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Concept Version 12
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Analyzing the Options

Evaluating alternatives is an important and difficult step of the decision-making process.

Learning Objective

  • Analyze the misleading effects of evaluating alternatives


Key Points

    • The normative approach to analyzing decision-making assumes rational decision-makers with well-defined preferences. On the other hand, the descriptive approach is based on empirical observations and experiments. Finally, the prescriptive enterprise develops methods to improve decision making.
    • Whichever approach is taken, there is always the problem that misleading effects can lead to a bad decision. These effects can take the form of heuristics, which help in some situations and not in others.
    • Decision making often includes the need to assign a reason to justify the decision.
    • - Subjective models - people create misleading and incorrect decision making models
    • - Focusing illusion - people neglect important outcomes because they are focused on other, more obvious aspects
    • - Selective search for evidence - focusing on facts that support certain conclusions
    • - Premature termination of search for evidence
    • - Selective perception - screening out of information not thought to be important
    • - Wishful thinking - our desire to see things in a positive light may distort our perception
    • - Recency - placing more emphasis on more recent events
    • Repetition bias - believing that which we hear most often
    • - Group think - pressure to conform to the opinions of a group
    • - Source credibility bias
    • - Anchoring - accepting initial information as factual and basing subsequent opinions around that
    • - Over confidence
    • - Recallability trap - a distorted ability to recall life events objectively
    • - Outguessing randomness trap - imagination of patterns where none exist

Term

  • Prescriptive

    Prescriptive analytics automatically synthesizes big data, mathematical sciences, business rules, and machine learning to make predictions and then suggest decision options to take advantage of the predictions.


Example

    • Evaluating alternatives is an important and difficult step of the decision-making process, and involves discerning the advantages and disadvantages of each option, and ultimately ranking them.

Full Text

Evaluating the alternatives can be said to be one of the most important stages of the decision-making process . This is the stage where you have to analyze each alternative that you have come up with. You have to find out the advantages and disadvantages of each option. This can be done with the research you have done on that particular alternative. At this stage, you can also filter out the options that you think are impossible or do not serve your purpose. Rating each option with a numerical digit would also help in the filtration process.

Money and Decision Making

Relation between (monetary) gains and losses and their subjective value.

Misleading Effects

But even respecting the considerations above, there still might be problems in making the "right" decision because of different misleading effects, which mainly arise because of the constraints of inductive reasoning. This generally means that our model of a situation or problem might not be ideal to solve it in an optimal way. Biases can creep into our decision-making processes. Many different people have made a decision about the same question (e.g., "Should I have a doctor look at this troubling breast cancer symptom I've discovered? " "Why did I ignore the evidence that the project was going over budget? ") and then craft potential cognitive interventions aimed at improving decision-making outcomes.

At every step of decision making, misperceptions based on incorrect input, biases, lack of information, and other traps can corrupt the choices we make. We are particularly vulnerable to traps involving uncertainty because most of us are not good at judging chances. Complex and important decisions are the most prone to distortion because they tend to have many assumptions and estimates, as well as influence by misaligned parties.

Research has shown that over time we develop unconscious routines to cope with the inherent intricacy in most decision making. These thinking patterns, known as heuristics, can help us in many situations. We are nimble at judging distance, time, weight, and volume. For example, in judging distance our minds rely on a heuristic that associate clearness with closeness. The better the visibility of an object, the closer it must be.

But some heuristics can muddle our thinking with biases and irrational preferences. The danger with these traps is that they are invisible to most of us.

Justification in Decision Making

Decision making often includes the need to assign a reason to justify the decision. This factor is illustrated by an experiment by A. Tversky and E. Shafir in 1992. For this experiment, a very attractive vacation package was offered to a group of students who had just passed an exam. It was also offered to another group of students who had just failed the exam and had the chance to rewrite it over their vacation. All students had the option to buy the ticket straight away, to stay at home, or to pay and keep the option open until they would get their results. Even though the actual exam result did not influence the decision, it was required in order to provide a rationale.

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