Rational decisions.

Slides:

Advertisements

Similar presentations

Making Simple Decisions Chapter 16 Some material borrowed from Jean-Claude Latombe and Daphne Koller by way of Marie desJadines,

Advertisements

Making Simple Decisions

Chapter 9 Project Analysis Chapter Outline

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 5S Decision Theory.

Decision Process Identify the Problem

DSC 3120 Generalized Modeling Techniques with Applications

Part 3 Probabilistic Decision Models

5s-1Decision Theory McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc.

ISMT 161: Introduction to Operations Management

Human Supervisory Control Classical Decision Theory & Bayes’ Theorem Massachusetts Institute of Technology.

Decision making and economics. Economic theories Economic theories provide normative standards Expected value Expected utility Specialized branches like.

Judgment and Decision Making How Rational Are We?.

8 Thinking Critically, Making Decisions, Solving Problems.

5s-1 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights.

The Rational Decision-Making Process

Do we always make the best possible decisions?

Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 16-1 Chapter 16 Decision Making Statistics for Managers Using Microsoft.

DECISION MAKING. What Decision Making Is?  Decision making is the process of identifying problems and opportunities, developing alternative solutions,

* Problem solving: active efforts to discover what must be done to achieve a goal that is not readily attainable.

The Development of Decision Analysis Jason R. W. Merrick Based on Smith and von Winterfeldt (2004). Decision Analysis in Management Science. Management.

Decision Analysis (cont)

Decision making Making decisions Optimal decisions Violations of rationality.

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 1 Chapter 8 Fundamentals of Decision Making.

Copyright Catherine M. Burns

Choice under uncertainty Assistant professor Bojan Georgievski PhD 1.

Statistics for Managers Using Microsoft Excel, 5e © 2008 Prentice-Hall, Inc.Chap 17-1 Statistics for Managers Using Microsoft® Excel 5th Edition Chapter.

Educational Action Research Todd Twyman Summer 2011 Week 1.

© 2007 Pearson Education Decision Making Supplement A.

Lecture 3 on Individual Optimization Uncertainty Up until now we have been treating bidders as expected wealth maximizers, and in that way treating their.

Decision Theory McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Lecture 6 Decision Making.

Decision Theory Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill.

BUAD306 Chapter 5S – Decision Theory. Why DM is Important The act of selecting a preferred course of action among alternatives A KEY responsibility of.

S ystems Analysis Laboratory Helsinki University of Technology 1 Decision Analysis Raimo P. Hämäläinen Systems Analysis Laboratory Helsinki University.

SUPPLEMENT TO CHAPTER TWO Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 DECISION MAKING 2S-1 Chapter 2 Supplement Decision Making.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 6-1 Managers.

Decision Theory Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill.

1 Automated Planning and Decision Making 2007 Automated Planning and Decision Making Prof. Ronen Brafman Various Subjects.

MAKING SMART CHOICES How to think about your whole decision problem Arif Altaf Southwest High School, 2016.

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 4 Decision Analysis Building the Structure for Solving.

Behavioral Finance Preferences Part I Feb 16 Behavioral Finance Economics 437.

Identify the Issue Evaluate the evidence Accumulate and Appraise Alternatives Decide and Document Embrace EthicsEmbrace Ethics Beware of BiasesBeware of.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2014 Pearson Education 6-1 Decision Making.

Psych 335 Decision Making. Issues How do we decide between a number of alternatives? Big issues Day-to-day issues Eliminating all aspects Decision trees.

Behavioral Decision Making Lecture 1: Introduction.

Explain the step-by-step process of rational decision making

Decision Making We could use two films here, so we want lots of extra time. What to cut out? Dangerous minds is good hopefully for expectancy and equity.

Chapter 5 Supplement Decision Theory.

DECISION-MAKING AND GOAL-SETTING

Cognitive Limitations and Consumer Behavior

Health Services Administration

Chapter 5S – Decision Theory

Rational Choice Sociology

Chapter 19 Decision Making

Reinforcement Learning (1)

Operations Management

Supplement: Decision Making

Usable security: Problems

Decision Making under Uncertainty and Risk

Decision Making Decision - making a choice from two or more alternatives. Problem - an obstacle that makes it difficult to achieve a desired goal or purpose.

Rational Decisions and

Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Choices, Values and Frames

Reframing Organizations, 3rd ed.

Chapter 17 Decision Making

CS 188: Artificial Intelligence Spring 2006

Behavioral Finance Economics 437.

Principles of Management Learning Session # 15 Dr. A. Rashid Kausar.

8 Steps to Effective Decision Making

Presentation transcript:

Rational decisions

Decision theory Normative: how to deliberate rationally? Descriptive: the psychology of decisions. Why are we rational or irrational in certain cases?

Rational decision in general

Exercise How do you choose a mobile phone or a car?

Példa: autóvásárlás

Rational decision method Model of rational decision Define the problem Evaluate the stakes: what are the risks? What are the possible losses? Understand the problem: gather information, reframe the situation. Fix your approach for the solution.

Rational decision 2 Explore as many possible solutions as you can. Attribute weights to different criteria according to their importance to you. Si – The weight of a solution according to criteria i. Estimate the probability of different solutions. Pmi: m solution will pay out with P probability according to criteria i. Calculate: Subjective expected utility of every possible solution and choose the best. Hm :Expected subjective utility of a certain solution Hm= ∑ si * pmi

Decision table The problem: A. B. C. D. E. F. G. Criteria Weights 1. Solution according to criteria Expected utility of solution 1. BxC 2. Solution according to criteria Expected utility of solution 1. BxE Solution 3. 1. krit. s1 p11 s1p11 p21 s1p21 2. krit. s2 p12 s2p12 p22 s2p22 3. krit. s3 p13 s3p13 p23 s3p23 …. … ∑si =100 * or [-100, +100] 0≤p1i≤100 H1 H2

Exercise Make a rational decision: should you play lottery this week? The jackpot is 900 million Ft and no one else will get jackpot.

Utility of different outcomes Using a decision tree Problem Lehetőségek Utility of different outcomes Expected utility of different outcomes My numbers win 900 mFt + big happyness ≈ 1000mFt 1000mFt*pr=22,7 Ft pr Yes 1-pr -225Ft + small happyness ≈ -300 Ft 300*(1-pr)≈-300Ft My numbers don’t win Play lottery? My numbers win pr 0Ft+ big happyness ≈ -100 mFt ≈-2,3Ft No 1-pr My numbers don’t win 0Ft+small happyness≈ 225 Ft ≈225Ft pr≈ 1/44 000 000

Decide with the help of decision tree I play lottery: H1= 22,7+(-300)=-277,3 Ft I don’s play lottery: H2= -2,3+225=222,7 Ft H1 H2 The rational choice is not to play lottery.

Comparing decision table with decision tree Property based Best if after the action there are no uncertainties. Event-based Can handle uncertainty

Comparing decision table with decision tree 2. Helps to clarify the criteria Focuses your attention to framing the problem and reflecting on the different evaluative criteria. Helps to take into account the possible events relevant to your decision. Helps to take into account external factors that might affect your decision. Helps to understand multiple step decisions.

Limits of rational decision Defining the problem Assigning your preferences (weights) Limits of information (options, probabilities) Most of our decisions are boundedly rational.

Bounded rationality Bounded rationality in decisions Does not maximize utility Does not optimalize the decision Only seeks a satisfycing solution. Choose the most important criteria Choose the first solution that appers to be good enough.s

Homework Describe a decision problem of your own. Analyze the problem with decision tables and trees. Create a decision table for the problem Assign weights to the different criteria Try to reframe the problem at least once Draw a decision tree of the problem Compare your results achieved by both of these methods.