The term bounded rationality refers to the view that “rationality is limited” when people decide due to mind and information limitations, as well as time constraints, among others. It is proposed by Herbert Simon that it has become one of the groundworks of behavioral economics.

The autocratic decision-making process, as you may recall, is handled by a single person only. Therefore, all the limitations brought about by bounded rationality affects how the autocrat decides. This is especially because there is no one else to give a dissenting opinion or a piece of additional information needed to be considered before landing on the final decision.

Conclusion

Any situation in life requires one to make decisions, whether they have major or minor effects on life. There are various styles or ways on how people make decisions. Some of these styles are, namely, collaborative, autocratic, democratic, and consensus. Most of these involve participation from all members of the group to varying extent. However, among the four, the autocratic style of decision-making involves only one person to complete the process. In time-bounded cases, this style would be especially beneficial. However, no involvement from the group may raise apathy over the group’s success. To a degree, autocracy could be considered as a dictatorship. Therefore, being a solo-run process, the autocratic style becomes the answer to which family business decision-making process will be most affected by bounded rationality.

Leave a Comment

Your email address will not be published. Required fields are marked *

Share This
Scroll to Top