Chapter 2 - General Informatics LLC

By Paul Goodwin & George Wright

ISBN: 978-0-470-71439-3 © 2009 John Wiley & Sons, Ltd www.wileyeurope.com/c ollege/goodwin

© 2009 John Wiley & Sons, Ltd

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How people make decisions involving multiple objectives

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Examples of decisions involving multiple objectives • Choosing a holiday  liveliest nightlife  least crowded beaches  most sunshine  most modern hotels  lowest cost • Choosing a company to supply goods  best after-sales service  fastest delivery time  lowest prices  best reputation for reliability

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Bounded rationality • The limitations of the human mind mean that people use “approximate methods” to deal with most decision problems • As a result they seek to identify satisfactory, rather than optimal, courses of action. • These approximate methods, or rules of thumb, are often referred to as “heuristics” © 2009 John Wiley & Sons, Ltd

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Heuristics • These heuristics are often well adapted to the structure of people’s knowledge of the environment • Quick ways of making decisions, which people use, especially when time is limited, have been referred to as “fast and frugal heuristics” © 2009 John Wiley & Sons, Ltd

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Compensatory v non compensatory strategies • Compensatory strategy -poor performance on some attributes is compensated by good performance on others - Not the case in a non-compensatory strategy. • Compensatory strategies involve more cognitive effort. © 2009 John Wiley & Sons, Ltd

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The Recognition heuristic • Used where people have to choose between two options. • If one is recognized and the other is not, the recognized option is chosen • Works well in environments where quality is associated with ease of recognition

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The Minimalist strategy • First apply recognition heuristic, • If neither option is recognized, simply guess which is the best option. • If both options are recognized, pick at random one of the attributes of the two options and choose best performer on this attribute • If both perform equally well on this attribute, pick a 2nd attribute at random, and so on.. © 2009 John Wiley & Sons, Ltd

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Take the last • Same as minimalist heuristic except that people use attribute that enabled them to choose last time when they had a similar choice • If both options are equally good on this attribute, choose the attribute that worked the time before, and so on. • If none of the previously used attributes works, a random attribute will be tried. © 2009 John Wiley & Sons, Ltd

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The Lexicographic strategy • Used where attributes can be ranked in order of importance. • Involves identifying most important attribute and selecting option which is best on that attribute (e.g. choose cheapest option) • In there’s a ‘tie’ on the most important attribute, choose the option which performs best on the 2nd most important attribute, and so on. © 2009 John Wiley & Sons, Ltd

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The semi-lexicographic strategy • like the lexicographic strategy -except if options have similar performance on an attribute they are considered to be tied • It can lead to violation of transitivity axiom….

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Example… ‘If the price difference between brands is less than 50 cents choose the higher quality product, otherwise choose the cheaper brand.’ Brand Price Quality A $3.00 Low B $3.60 High C $3.40 Medium © 2009 John Wiley & Sons, Ltd

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A is preferred to B B is preferred to C

But: C is preferred to A

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Elimination by aspects (EBA) • The most important attribute is identified and a performance cut-off point is established. • Any alternative falling below this point is eliminated. • The process continues with 2nd most important attribute, and so on….. © 2009 John Wiley & Sons, Ltd

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Example: Choosing a computer system Aspect 1: £45m price limit Aspect 2:

Delivery time < 40 months

Aspect 3:

Must have training course provided

System A B C D E F

Price (£m) Del time (mths) Course? 60 55 No 32 35 No 44 59 Yes 70 68 Yes 25 67 Yes 44 38 Yes © 2009 John Wiley & Sons, Ltd

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Example: Choosing a computer system Aspect 1: £45m price limit Aspect 2:

Delivery time < 40 months

Aspect 3:

Must have training course provided

System A B C D E F

Price (£m) Del time (mths) Course? 60 55 No 32 35 No 44 59 Yes 70 68 Yes 25 67 Yes 44 38 Yes © 2009 John Wiley & Sons, Ltd

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Example: Choosing a computer system Aspect 1: £45m price limit Aspect 2:

Delivery time < 40 months

Aspect 3:

Must have training course provided

System A B C D E F

Price (£m) Del time (mths) Course? 60 55 No 32 35 No 44 59 Yes 70 68 Yes 25 67 Yes 44 38 Yes © 2009 John Wiley & Sons, Ltd

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Example: Choosing a computer system Aspect 1: £45m price limit Aspect 2:

Delivery time < 40 months

Aspect 3:

Must have training course provided

System A B C D E F

Price (£m) Del time (mths) Course? 60 55 No 32 35 No 44 59 Yes 70 68 Yes 25 67 Yes 44 38 Yes © 2009 John Wiley & Sons, Ltd

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Strengths & Limitations of EBA • • • •

Easy to apply Involves no complicated computations Easy to explain and justify to others. Fails to ensure that the alternatives retained are superior to those which are eliminated. - this arises because the strategy is noncompensatory. © 2009 John Wiley & Sons, Ltd

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Sequential decision making: Satisficing • Used where alternatives become available sequentially • Search process stops when an alternative is found which is satisfactory in that its attributes’ performances all exceed aspiration levels • These aspiration levels themselves adjust gradually in the light of alternatives already examined. © 2009 John Wiley & Sons, Ltd

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Reason-based choice • Shafir et al:

“when faced with the need to choose, decision makers often seek and construct reasons in order to resolve the conflict and justify their choice to themselves and to others”. © 2009 John Wiley & Sons, Ltd

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Some consequences of reason-based choice • Decisions framed as “choose which to select…” can lead to different choices to those framed as “ choose which to reject” • Irrelevant alternatives can influence choice • Attributes can be rejected if they have weakly favorable or irrelevant attributes © 2009 John Wiley & Sons, Ltd

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Example of reason-based choice Candidate A

Candidate B

Average written communication skills

Excellent written communication skills

Satisfactory absenteeism record

Very good absenteeism record

Average computing skills

Excellent computer skills

Reasonable inter-personal skills

Awkward when dealing with others

Average level of numeracy

Poor level of numeracy

Average telephone skills

Poor telephone skills

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Factors that affect how people make choices • Time available to make decision • Effort that a given strategy will involve • Decision maker’s knowledge about the environment • Importance of making an accurate decision • Whether or not the choice has to be justified to others • Desire to minimize conflict (e.g. conflicts between the pros and cons of the alternatives). © 2009 John Wiley & Sons, Ltd

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Decoy effects Sports car with free insurance

Image of car

You can’t make your mind up

Saloon with free insurance

Offer elsewhere of Saloon car without free insurance makes this deal look attractive You choose the saloon!

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Space for family & luggage 25

Phantom decoys Price discount on cheap Cheap laptop laptop

You can’t make your mind up

Expensive laptop

Weight of laptop (kg)

Offer of price discount on cheap laptop makes it look more attractive -even though the offer is no longer available Cost of laptop ($) © 2009 John Wiley & Sons, Ltd

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Choice by unique attributes Destination A Good restaurants

Destination B Lots of good nightspots

Destination C1 Lots of good nightspots

Most people chose A Destination A Good restaurants

Destination B Lots of good nightspots

Destination C2 Good restaurants

Most people chose B © 2009 John Wiley & Sons, Ltd

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Emotion and choice • Sad moods prompt detailed analytic thinking • Happy moods –less detailed analysis • ‘Affect heuristic’ –feeling generally positive or negative about a decision option influence one’s perceptions of the risks or benefits it might bring © 2009 John Wiley & Sons, Ltd

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Justifying choices already made People asked to rate relative importance of aspects of different jobs Then asked to choose a job The asked to re-rate relative importance of job aspects Revised ratings shifted to provide stronger support for the favored job © 2009 John Wiley & Sons, Ltd

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Partitioning the total cost of an item changes preferences

• Cost of a television A: $199 + $30 shipping

Option A appeared to be more attractive

B $229 including shipping

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