For each, write down your best estimate of the quantity. Do not look up any information on these items. Listed below are 10 uncertain quantities. To highlight some of these biases please answer the following three quiz items: Problem 1 (adapted from Alpert & Raiffa, 1969): Unfortunately, they also lead to systematic and predictable biases. Heuristics allow us to cope with the complex environment surrounding our decisions. These biases are created by the tendency to short-circuit a rational decision process by relying on a number of simplifying strategies, or rules of thumb, known as heuristics. Tversky and Kahneman’s ( 1974) research helped to diagnose the specific systematic, directional biases that affect human judgment. Simon’s concept of bounded rationality taught us that judgment deviates from rationality, but it did not tell us how judgment is biased. This knowledge about the systematic and predictable mistakes that even the best and the brightest make can help you identify flaws in your thought processes and reach better decisions. And when we do try to think systematically, the way we enter data into such formal decision-making processes is often biased.įortunately, psychologists have learned a great deal about the biases that affect our thinking. Many of us rely on our intuitions far more than we should. I strongly advise people to think through important decisions such as this in a manner similar to this process. Acting rationally would require that you follow these six steps in a fully rational manner.
So, how should you decide where to go? Bazerman and Moore ( 2013) outline the following six steps that you should take to make a rational decision: (1) define the problem (i.e., selecting the right graduate program), (2) identify the criteria necessary to judge the multiple options (location, prestige, faculty, etc.), (3) weight the criteria (rank them in terms of importance to you), (4) generate alternatives (the schools that admitted you), (5) rate each alternative on each criterion (rate each school on each criteria that you identified, and (6) compute the optimal decision. The good news is that you receive many acceptance letters. Imagine that during your senior year in college, you apply to a number of doctoral programs, law schools, or business schools (or another set of programs in whatever field most interests you). A fully rational decision requires a careful, systematic process. What Would a Rational Decision Look Like? People often have to use incomplete information and intuition to make even the most important of decisions. And their two Nobel prizes signaled the broad acceptance of the field of behavioral decision research as a mature area of intellectual study. The work of Simon, Tversky, and Kahneman paved the way to our modern understanding of judgment and decision making.
And limitations on intelligence and perceptions constrain the ability of even very bright decision makers to accurately make the best choice based on the information that is available.Ībout 15 years after the publication of Simon’s seminal work, Tversky and Kahneman ( 1973, 1974 Kahneman & Tversky, 1979) produced their own Nobel Prize–winning research, which provided critical information about specific systematic and predictable biases, or mistakes, that influence judgment (Kahneman received the prize after Tversky’s death). Moreover, we only retain a relatively small amount of information in our usable memory. Time and cost constraints limit the quantity and quality of the information that is available to us. According to the bounded rationality framework, human beings try to make rational decisions (such as weighing the costs and benefits of a choice) but our cognitive limitations prevent us from being fully rational. In his Nobel Prize–winning work, psychologist Herbert Simon ( 1957 March & Simon, 1958) argued that our decisions are bounded in their rationality. This module provides an overview of decision making and includes discussion of many of the common biases involved in this process. If you reflect on your own history of choices you will realize that they vary in quality some are rational and some are not.
Develop strategies for making better decisions.Understand the systematic biases that affect our judgment and decision making.