Decision Making Individual

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Week 6 Lecture 1: Decision Making Individuals

Definition of decision making: it is a process of making a choice among several action alternatives. It involves a commitment of resources to some course of action.

Assumptions of rational decision making model:
Problem clarity: clearly defined and unambiguous
Know options: identify all relevant criteria and viable alternatives in an unbiased manner
Clear preferences: the criteria and alternatives can be ranked and weighted.
Constant preferences: constant decision criteria and weights assigned to them are stable over time
No time/cost constraints: full information is available
Maximum payoff: the choice alternative will yield the highest economic value
(a rational decision making process: define the problem—identify the criteria—allocate weights to the criteria—develop alternatives—evaluate the alternatives—select the best alternative

Types of judgments and decisions:
Normative: how X should be chosen/ judged in optimal/ rational conditions
Descriptive: how X actually gets chosen/ judged

The reasons why descriptive decisions are different from normative decisions:
Bounded rationality: time cost constraints; incomplete information; perceptiual errors in obtaining information; cognitive load in information retention and performing caluculations

Bounded decision making:
We seek solutions that are the best given the information that is available; that are satisfactory (good enough)
We satisfice rather than optimize

Assumptions of bounded rationality:
Limited search for criteria: rely on familiar criteria already in effect
Limited review of alternatives: fous on easily found alternatives
Satisficing: select the first alternative that is good enough

Decision making—Biases and Fallacies in daily life:
Biases: systematic distortions or patterns of error in judgment
Fallacies: use of…...

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