Both rational decision making and bounded rationality are widely used frameworks to explain the actions of either individuals or organization. With the knowledge I gained about these frameworks I’m going to write two plausible accounts of how the actions of a firm or governmental agency resulted from, first, rational decision making, and second, bounded rationality. For this study I’m going to use a recent news item about an event in which the actions of a firm or governmental agency played a crucial role.
Recently the German government decided to keep their nuclear power plants in operation for another 9 to 27 years (Spiegel (2010), Koalition besiegelt Atomkompromiss) depending on the age of the nuclear facility. This is striking news, because the former government, led by Chancellor Schröder, decided to close all German nuclear power plants by 2020. Even more, because the German public opinion in not in favor of nuclear energy to say the least. How could this decision making process be explained?
When assuming rational decision making, it is assumed that the action, decision in this case, is optimal, given beliefs about the world. These beliefs should be as well supported as possible, given the evidence. And this evidence must result from optimal investment in information gathering. Given these assumptions, in the text below I will write a plausible account on how this decision could be the result of a rational decision making process.
First we look at information gathering. In order to gain the required information, the German government has consulted many experts on (nuclear) energy production. These experts consist of a group of people with a broad variety of disciplines, personal opinion about nuclear energy and are leading in their own fields. Because of the broad variety in disciplines, different perspectives on the topic of interest, (nuclear) energy generation in the future, where given. Moreover, because of the different personal opinions about nuclear energy, both argument in favor, as arguments against nuclear energy where given as well. Since all the consulted experts where leading in their fields, had different disciplines, perspectives and personal opinions, the gathered information is optimal.
From the gathered information, beliefs about the world where constructed. These beliefs where constructed by critically analyzing the gathered information. This analysis was done by a group within the German government, which shows a good representation of the German Government. So both members of the Christian Democrats (CDU and CSU) and the liberals (FDP) where involved in the analyzing process. Moreover, this group of people was democratically chosen by the German Government itself. The final report written by this group of people included detailed conclusions about the future use of nuclear energy in Germany. And, more important, the conclusions where supported by facts and references from the gathered information. The main conclusion was that the use of nuclear energy in Germany is necessary to meet both environmental targets and rising energy demand in the future. And, moreover, decrease the dependency of imported coal, oil and gas. But on the other hand, the nuclear power sector should also contribute to the renewable energy sector in exchange for the extended operation lifetime of their facilities. The reason for this contribution is that if the nuclear power sector keeps selling relatively cheap power to the market it might endanger the development of the renewable energy sector. While the development of the renewable energy sector is essential for a clean and autonomous German energy supply in the future stated the report. By constructing their beliefs in this way, their beliefs are as well supported as possible given the evidence.
The written report was taken as the starting-point for the German energy debate. Because the report was taken as the starting-point, the German government decided to extend the operation lifetime of all the German nuclear power plants like the report concluded.
Bounded rationality on the other hand assumes human inability to come to optimal decision making. For writing this account on how the decision making process could be described by bounded rationality, I will be using the framework proposed by Jones: “Bounded rationality and political science: lessons from public administration and public policy”. In this framework the following aspects of organizational choice, based on human cognition, where proposed: organizational memory, agenda setting, parallel processing, serial processing, emotional contagion and identification. In the text below I will write a plausible account on how the German government could have come to their decision based on the proposed bounded rationality framework by Jones. And if and to what extend the stated aspects of organizational choice play a role.
Again let’s start at information gathering. In this case the German government used their existing routines to gather the required information. This means they consulted solely experts which they already consulted before. Most of the experts they consulted where part of the German nuclear energy sector in this case. So the information they provided was mainly from the nuclear energy sectors perspective, which, of course, was in favor of extending the operating lifetime of the already existence nuclear facilities. By just applying their routines and standard operation procedures (the organizational memory, Jones) the German government only gathered a small fraction of the information necessary to come to an optimal rational decision, bounded rationality.
In order to construct believes about the world the German government discussed the gathered information. This means that they didn’t had a standard routine or operating procedure that specifies an action, so serial processing was used in this case. During these discussions it turned out that the German government was internally divided about which action they should take. Individuals within the German government had different opinions about the action that had to be taken. Some argued that the German government shouldn’t change their policy (meaning, they should keep to their original decision, closing all the nuclear facilities by 2020). In a way these individuals identified themselves emotionally as well as cognitively with the organization (emotional contagion, Jones).
This made it harder to convince those individuals of the opposite by the other members of the German government who were in favor of changing the policy. But in the end, even the individual who were against extending the operating lifetime of the existing nuclear facilities in Germany, were convinced of doing the opposite, even though the gathered information wasn’t optimal or complete in any sense.
When the general public took note of the upcoming change in policy by the German government, rallies to protest against this new policy emerged. These protests became new stimuli which affected the decision making process of the German government (agenda setting, Jones). Since the German government categorized the protest as relevant and of high priority the following changes to the new policy where implemented. In order satisfy the general public some extra regulation where added to the new policy. These regulations stated that the nuclear energy sector should pay for the extended operation lifetime of their facilities. The collected funds should then be used to stimulate the development of the renewable energy sector. The implementation of these extra regulations was mainly to find a short term satisfactory solution to the problem which had emerged. Not to deal with the problem of a more sustainable (autonomous) energy supply in the future.
After having writing these two accounts of the decision making process for this particularly case, some notes have to be made. Even though the rational explanation sound plausible it is not very likely to happen in my opinion. Often a decision making process like the one I explored is much more complicated and bounded then the way it was presented though the rational explanation. In my opinion the framework of bounded rationality gives a much better understanding of a decision making process
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