Decision Making

Definition

Decision making refers to the act of evaluating (i.e., forming opinions of) several alternatives and choosing the one most likely to achieve one or more goals. Common examples include deciding for whom to vote, what to eat or buy, and which college to attend. Decision making plays a key role in many professions, such as public policy, medicine, and management. The related concept of judgment refers to the use of information, often from a variety of sources, to form an evaluation or expectation. One might imagine that people's judgment determines their choices, though it is not always the case.

Background

Theories of decision making were originally developed by philosophers, mathematicians, and economists, who focused on how people make choices to achieve often conflicting goals. Following the work of early theorists such as John von Neumann and Oskar Morgenstern and Leonard Savage, a theory called subjective expected utility theory has become particularly influential. This theory distinguishes between the decision maker's values (otherwise called his or her utilities) and expectations or beliefs. The key assumption is that people select the option that is associated with the highest overall expected utility. In plain terms, you pick the best option, and so decision making is about figuring out what is the best choice.

Expected utility theory and decision theory have focused on normative aspects (i.e., what people should do), whereas behavioral decision theory and the general field of behavioral decision making have focused on descriptive aspects of decision making (i.e., what people actually do to form judgments and make choices). It is noteworthy that, although expected utility theory was derived from economic principles of rational behavior rather than based on studies of human behavior, economists and researchers in many other fields have assumed that the theory also describes actual behavior and that departures from rational choice would eventually correct themselves based on learning and external forces.

This assumption, in turn, led to a great deal of behavioral decision research, which has documented a wide range of violations of utility maximization, that is, cases in which people pick something other than what is objectively the best option. Thus, research findings have often been seen as interesting to the extent that they appeared surprising and inconsistent with expected utility theory. Such research has shown that expected utility theory is often inadequate. Furthermore, the theory does not address many of the key aspects of judgment and decision making, such as the selection of information and options to be considered, the manner in which a decision maker might trade off the considered attributes of the options, and the impact of affective and social factors. Moreover, expected utility theory does not address the process of judgment and decision making.

A cognitive scientist named Herbert Simon introduced the concept of bounded rationality, which is an idea that takes into account the fact that people only have a limited cognitive ability to process information. Because of limited processing ability, instead of maximizing utility (i.e., picking the objectively best option), people may satisfice; that is, they may choose an option that is good enough, even though it may often not be the overall best. Limited cognitive capacity also implies that people will tend to rely on shortcuts or simplifying strategies, referred to as heuristics, which typically produce satisfactory decisions, though in some cases they may produce errors.

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