Research In Behavioral Decision Theory Research Articles

Avoiding the Worst Decisions: A Simulation and Experiment

Many practical decisions are more realistic concerning preventing bad decisions than seeking better ones. However, there has been no behavioral decision theory research on avoiding the worst decisions. This study is the first behavioral decision research on decision strategies from the perspective of avoiding the worst decisions. We conducted a computer simulation with the Mersenne Twister method and a psychological experiment using the monitoring information acquisition method for two-stage decision strategies of all combinations for different decision strategies: lexicographic, lexicographic semi-order, elimination by aspect, conjunctive, disjunctive, weighted additive, equally weighted additive, additive difference, and a majority of confirming dimensions. The rate of choosing the least expected utility value among the alternatives was computed as the rate of choosing the worst alternative in each condition. The results suggest that attention-based decision rules such as disjunctive strategy lead to a worse decision, and that striving to make the best choice can conversely often lead to the worst outcome. From the simulation and the experiment, we concluded that simple decision strategies such as considering what is most important can lead to avoiding the worst decisions. The findings of this study provide practical implications for decision support in emergency situations.

Introduction to Special Issue: The Habit-Driven Consumer

Introduction to Special Issue: The Habit-Driven Consumer

Can behavioral decision theory explain risk-averse fire management decisions?

Organizations managing forest land often make fire management decisions that seem overly risk-averse in relation to their stated goals for ecosystem restoration, protection of sensitive species and habitats, and protection of water and timber resources. Research in behavioral decision theory has shown that people faced with difficult decisions under uncertainty and decisions with multiple and conflicting objectives adopt mental shortcuts that systematically bias decision-making. Fire management decisions exhibit exactly the characteristics that are likely to trigger such mental shortcuts. Cumulative and unwitting use of mental shortcuts can lead to fire management decisions that are excessively risk-averse, to the point of jeopardizing stated management goals. It can also cause retrospective analyses of fire decisions to focus inappropriately on placing blame for bad outcomes and fail to scrutinize the quality of the decision itself. Excessive risk aversion is evident in the behavior of individual land managers, land management organizations, regulatory agencies that review land management decisions, and the general public and its agents in the media, courts and legislature. Remedies to excessive risk aversion include: (1) wider use of structured decision processes designed to counteract the mental shortcuts that plague human decision-making, (2) structural and educational changes within and between organizations to change perverse incentives that reward risk aversion and discourage adaptive management, and (3) locally focused collaborations among land management agencies, regulatory agencies, and citizens to build trust and to enhance understanding of forest management goals and practices.

Choice Environment, Market Complexity, and Consumer Behavior: A Theoretical and Empirical Approach for Incorporating Decision Complexity into Models of Consumer Choice

Most empirical models of choice in economics and consumer research assume that the decision maker assesses all alternatives and information in a perfect information-processing sense. The complexity of the choice environment, the ability of the individual to make complex decisions, and the effect of choice context on the decision strategy are generally not considered in statistical model development. One of the reasons for this omission is that theoretical literature on choice complexity and imperfect ability to choose that has developed in psychology and behavioral decision theory (BDT) literatures has not been translated into empirical econometric analysis. Second, the data used in economics and consumer research studies tend to be somewhat different from the data structures used in psychology and BDT literatures. In this paper we outline a theoretical model that simultaneously considers task complexity, effort applied by the consumer, ability to choose, and choice. We then construct a measure of task complexity and incorporate this in an analysis of a number of data series based on the random utility framework. We also examine the performance of our measure of task complexity in a composite data set that allows for increased variability in factors affecting decision context. Our approach provides a mechanism to link research in BDT and econometric modeling of consumer choice. Our findings suggest that task complexity does affect inferences about choice model parameters and that context effects, such as complexity, have a systematic impact on the parameters of econometric models of choice. The modeling approach provides a mechanism for inclusion of results from psychology and BDT in traditional economic models of consumer choice.

Forming beliefs about adjudicated outcomes: Perceptions of risk and reservation values

In negotiations where impasse is resolved via a dispute resolution mechanism (like the courts or arbitration), beliefs about a potential adjudicated outcome are central in determining the bargaining environment. The present research investigates how negotiators (trial attorneys and students) involved in a hypothetical product liability case use the information ecompassed in damage awards from previous, similar cases in forming beliefs about their own case. In particular, we examine how the parameters of the distribution of previous outcomes (variance and range) affect the expected adjudicated outcome and the parties' reservation values. We find that the range of previous outcomes has no significant effect on subjects' reservation values, but that the variance does have a systematic effect, particularly on plaintiffs' behavior. A pair of separate findings may have important implications for the negotiation process. First, whether or not subjects exhibited risk averse behavior dependend on the role to which they were assigned in a way that is consistent with research in behavioral decision theory that highlights the relationship between attitudes toward risk and how a decision problem is framed. Second, only subjects assigned to roles for which they had extensive experience exhibited over optimism about the likely outcome.

Attitudes Toward Risk and The Risk–Return Paradox: Prospect Theory Explanations

This study attempted to explain Bowman's risk–return paradox in terms of recent research in behavioral decision theory and prospect theory. The research emphasized the role of reference, or target,...

ATTITUDES TOWARD RISK AND THE RISK-RETURN PARADOX: PROSPECT THEORY EXPLANATIONS.

This study attempted to explain Bowman's risk–return paradox in terms of recent research in behavioral decision theory and prospect theory. The research emphasized the role of reference, or target,...

The Framing of Buying Decisions

Research in behavioral decision theory suggests that people use reference points as the basis for judging/comparing the value of decision alternatives, but there has been little research addressing how decision reference points are formed. This paper posits and empirically demonstrates a conceptual framework of the reference point formation process for buying decisions. The basic concepts in the framework are supported, and the resulting reference points are shown to influence choice in a manner consistent with prospect theory.

Information, Cognitive Biases, and Commitment to a Course of Action

Inducing commitment in contributors is an important concern for executives promoting courses of action. In this paper, the author draws on research in behavioral decision theory to develop a model of the process by which executives can encourage commitment in contributors through the promotion of specific cognitive heuristics and biases. An example of the possible uses of information in promoting commitment and a discussion of the ethical issues involved in using information in this way are also provided.

The Danger of Disappearing Postdecision Surprise: Comment on Harrison and March, "Decision Making and Postdecision Surprises"

Bernard Goitein In the March 1984 issue of ASQ, Harrison and March (Decision Making and Postdecision Surprises) mathematically derive the existence of a structural bias toward postdecision disappointment. They do so by building on research in behavioral decision theory. This research has shown that intuitive predictions of outcomes are nonregressive, i.e., they do not obey the statistical principle of regression toward the mean (Kahneman and Tversky, 1973). Expectations therefore tend to be more extreme than actual outcomes of decisions, producing a preponderance of disappointments among postdecision surprises (Harrison and March, 1984).1 If the structural bias toward disappointment is straightforwardly translated into the distribution of subjective surprise, then decisions, even good decisions, are likely to be disappointing, because their outcomes fail to meet the decision maker's expectations. If, however, people have developed effective mechanisms for coping with the structural bias, then Harrison and March's finding may be only an interesting mathematical demonstration.