How Do We Make Decisions

1
How Do We Make Decisions?

• Is there a right way to make a decision?
• Decision Conditions
• Certainty
• Risk
• Uncertainty

2
The Rational Model

• Define the Problem Is there a discrepancy
  between an existing and desired state of affairs?
• Question 1 What is the underlying cause of the
  discrepancy? Solve a symptom?
• Question 2 Can we do anything about it?
• Variance Random or Systematic?

3
The Rational Model

• Identify and Weigh Decision Criteria
• What are the factors that are relevant to a
  decision?
• What factors define the difference between a good
  decision and a bad one?

4
The Rational Model

• Develop Alternatives
• Based on the assumption that the more options
  identified the better.
• Key Question
• Are decisions harmed by the consideration of too
  few options or too many options?

5
The Rational Model

• Select and Implement the Best Alternative
• Key Question
• Sounds simple, but do we really make the rational
  choice?

6
The Rational Model

• The Rational Model is a Prescriptive Model, but
  is it Descriptive?

7
Rational Model Assumptions

• We collect complete and accurate information.
• Are we good perceivers? Are our senses good?
• Do we interpret information correctly?

8
Rational Model Assumptions

• Example Attribution Errors
• We make patterned mistakes in how we interpret
  the causes for events we perceive.
• The Fundamental Attribution Error Overweight
  dispositional explanations in the face of
  compelling situational reasons
• Stereotyping Assign a dispositional cause based
  merely on group membership.

9
Key Observation

• The prevalence of perception problems and
  attribution biases and errors should make us a
  bit wary of relying entirely on intuition and
  gut.
• Though this does not mean that we ignore our
  unique perspectives and experiences.

10
Rational Model Assumptions

• We generate and evaluate an extensive list of
  alternatives.
• No, we satisfice We tend to choose the first
  alternative that is satisfactory rather than the
  best.

11
Rational Model Assumptions

• We choose the most rational alternative.
• No, we practice bounded rationality We behave
  rationally, but only within the restricted
  confines of our own capacities.

12
Conclusion

• There may be great evidence that the rational
  model improves decision-making.
• However, there is also great evidence that we, as
  humans, diverge from the rational model.
• Therefore, the best decision-makers are those who
  finds ways to employ the best of the rational
  model in the face of human failing.