This summary can be used for the Master elective / course: Decision Making: theory & practice from Leiden University (Universiteit Leiden). The document contains a summary of the book Straight Choices by Newell, Lagnado & Shanks (2015). The book is mandatory for the course, and exam question will b...
Summary of literature from the course Decision making
Martijn van der Wurff
,H2
1. Good decisions were rated higher on the quality dimension than bad ones, but were
also further from the neutral point (0). Suggesting that good decisions are better than
bad decisions are bad
2. Participants rated their bad decisions as significantly less important than their good
decision
3. Good decisions are easier and quicker recalled
Yates et al speculate that this pattern of data suggests that in general people think their
decision making in the past was ‘for the most part just fine’.
Positive retrospect bias: The fact that the badness and importance of bad decisions are rated
as less extreme than the goodness and importance of good decisions suggests a certain degree
of cognitive dissonance about bad decisions.
The most cited for a decision being classified as either good or bad one was that the
experienced outcome was respectively adverse or favorable. Coding analysis shows that a
good decision is coded as good because it produces good outcomes, while bad decisions yield
bad ones.
A formal approach to decision quality
Quality of a decision is affected by three things:
1. By its outcome but.
2. The probability that outcome occurring
3. By the extent to which taking a particular course of action is beneficial for a given
decision maker at a given point in time
Van Neumann and Morgenstern’s Expected value: the sum of the product of the
probability of an outcome and the value of that outcome for each possible outcome of a given
alternative. Defined this way, expected value was thought to offer both a descriptive and
prescriptive account of rationality, but it soon became clear that it was neither. A choice is
rational if it maximizes the expected value for the decision maker.
,Bernoulli: Snake-eyes paradigm. The fact that people do not offer large amounts of money to
play therefore presents a problem for the expected value theory. He therefore exchanged the
notion of expected value with expected utility.
This incorporates two important and relevant psychological caveats:
1) The utility of money declines with increasing gains
2) This utility is dependent on the amount of money a person already has
A brief history of judgement and decision-making research
Decision: a commitment to a course of action
Judgement: is often a precursor to a decision and can ban be defined as an assessment or
belief about a given situation based on the available information.
Decisions
Savage added the notion of subjectivity to the maximization of expected utility. Savage
proved that a person whose choices satisfy all the axioms of the theory, choose as if she were
maximizing her expected utility while assigning subjective probabilities to the possible
outcomes of a choice.
Transitivity is one of the axioms. If one prefers outcome A to outcome B and outcome B to
outcome C, then one should prefer A to C.
Expected Utility theory principal influence has been two-fold:
1) The subcomponents of EUT – utility functions and subjective probability – haven
been used to conceptualize how decisions are made
2) EUT has provided the normative yardstick against which human decision behavior is
measured.
Paradoxes: clear violations of the rules presented by EUT.
The evidence that human behavior contradicted EUT had three major impacts on the
development of judgment and decision-making research:
, 1) It inspired some researchers to raise serious doubts about the applicability of EUT to
human choice.
a. Herbert Simon stated that the assessment of the rationality of human behavior
should consider both the person and the environment in which that person
operates. → Bounded rationality
2) Encourage researches to examine other areas of decision making behavior
3) Inspire researchers to modify the theory to make it a better descriptive theory
Judgments
Social Judgment theory: judgement can be seen in the same way as perception being; it is a
constructive process, involving inferences drawn based on incomplete and ambiguous
information.
The main tool of social judgement theorist is the lens-model: this model is a metaphor for
thinking about how a ‘to-be-judged’ decision criterion in the world relates to the judgements
made in the mind of the judge.
Difference between decision and judgement research
- Decision focusses on the extent to which people’s belief and preferences are coherent
- Judgement: concerned with the correspondence between subjective and
environmental states
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