Lecture 1 (End of Chapter Questions) Flashcards
Why is decision making difficult?
- Common cognitive bias
- Problem complexity
- Multiple objectives
- Risk
What are the requirements for rational preferences?
- Prospective orientations: Decisions should be forward looking (no sunk costs!)
- Completeness: decision maker has a preference for any pair of alternatives
- Transitivity: If a is better than b and b is better than c, then a is better than c
- Independence of irrelevant alternatives: Given {a, b}, if a is better b, a is still prefered over b for the set {a, b, c}
- Invariance: Preferences should not be affected when the same problem is presented in a different way (200 alive or 400 die)
What are the basic components of a decision problem?
- Objectives
- Alternatives
- Uncertain events
- Outcomes
What are the goals of decision analysis?
The goal is to make better, more rational decisions.
- Prescriptive decision theory aims to teach the method and concepts that support and improve rational decision making
- Descriptive decision theory aims to raise your consciousness about decision-making by pointing out the errors and biases in it
Explain the experiment in and the findings of Bond, Carlson and Keeney (2008).
- Step: DMs generate as many relevant objectives as they can (Objectives list)
- Step: DMs see the master list and check all objectives that are relevant
- Step: DMs map objectives from Step 1 to the master list. Checked items that map back are self-generated objectives; all others are recognised
- Step: DMs rank or rate the importance of their checked objectives
Findings: Participants failed to generate a comprehensive list of objectives. On average the number of self generated objectives was 6 while the number of recognised objectives was 7.6
What are the properties of an ideal set of objectives?
- Completeness (all objectives included)
- Simplicity (small set of objectives)
- No redundancies
- Preference independence (preferences with respect to the attribute levels of a subset of objectives should be independent of the attribute levels of the remaining objectives)
- Measureability
How to construct fundamental-objectives hierarchies?
- Diagram of relationships between objectives, sub-objectives and attributes
- All objectives in a hierarchy should be fundamental
- Most general objective at the top
- Higher levels represent more general objectives
- Lower levels represent more specific statements
- Lowest levels represent attributes based in which the alternatives will be compared
- Attributes are used to characterise performance in relation to an objective
What is the difference between fundamental and means objectives?
- Fundamental: relevant for their own sake without further justification (e.g. minimize traffic deaths)
- Means: relevant because they help to achieve a more fundamental objective (e.g. more traffic lights)
What are the desirable properties of an attribute?Explain each with an example.
- Direct: number of fatalities versus number of accidents -> what is the objective?
- Operational: low cost of information collection
- Comprehensive: cover the full range of possible consequences
- Understandable: units should be understandable (e.g. liter per km and not gallon per km)
- Unambigious: same interpretation for everyone (e.g. number of stars on google)
What are the types of attributes (measures)?Explain each with an example.
- Natural: is in general use with a common interpretation (e.g. costs in dollar, weight in kg)
- Zero or One Measures: describe whether the alternatives have a specific attribute or not (e.g. diploma yes or no)
- Constructed Measure: is developed for a particular decision problem (e.g. scala from 1 to 5 for ease of use)