This research examines the "rationality illusion," a phenomenon where organizations mistakenly equate artificial intelligence's computational efficiency with superior decision-making. While AI excels at rapid data processing, the research argues it often erodes institutional intelligence by ignoring situational context and narrowing human judgment. This reliance creates systemic risks, such as diminished accountability, the displacement of authentic goals by measurable metrics, and the gradual atrophy of professional expertise. To counter these effects, the research suggests that organizations must implement robust governance, maintain human-in-the-loop oversight, and cultivate algorithmic literacy. Ultimately, the research posits that AI should function as a supportive tool rather than a total substitute for nuanced human wisdom.

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