- Bounded Rationality
What is “bounded rationality”? Arthur suggests that decision makers conceive and nurture an “ecology of focal predictors” to deal with complexity of the unknown. Explain Arthur’s ideas using the following scenario: Forecast the Dow Jones Average for the close of market trading on this day in one year from the current date. Would you put your entire life savings on your forecast? Allow a 5% margin of error to your forecast. Do you feel more confident in your forecast? Why? What if you do put your life savings on this and you are wrong?.
2. The Competitive Environment at the Industry Level
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You have a large sum of money to invest in an entrepreneurial venture. You are investigating possible alternatives on a systematic basis. Using Porter’s Five Competitiveness factors, analyze and draw a conclusion about the relative attractiveness of each of the following industries:
- Computer software design and manufacturing for office applications
- Gasoline service stations
- Franchised boutique coffee shops
- Civilian aircraft design and manufacturing
- Travel planning and booking (agencies)
Which one seems most attractive? Would your answer change if you represented a consortium of investors with serious funding and only two objectives: create a professionally fulfilling challenge for managers of the enterprise and a stable work environment for the employees? What do you think are the three most critical success factors for each alternative?