Decision Making

Outline

Definitions
Decisions and alternatives
Characterizing decisions
Decision making strategies
Decision making phases
Implications for decision support

Definitions
Choice about a course of action
-- Simon
Choice leading to a certain desired objective
-- Churchman
Knowledge indicating the nature of a
commitment to action
-- Holsapple and Whinston

Simons Model of Problem

Solving
Decision-making consists of three major
phases---intelligence, design, and choice
[Simon]

H.A. Simon. 1960. The New Science of Management Decision.

Harper and Row, NY.

Newell, A., & Simon, H.A. (1972). Human Problem Solving.

Prentice-Hall, Englewood Cliffs, NJ.

Example
A farmer with his wolf, goat, and cabbage
come to the edge of a river they wish to
cross. There is a boat at the rivers edge,
but of course, only the farmer can row.
The boat can only handle one animal/item
in addition to the farmer. If the wolf is ever
left alone with the goat, the wolf will eat
the goat. If the goat is left alone with the
cabbage, the goat will eat the cabbage.
What should the farmer do to get across
the river with all his possessions?

Phase I: Intelligence

Problem Identification and Definition

What's the problem?
Why is it a problem?
Whose problem is it?

Phase II: Design

Problem Structuring
Generate alternatives
Set criteria and objectives
Develop models and scenarios to
evaluate alternatives
Solve models to evaluate alternatives

Problem Solving
State Space Search
Initial State
Goal State
Operators
Choosing representation and controlling the
application of operators requires decision
making

Problem Representation
L

States and Operators

State = <Farmer/Boat location, Wolf location,
Goat location, Cabbage location>
Operator
<L,L,L,L> ----> <R,R,L,R>
..

Phase III: Choice

Solution
Determine the outcome of chosen
alternatives
Select the/an outcome consistent with the
decision strategy

Decisions and Alternatives

Alternatives
where do they come from?
how many are enough?

Evaluation
how should each alternative be evaluated?
how reliable is our expectation about the impact
of an alternative?

Choice
What strategy will be used to arrive at a choice?

E.g., DxPlain

Human Cognitive Limitations

(Harrison, 1995)

Retain only limited information in short-term

memory
Display different types and degrees of
intelligence
Those who embrace closed belief systems
restrict information search
Propensity for risk varies
Level of aspiration positively correlated to desire
for information

Common Perceptual Blocks

(Clemen, 1991)

Difficulty in isolating a problem

Delimiting the problem space too closely
Inability to see the problem from various
perspectives
Stereotyping
Cognitive saturation or overload

Decision Making Strategies

Strategies:
Optimizing
Satisficing
Quasi-satisficing
Sole decision rule
Selection by elimination
Incrementalism and muddling through

Decision Making Strategies

Considerations
Individual-focused vs. organization-focused
decisions
Individual vs. group decisions
Expensive-to-change vs. inexpensive-tochange decisions

Optimizing
Goal: select the course of action with the
highest payoff
estimation of costs and benefits of every
viable course of action
simultaneous or joint comparison of costs
and benefits of all alternatives
high information processing load on humans
people do not have the ``wits to
maximize'' [Simon]

Observations

Given high cost in time, effort, and money

Decisions are made under severe time
pressure (``fighting fires'')
Optimization on stated objectives may
result in sub-optimization on unstated, less
tangible objectives
Therefore, people often
Do not consider all alternatives
Do not evaluate all alternatives thoroughly
and rigorously
Do not consider all objectives and criteria
Place more weight on intangible objectives and
criteria

Satisficing
Decision-makers satisfice rather than maximize
[Simon]. They choose courses of action that are
``good enough''---that meet a certain minimal
set of requirements
Theory of bounded rationality: human beings
have limited information processing
capabilities
Optimization may not be practical, particularly
in a multi-objective problem, yet knowing the
optimal solution for each objective and under
various scenarios can provide insight to make
a good satisficing choice

Sole Decision Rule

``Tell a qualified expert about your problem and do
whatever he (she) says---that will be good enough''
[Janis and Mann]
Rely upon a single formula as the sole decision rule
Use only one criterion for a suitable choice
e.g., do nothing that may be good for the enemy
Impulsive decision-making usually falls under this
category

Selection by Elimination
Eliminate alternatives that do not meet the
most important criterion (screening;
elimination by aspects)
Repeat process for the next important
criterion, and so on
Decision-making becomes a sequential
narrowing down process

Selection by Elimination
``Better'' alternatives might be
eliminated early on---improper weights
assigned to criteria
Decision-maker might run out of
alternatives
For complex problems, this process
might still leave decision maker with
large number of alternatives

Incrementalism
Often, decision-makers have no real awareness
of arriving at a new policy or decision
decision-making is an ongoing process
the satisficing criteria themselves might
change over time
Make incremental improvements over current
situation and aim to reach an optimal situation
over time
Useful for ``fire-fighting'' situations
Frequently found in pluralistic societies and
organizations

Heuristics and Biases

Heuristics are rules of thumb that can
make a search process more efficient.
Most common biases in the use of
heuristics
Availability
Adjustment and anchoring
Representativeness
Motivational
A. Tversky and D. Kahneman. 1974. Judgement Under
Uncertainty: Heuristics and Biases. Science, 185:1124-31

Example 1
Which is riskier (probability of serious
accident):
a. Driving a car on a 400 mile trip?
b. Flying on a 400 mile commercial
airline flight?

Example 2
Are there more words in the English
language
a. that start with the letter r ?
b. for which r is the third letter?

Availability
what is easily recalled must be more
likely
Inability to accurately assess the
probability of a particular event happening
Assess based on past experience which may
not be representative
Structured review and analysis of objective
data can reduce availability bias

Example 1
A newly hired programmer for a software
firm in Pittsburgh has two years experience
and good qualifications. When an employee
at Au Bon Pain was asked to estimate the
starting salary she guessed $40,000. What
is your estimate?
a. $30,000 - $50,000?
b. $50,000 - $70,000?
c. $70,000 - $90,000?

Example 2
A newly hired programmer for a software
firm in Pittsburgh has two years experience
and good qualifications. When an employee
at Au Bon Pain was asked to estimate the
starting salary she guessed $80,000. What
is your estimate?
a. $30,000 - $50,000?
b. $50,000 - $70,000?
c. $70,000 - $90,000?

Adjustment and Anchoring

Make estimates by choosing an initial
value and then adjusting this starting point
up or down until a final estimate is
obtained
Most subjectively derived probability
distributions are too narrow and fail to
estimate the true variance of the event
Assess a set of values, instead of just the
mean

Example
What is the most likely sequence of gender for
series of children born within a family?
- The sequence of BBGGBG, BGBBBG,
BBBBGG?

Example
Mike is finishing his CMU MMM degree.
He is very interested in the arts and at
one time considered a career as a
musician. Is Mark more likely to take a
job:
a. In the management of the arts?
b. A medical management position?

Representativeness
Attempt to ascertain the probability that a
person or object belongs to a particular group or
class by the degree to which characteristics of
that person or object conform to a stereotypical
perception of members of that group or class.
The closer the similarity between the two, the
higher is the estimated probability of association
Small sample size bias
Failure to recognize regression to the mean
(predicted outcomes representative of the input?)

Motivational
Incentives, real or perceived, often lead to
probability estimates that do not
accurately reflect his or her true beliefs
Non-cognitive, motivational biases
Difficult to address through the design of a
DSS
Solicit a number of estimates from similar sources,
both related and unrelated to problem context

Summary: Heuristics and Biases

Heuristics are rules of thumb that we use to
simplify decision making.
Overall, heuristics result in good decisions. On
average any loss in quality of decision is
outweighed by the time saved.
But, heuristics can cause biases and systematic
errors in decision making when they fail.
In addition, we are typically unaware of the
heuristics and biases, and fail to distinguish
between situations in which their use is more and
less appropriate.

Evaluation Metrics
Effectiveness: what should be done
Easier access to relevant information
Faster, more efficient problem recognition and
identification
Easier access to computing tools and models
Greater ability to generate and evaluate large set
of alternatives

Efficiency: how should it be done

Reduction in decision costs
Reduction in decision time for same level of detail
in the analysis
Better quality feedback

Implications for Decision Support

Different people will use different
strategies at different times for different
kinds of decisions
Which decision strategy to engineer in a
decision support system?
Multiple strategies may be used in making a
decision

Implications for Decision Support

Is there an ``optimal decision strategy for
each problem?
What are the information processing
requirements for each decision-making
strategy?
Which strategy do decision-makers favor,
When, and Why?

Value of DSS
Increase the bounds of rationality

easier access to information

identify relevant information
increase ability to process information