roymoggadmin
03-31-2009, 08:19 PM
Non Rational Decision Making.
The first major shot across the bows of the rational decision-making model of Expected Utility Theory came from Herbert Simon. Simon, who won a Nobel Prize for his work in 1978, coined the phrase “bounded rationality” to describe the limited extent to which we make logical decisions in organizations. Instead of maximising and finding the best solution to a problem, we typically satisfice and settle for the solution with which we can make do. However, arguably the most damaging attack on the rational model as a description of how we make decisions has come from two psychologists: Daniel Kahneman and Amos Tversky. With a series of simple but cunning experiments they not only demonstrate that our judgement and decision-making is often fundamentally flawed, but also that this irrationality can be explained. Consider the following problem. A bat and a ball cost £1.10. The bat costs £1 more than the ball. How much does the ball cost? Most people, at least for a few moments, decide incorrectly that the ball costs 10p. Kahneman and Tversky argue that the reason for this is that we use two systems for judgment and decision making. System 1 is intuitive and fast. It often gives us the right answer, but, as in the case of the bat and ball problem, it can lead to mistakes. System 2 refers to a slower and more deliberate set of thought processes. These are more likely to yield the correct response, but they are also considerably more demanding on our cognitive resources.
original post at www.decisiondimensions.com
The first major shot across the bows of the rational decision-making model of Expected Utility Theory came from Herbert Simon. Simon, who won a Nobel Prize for his work in 1978, coined the phrase “bounded rationality” to describe the limited extent to which we make logical decisions in organizations. Instead of maximising and finding the best solution to a problem, we typically satisfice and settle for the solution with which we can make do. However, arguably the most damaging attack on the rational model as a description of how we make decisions has come from two psychologists: Daniel Kahneman and Amos Tversky. With a series of simple but cunning experiments they not only demonstrate that our judgement and decision-making is often fundamentally flawed, but also that this irrationality can be explained. Consider the following problem. A bat and a ball cost £1.10. The bat costs £1 more than the ball. How much does the ball cost? Most people, at least for a few moments, decide incorrectly that the ball costs 10p. Kahneman and Tversky argue that the reason for this is that we use two systems for judgment and decision making. System 1 is intuitive and fast. It often gives us the right answer, but, as in the case of the bat and ball problem, it can lead to mistakes. System 2 refers to a slower and more deliberate set of thought processes. These are more likely to yield the correct response, but they are also considerably more demanding on our cognitive resources.
original post at www.decisiondimensions.com