Judgement & decision making
What is a rational decision?
• 1. Define the problem
2. Identify criteria necessary to judge multiple options
What is a rational decision?
3. Weigh the criteria
-> how much weight do you give every criteria? --> difficult to do
1. Define the problem
-> rank them in terms of importance to you controlled, effortful, slow
2. Identify criteria necessary to judge conscious
4. Generate alternatives
3. Weigh the criteria logically coherent, rule based
5. Rate each alternative on each criterion
4. Generate alternatives
6. Compute optimal decision
5. Rate each alternative
--> Acting rationally would require that you follow these 6 steps in a fully rational manner
6. Compute optimal decision
(--> Bazerman & Moore)
• Many of us rely on our intuitions far more than we should & when we do try to think
systematically, the way we enter data into such formal decision-making processes is
often biased
Bounded rationality
• Limits how rational we can be
• Bounded rationality framework
-> Humans try to make rational decisions (such as weighing the costs & benefits of a
choice) but cognitive limitations prevent humans from being fully rational:
- Time constraint
- Search constraint
- Working memory constraint
- Limitations on perception
- Limitations on intelligence
- ...
How do you make most of your decisions?
• Herbert Simon
- Nobel Price Winner
- Our decisions are bounded in their rationality
- Time and cost constraints limit the Q and quality of the information that is available to
us + we only retain a small amount of information in our usable memory
- Limitations on intelligence & perceptions constrain the ability of even very bright
decision makers to accurately make the best choice based on the information that is
available
Biases in our decision process
• Beyond departing from rationality (i.e. bounded rationality), human judgement seems to
be biased in specific predictable ways/directions
-> How?
By the use of 'heuristics' = simplifying strategies, or rules of thumb
What is a rational decision?
• 1. Define the problem
2. Identify criteria necessary to judge multiple options
What is a rational decision?
3. Weigh the criteria
-> how much weight do you give every criteria? --> difficult to do
1. Define the problem
-> rank them in terms of importance to you controlled, effortful, slow
2. Identify criteria necessary to judge conscious
4. Generate alternatives
3. Weigh the criteria logically coherent, rule based
5. Rate each alternative on each criterion
4. Generate alternatives
6. Compute optimal decision
5. Rate each alternative
--> Acting rationally would require that you follow these 6 steps in a fully rational manner
6. Compute optimal decision
(--> Bazerman & Moore)
• Many of us rely on our intuitions far more than we should & when we do try to think
systematically, the way we enter data into such formal decision-making processes is
often biased
Bounded rationality
• Limits how rational we can be
• Bounded rationality framework
-> Humans try to make rational decisions (such as weighing the costs & benefits of a
choice) but cognitive limitations prevent humans from being fully rational:
- Time constraint
- Search constraint
- Working memory constraint
- Limitations on perception
- Limitations on intelligence
- ...
How do you make most of your decisions?
• Herbert Simon
- Nobel Price Winner
- Our decisions are bounded in their rationality
- Time and cost constraints limit the Q and quality of the information that is available to
us + we only retain a small amount of information in our usable memory
- Limitations on intelligence & perceptions constrain the ability of even very bright
decision makers to accurately make the best choice based on the information that is
available
Biases in our decision process
• Beyond departing from rationality (i.e. bounded rationality), human judgement seems to
be biased in specific predictable ways/directions
-> How?
By the use of 'heuristics' = simplifying strategies, or rules of thumb
