Thursday, January 7, 2010

Three approaches for studying decision making.

According to Ralph Keeney:

"Normative researchers, which include many economists, investigate how individuals should make decisions that are consistent with certain specified logical criteria. Regarding investment in stocks, the criterion stated may be to maximize the net present value of the investment. This neglects the concern of many investors to include other criteria like “promote green companies” or “avoid tobacco and gaming stocks.” I feel that if an investor has these values, it is completely rational to invest consistent with these.

Descriptive researchers, which include most psychologists and behavioral economists, are concerned with how individuals actually make decisions. They have identified numerous “decision traps” that lead individuals to make decisions that are not consistent with that individual’s stated values or information. Decision traps refer to ways that our minds think through certain complex aspects of decisions that cause us to neglect important considerations. It is very hard for any of us to think through all of the aspects of a complex decision using common sense without any systematic analytical assistance.

Prescriptive researchers and practitioners, the group in which I fit, are concerned with helping individuals and organizations make good decisions. Because it is almost impossible to consider informally all important aspects in a complex decision well, prescriptive practitioners use models and systematic procedures to provide insight to complement intuition and help make more informed choices. I often feel that the key contribution of such efforts is to avoid poor alternatives more than it is to necessarily choose the best alternative. If the decision maker were always selecting among the set of best alternatives available, he or she would likely be doing very well, whereas one very poor choice could have disastrous consequences."

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