1. Decision makers do not have complete knowledge of all the facts surrounding the problems. They cannot foresee future events with complete accuracy. Therefore, it is not always possible to choose the optimum solution.
2. The search for decision is stopped as soon as the minimum acceptable level of rationality is reached. Most decisions involve too many complex variables all of which cannot be examined fully by a decision maker. It is not always possible to identify all possible alternatives due to time and cost constraints.
3. A decision making situation may involve multiple goals all of which cannot be maximized simultaneously. It is not possible to maximize goals when a suitable quantitative measure of progress is not available.
4. The environment of decision making is often uncertain. The making and implementation of decisions are influenced by several uncontrollable factors. Therefore, the consequences of various alternatives cannot be anticipated accurately.
The outcome of a decision can be known only in future. It is not always possible to foresee future events and the anticipated consequences of various alternatives may differ from those actually realized.
5. A decision in one area may have an adverse effect on another area of operations. For example, a decision to produce high quality goods may result into increase in cost of production and; may not be possible to sell the product with sufficient profit margin.
6. Human factors are the main limits on rational decision making. Personal value systems, perceptions, economic and social factors, etc., are the main human limits on rationality. Every decision maker is a human being and his” decisions are influenced by his personal beliefs, attitudes and biases.
The manner of decision making is influenced by an individual’s perception regarding the problems and their solutions. The Perception of one decision maker maybe different from that of the other. While making decisions, an individual is likely to seek the protection of his self interest and decision making power.
Collection of information, evaluation of alternatives, choice of decision and attitude towards change may all get disported due to personal and political reasons.
A decision maker may take decisions which are the best in terms of his own personal interest rather than what is in the best interest of the organization.
Lack of support and acceptance by subordinates, lack of trust by superiors, legal restrictions, moral and ethical standards, formal policies and procedures, ineffective communication, incorrect timing of the decisions are also sources of limits on rationality.
The decision maker may not be able to gather and process all information. He may gather information which he thinks pertinent to the decision. In such situation, decisions are made within a hounded rationality.
Every manager is concerned with the limits of rationality how they can be overcome so that the most rational alternative may be selected for solving the problem.