Decision Making Theories

DECISION-MAKING THEORIES

Dr. Anis Mahmud

INTAN

Decision Making

Definition

The process of choosing a course of action for dealing with a problem or opportunity

Quantitative and Qualitative Factors in Decision Making

Quantitative and Qualitative Factors in Decision Making

Categories of Decision Theories

Theory Description

References

Classical Decision Making

Intelligence, design and choice

Simon 1960; Simon 1977

Rational Goal, problem, criteria, all possible alternatives

Moorhead & Griffin 1998

Behavioral and Practical

Choose from 1 or 2 possibilities Limited cognition, timing, luck

Turban et al 1999; Simon 1957; Eisenhardt et al. 1992

Theory Description References

Personal Irrational, intuition, faith, tradition Social psychology conflict model

Cohen & March 1992 Janis & Mann 1977

Garbage Can No goals, organized anarchy, inconsistent, illdefined preference

Cohen et al. 1972

Decision Support Higher management, less structure Decision support tools

Gorry & Scott Morton 1971



Decision-making Theories

Conventional

versus

Non-conventional

Conventional Decision-making Theories

• Measurements play an important role in conventional decision-making

• The problem of decision-making is in fact the problem of coping with uncertainty

• The world is viewed as having different possible states.

• The decision-maker face a choice between a set of alternatives


• Every alternative in turn has a set of consequences, which is connected to the states via the alternatives.

• The decision-maker is set on choosing the best alternative given these sets of consequences and states

• The decision table is an often used representation of a decision problem


• The consequences are measured in some units of utility

Bayesian decision model• If all utilities and probabilities in a decision problem

are assigned numerical values and the decision-maker then evaluates the problem according to the principle of maximising the expected utility


• The principle of maximising the expected utility is a long standing and dominating principle for decades

• There exist some variations of the expected utility theory.

• In numerous experiments, the theory has failed to explain the choice of individuals involved in decision-making especially in determining the probabilities


• The most important point to observe is that the probabilities of possible outcomes or their consequences serve as an ultimate source for decision-making, while utilities may be neglected

• This may take place in certain situations, such as rescuing people.

• This observation has resulted in the emergence the so-called non-expected utility theories

Biswas, T. (1997). Decision-making under uncertainty.

Anthony Rowe Ltd, Chippenham, Wiltshire.

Non-Conventional Theories

• Aimed at a better modeling of the real state of knowledge

• The majority of the conventional & modified theories do not question one of the basic assumptions underlying the theories


• This fundamental assumption was termed as the Bayesian dogma of precision[1].

• It means that the probabilities and utility functions in the expected utility functional (or its modifications) are assumed to be known precisely

[1] Walley, P. (1991). Statistical reasoning with imprecise probabilities. Chapman and Hall. New York.


• In many real-life situations, basing decisions on the dogma of precision, and disregarding the ignorance with respect to the precise values of the probabilities and utilities, is a misleading course of action

• In very few actual decision situations, does the decision-maker have complete knowledge of the probabilities of possible states of nature


• People prefer betting on an event about which they have extensive information to betting on an event about which they know little, even if they assign the events the same probability[1].

[1] Gårdenfors, P. and Sahlin, N.E. (1982). Unreliable probabilities, risk taking, and decision making. Synthese, 53, 361-386


• Judgements of this kind highlight the need to seek new approaches to decision-making that allow for the limited cognitive abilities of human beings

• There is another call for new paradigms of post-modern thinking and participatory approaches to decision-

making[1].

[1] Harremo, P. (2003). Ethical Aspects of Scientific Incertitude in Environmental Analysis and Decision Making. Journal of Cleaner Production 11, 705-712


• We are currently witnessing growing concern over the alarming number of surprises during the last century such as environmental issues

• In too many cases decisions relating to it were taken in the belief that they were scientifically well-founded and placed excessive faith in the reliability of the expert information on which they were based


• The concern over the failure of predictability is compounded by the revolution in scientific thinking introduced by the concept of ‘indeterminacy’

• It is the notion that complex systems, like nature and society, are inherently unpredictable, not only as a shortcoming of our knowledge or skills, but also as a built-in feature, never to be overcome even with the best of science


The challenging question for scientists

•How to model indeterminacy?

•Or alternatively, how to model scientific incertitude?

There is some new probabilistic reasoning that offers answers to the above questions


Gårdenfors-Sahlin’s decision-making theory

•Based on more general ways of representing the decision-maker’s beliefs about the states than strict Bayesianism allows

•The information available concerning the possible states and outcomes of a decision situation has different degrees of epistemic reliability


Gårdenfors-Sahlin’s decision-making theory

•Recognised that the reliability of a probability assignment for states affects the risk of the decision

•The less reliable the probability assignment, the more risky the decision, other things being equal


Levi’s decision-making theory[1]

•This theory starts out from a description of the decision maker’s information about the states of nature. This information is contained in a convex set of probability distributions

[1] Levi, I. On indeterminate probabilities. Journal of Philosophy, 71,

1974, 391-418


Decision-making based on imprecise coherent previsions[1]

[1] Utkin, L. and Augustin, T. (2003). Decision Making with Imprecise Second-Order Probabilities. In ISIPTA’03 – Proceedings of the Third

International Symposium on Imprecise Probabilities and their Applications, Eds. J.-M. Bernard, T. Seidenfeld and M. Zaffalon.

Carleton Scientifc, Lugano,Switzerland, pp. 545-559.


Decision-making based on imprecise coherent previsions[1]

[1] Augustin, T. (2001). On Decision Making under Ambiguous Prior and Sampling Information. In ISIPTA’01 – Proceedings of the Second

International Symposium on Imprecise Probabilities and their Applications, Eds. G. de Cooman, T.L. Fine and T. Seidenfeld.

Cornell University, Ithaca, NY, USA26-29 June, 2001, pp. 9-16

Theories on Group Decision-making

• Intuitively people think that two heads are better than one: That is, group decisions are not just ‘more’ but also ‘better’.

• In organisations problem-solving and decision-making is often conducted by a group of experts rather than by a single person.


• People conduct ‘brainstorming’ sessions to come up with new ideas, and use ‘focus groups’ to test the success of their products

• What happens when people make decisions as a group rather than as individuals?

• Early theory and research privileged the individual over the group

• Early thinking assumed that group decisions simply reflected the average of individual decisions

There is no psychology of groups which is not essentially and entirely a psychology of individuals

Allport, 1924


• Based on research by Stoner in 1961 who found that group decisions did not simply reflect the average of individual decisions

• Moreover, group decisions were nearly always riskier and many organizations found this appealing


• Stoner labelled this phenomena ‘risky shift’

• However, Moscovici & Zavalloni (1969) and Fraser, Gouge, & Billig (1971) found that rather than being riskier, groups decisions are actually more extreme


• Using social comparison theory, Sanders & Baron (1977) argued that:– Prior to discussion, people believe their opinions to

be correct and appropriate– But through discussion they find out that there is a

position that is more appropriate and desirable than theirs.

– People shift their opinions to present themselves in a better light.


Group decision-making

• Group polarisation is an example of normative influence giving rise to normative decision-making theories

• Persuasive arguments theory suggests that it is the content rather than the process that matters:– Group discussions typically focus on common

knowledge rather than sharing new information


• Self-categorisation theory: According to this perspective, when people perceive themselves to be a group members, they should polarise away from their own, personal, position and toward the group norm

• Janis’s (1982) Groupthink Theory:

‘Members of any small cohesive group tend to maintain esprit de corps by unconsciously developing a number of shared illusions and related norms that interfere with critical thinking and reality

testing’


Re-thinking groupthink• Turner & Pratkanis (1994; 1998) re-conceptualized

‘groupthink’ in terms of social identity maintenance• In cohesive groups, group members are likely to be

highly invested in the image of their group and motivated to preserve that image.

• Under threat preservation of the group image becomes even more important:– The drive for consensus over-rides the realistic appraisal of

decision alternatives


Re-thinking groupthink• Postmes, Spears, and Chiangir (2001) suggest that an

alternative way of thinking about group decision-making is to consider the role of group norms

– Groups do not always value consensus, some groups value diversity:

– Where group norms value consensus, shared identity should lead to less consideration of alternative perspectives.

– However, where group norms promote independence and critical thought, shared identity should lead to more consideration of alternative perspectives


• Are group decisions better or worse?– The outcome of the decision-making process reflects the

norms and values of the group– Cohesiveness or shared identity is necessarily a problem, in

fact where groups value diversity and critical reasoning, cohesiveness can be associated with better decision-making

– The value of group decisions are not defined objectively, but subjectively in terms of what is important for the group

Documents

Decision Making Theories