Week 6 Lec 11: Heuristics

Question 1

What is bounded rationality?

Answer 1

Decision makers have limited capacity for processing information
Depending on properties of the task environment and mental strategy, preferences will vary

Question 2

What are multi-attribute choice options?

Answer 2

Choice among options with many features/attributes

Question 3

How do we make a rational choice among these options?

Answer 3

By taking the subjective value of an option as the weighted sum of choice relevant attribute values

Question 4

What is the MAUT?

Answer 4

Multi-attribute utility theory/technique

Question 5

What are the features of MAUT?

Answer 5

Structured methodology designed to handle the trade offs among multiple objectives
Considers all relevant attributes of all decent alternates
Uses a weighted linear model to calculate evaluations
Result: Rank ordered evaluation of alternatives that reflect DM’s preferences

Question 6

What were some early applications of MAUT?

Answer 6

Public sector and policy issues, privatization of healthcare, college sports teams
Power plant related decisions
Military development of new weapons
Ranking of college sports teams, degree programs

Question 7

Outline the MAUT procedure

Answer 7

Step 1: Choose a set of relevant attributes
Step 2: Assemble or create a set of alternatives
Step 3: Score each alternative on each attribute

Question 8

Outline weight attribution in MAUT procedure.

Answer 8

Step 1: Rank the attributes by its importance
Step 2: Create raw weights
Step 3: Standardize the weights by dividing each one by total weight

Question 9

Outline summary evaluations in MAUT procedure

Answer 9

Multiply standardized weight by single attribute utility functions
Choose alternative with highest evaluation

Question 10

Is the MAUT normative?

Answer 10

Yes, because it should lead to optimal choice

Question 11

When does MAUT perform poorly?

Answer 11

When there is time pressure/other constraints
When it makes you pay too much attention to unimportant attributes
For when we have trouble identifying important attributes

Question 12

What is the Equal Weighted Addition Model?

Answer 12

Adds attribute values regardless of importance (ignores attribute weights)

Question 13

What is the Lexicographic model?

Answer 13

Model in which DM has pre-specified ordering of the importance of different attributes
If there is a clear winner on first attribute, you stop
Leads to extreme choices

Question 14

What is satisficing?

Answer 14

Most people search sequentially and stop when a satisficing level of reservation utility is reached

Question 15

Describe the model of satisficing

Answer 15

1. Set cutoffs on all important attributes
2. Consider alternatives one at a time
3. Pick the first alternative that exceeds all cutoffs

Question 16

Is satisficing alternative based or attribute based?

Answer 16

Alternative based strategy

Question 17

Describe Caplin (2011) study on people satisficing.

Answer 17

Search theoretic choice experiment to study the impact of incomplete consideration on the quality of choices
Asked how long do people search for the best option before they make a choice
Results: Best option found less often in more complex situations, even when there is no time pressure

Question 18

What is reservation utility?

Answer 18

The minimum level of utility that must be guaranteed to make a contract acceptable

Question 19

Describe the Elimination by Aspects model.

Answer 19

1. Pick the most important attribute and set a cutoff
2. Pick the next most important attribute and set a second cutoff
3. Continue through all attributes till only one alternatives remain

Question 20

Is EBA an alternative or attribute based strategy?

Answer 20

Attribute based (consider all alternatives one attribute at a time)

Question 21

How does EBA solve the lexicographic problem?

Answer 21

Solves the problem of choosing extreme options

Question 22

What are shortcomings of the EBA?

Answer 22

May lead to poor decisions
Fails to ensure alternatives chosen are superior to those eliminated

Question 23

What are choice heuristics?

Answer 23

Satisficing and EBA

Question 24

What are disadvantages of choice heuristics?

Answer 24

May not choose best alternative
Choice may be affected by irrelevant factors such as search order