Lecture 9 - decision making Flashcards
what is decision making
reasoning about choices
- cost benefit analysis
What is value
aka utlity
- Value: ‘utility’ in decision-making literature
Value can’t be measured solely in money
Value: too subjective (varies for each individual)
Because everything has personal value to us
e.g., money: higher for some people; lower for others
Logically/rationally, what we should do for each decision task is to weigh-up (‘weight’) benefits against costs to maximise value
But, how can this be done?
how do we measure cost benefits of tasks
using value
Logically/rationally, what we should do for each decision task is to weigh-up (‘weight’) benefits against costs to maximise value
But, how can this be done?
Base decision on highest absolute (+ or -) value
e.g., go away to university if ‘for’ higher than ‘against’
Base decision on highest (absolute) combination of estimated probability (0-1) and value weighting
e.g., go away to university if ‘for’ greater than ‘against’
what is SEU theory
subjective expected utility theory -
a normative theory : of how decisions should be made
subjective : assign different values to things
Expected: try to imagine decision outcomes and their consequences in advance
what does normative mean
how decisions should be made
what does subjective mean
assigning different values to things
what is utility
usefulness (value) of things
what i Expected in the SEU
Expected: try to imagine decision outcomes and their consequences in advance
how do you calculate seu
SEU calculation: P(attribute 1) x U(attribute 1) + P(outcome 2) x U(attribute 2)…
P = probability; U = utility
why do we use SEU
Normative (rational/logical), mathematically-orientated theory of decision-making
Weighing-up attributes (‘pros’ and ‘cons’)
e.g., number of rooms in house vs. its location
Trade-offs: choose option based on attributes best suited to needs, given constraints
e.g., couple with 4 children need large house but have limited money, so must sacrifice some attribute of house other than size to stay within budget
e.g., settle for large enough house in worse area or in worse state of repair
How are options weighted in seu theory
Options weighted according to probability
Goal of decision-making: to maximise utility
Ideal decision-making outcome
Utility: what’s best for decision-maker
Outcome that ‘ticks enough boxes’
SEU: goodness of decision outcome
e.g., how good person feels about it
e.g., what person expects to gain from it
Not seen as psychologically-plausible
describe the key principles of rational decsion making tasks
Description of decision task options should not influence option chosen
Utility (not description) of options determines choice
Is ‘descriptive invariance’ psychologically-plausible?
explain Tversky & Kahneman, 1981) method
Presented Ps with two versions of same scenario
One version emphasised loss, the other version emphasised gain
Both versions had a more risky option or a safer option
what were the results of tversky and kahnemans task
Results (% of Ps choosing each option):
‘Gain’ version:
Treatment 1 (200 saved) = 72%
Treatment 2 (1/3 chance of 600 saved; 2/3 chance of nobody being saved) = 28%
‘Loss’ version:
Treatment 1 (400 die) = 22%
Treatment 2 (1/3 chance of nobody dying; 2/3 chance of 600 dying) = 78%
what do the results from tversky suggest
Results indicative of logical decision-making?
Despite two scenarios being identical in terms of ‘expected utility’ (value), percentage of participants choosing more or less risky options differed between ‘gain’ and ‘loss’ versions
Why?
