Decisions, decisions, decisions, we are constantly faced with them everyday. Should I get out of bed or sleep 10 more minutes? Should I hit the delete key or save as a new document? Should I take the dishes to the sink or wait and see if my spouse will do it? Inherent in most decisions is the tradeoff between some benefit and decrement we may face along with an element of risk. The course of action that we choose to take has always been of interest to scholars. Fitting the principles of decision-making into an a priori developed plan to choose which alternative is “best” is, by and large, what most consider to be rationality. Because the decisions that we make have so much influence in our life, their importance cannot and should not be underestimated. While we cannot always know which decision will eventually hold the greatest benefit, it is an aspect of human nature to gamble on the best option, but only when the gamble seems warranted. Determining what is the “rational” choice allows us to at least rest easy in the assumption that the decisions that we have made are the right ones. Interestingly, as time immortal has shown, making the right or “rational” decision does not always provide the most favorable outcome.
Key Terms in this Chapter
Expected Utility Theory: A general set of assumptions and axioms that outline rational decision making. At its core, it is proposed that individuals should weight the utility of each outcome by the probability of occurrence and then choose the outcome that has the greatest weighted sum.
Prescriptive Theories: Prescriptive theories seek to demonstrate rationality by providing an outline or guide for how individuals should make decisions if they are rational.
Dual Process: A general approach to understanding how people think about information. This approach suggests that there are two fundamentally different forms or styles of thinking. This approach has found favor across most areas of psychology.
Rationality: Behaving or making choices logically, consistently, and in a way that maximizes desirable outcomes.
Descriptive Theories: Descriptive theories seek to understand rationality by describing and capturing in statistical terms the decisions that people make. And the recapitulation of decisions that people make constitutes rational decision making.
Prospect Theory: A theory of rational decision making that proposes that individuals are sensitive to differences in subjective value and decision choices will differ as a function of whether the problem task is positive (dealing with gains) or negative (dealing with losses).
Analytic/Holistic Model: A dual process model that postulates that individuals can process a decision tasks using the analytic system that is more sensitive to numeric magnitude or the holistic system which is sensitive to contextual cues. Reliance on either system varies because of predispositions, hemispheric reliance, and relevance.