Introduction To Decision Theory Chapter 1 IMS 555

INTRODUCTION TO DECISION THEORY

CHAPTER OVERVIEW
Introduction to Decision Theory

Overview of decision theory

Theoretical questions about decisions Normative approach Descriptive approach

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Introduction To Decision Theory Chapter 1 IMS 555

LEARNING OBJECTIVES:
#fter studying this chapter, you should be able to%
. ,nderstand the concept of Decision Theory !DT" 2. ,nderstand issues about the nature of decisions +. Describe the concept of normative approach of DT -. Describe the concept of descriptive approach of DT

1.1

INTRODUCTION This chapter presents preliminary discussions about decision that include short overview, relationship between decision and theoretical question with examples and theories or approach of decision as critical parts in discussing the decision subject. The goal of this presentation is the nurture of firm understanding on the essential tenets about decision.

2.

OVERVIEW OF DECISION THEORY In the simplest term, Decision Theory !DT" is theory about decisions. #cademic discussion about decision theory is critical due to that there exist many theories about decision. $nowing all the theories that underlying the decision made would enable one to at least%& reali'e the principle and methodological one follows, mechanisms and supports required for that principle and reach into a justifiable and firm decision. (ithin the decision theory, there are normative and descriptive theories or approaches with prescriptive appears as variation of normative theory. The variety of ways to conceptuali'ing and loo)ing at decisions yield many different research cultures and traditions. *ome are heavily rely on mathematics, some explore psychological dimensions and others might focus on the methodological aspects of decision.

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DECISIONS AND THEORETICAL QUESTION ABOUT DECISION

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Introduction To Decision Theory Chapter 1 IMS 555

# decision is a resolution that one chooses from a variety of alternatives. .any formal conceptual definitions for decision are available. /xamples are0

i.

a position arrived at after consideration

ii. the identification of and commitment to a course of action iii. decision relates to the activity 1 to decide 1 as the final point of decision
ma)ing process that has involved complex processes of problem solving 2rom all these definitions, we learn that decision is stem from some theoretical questions or there must be some theoretical questions in the ground prior to ma)ing decision. In this sense, the theoretical questions are problem that requires resolution. The relationship between the decision and theoretical questions is inevitable since there would be no decision without problem. The following propositions are examples of theoretical problems and the decisions to all these propositions are relative. What w !"# I #$%&& t "%'t!$% t #a() The decision made would depend on the frequent use of apparel, availability and readiness and perhaps suitability with activities to be conducted in the lecture session. Wh*'h $%&ta!$a+t w !"# I , - $ "!+'h th*& a-t%$+ +)

The decision might depend on the time available, attraction of dishes or other external influences such as colleagues or weather. Sh !"# I .!$'ha&% */. $t%# $ " 'a" 'a$) Issues such as pride, price and value, maintenance, loan facility and other considerations will significantly influenced the purchasing decision. In our everyday3s life, child or adult, man or woman, we face a series of heavy or light problems that see) for or involve decision. In this sense, theori'ing about decision can be thought as theori'ing about our daily activities. 4owever, we limit decision theory to include those that worth attended and unstructured or ill& structured0 and exclude those are straight forward and structured. This limitation led by that in any unstructured situations or problems, there exist a set of alternatives to choose from and one chooses in a systematic way, not in random.

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Introduction To Decision Theory Chapter 1 IMS 555

The selection is often based on goal directed activities, and hence decision theory is concerned with goal-directed behavior in the presence of options. Decision theory has two goals i.e to describe how agents do ma)e decisions !descriptive decision theory" and to prescribe how agents should ma)e decisions !prescriptive decision theory". # third branch of decision theory, normative decision theory, tries to describe how a hypothetical, infinitely intelligent being would ma)e decisions. 0.1 NORMATIVE THEORY # normative decision theory is a theory about how decisions would be made. In this theory, the norms or standard practice that a decision ma)er follows and acts in reaching a resolution is critical. It addresses the activities in ma)ing decision which involve some standard processes. 5ormative decision theory see)s to provide an axiomatic, consistent basis for decision ma)ing. .ost of decision theory and6or analysis said to be normative or prescriptive rather than descriptive. It concerns with what people should do, with emphasis on procedural dimension. Thus the tas)s of identifying the best decision to ta)e, assuming an ideal decision ta)er who is fully informed, ability to compute with perfect accuracy and fully rational would be vital in this theory. 5.1 DESCRI1TIVE THEORY Descriptive decision theory attempts to explain what people actually do and what people are observed to do when ma)ing decision. In another word it explains the processes that must be going through by a decision ma)er. In this sense, descriptive theory attempts to )now how decisions are made and explains what exactly occurs in human cognitive when they ma)e decision. In a descriptive study, the decision model is determined by the user7s behavior, and the goal is to obtain an accurate model of the user7s actual decision process. Descriptive approach requires a detailed and thorough understanding of the tas) that faces the decision ma)er. It is as important to understand the decision ma)er7s tas), or 8environment,8 as it is to understand how she mentally processes information. Due to that descriptive theory is more heading toward cognitive thin)ing, reasoning and mental activities, it is capable to nurture a new idea, concept and )nowledge which would assist in improvement of decision ma)ing. In this way, descriptive theory concerned with describing human judgment and decision ma)ing in a scientific way.

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Introduction To Decision Theory Chapter 1 IMS 555

Descriptive models are evaluated according to their ability to reproduce the behavior of the decision ma)er. #s descriptive theory deals with what people actually do and what people are observe to do, it simply an observation and description of 9what happens: when people ma)e decision. 2or example, we might observe people who are spea)ing some language, and simply record what they say and try to determine the rules, if any, that determine what they say0 perhaps they sometimes use double&negatives, li)e ;I don3t want no eggs3. In such a case, we would simply observe what they do, and try to account for why it is they are doing that. This would be a descriptive grammar. In the context of ethics, we might underta)e a descriptive ethical enquiry, trying to determine the principles that some person or group of people use when ma)ing their morally relevant decisions% perhaps they do whatever they feel li)e, or perhaps they do what they thin) will lead to the greatest overall happiness of people. (hatever the details, the descriptive tas) would simply see) to determine what ethical principles, if any, are in fact being used by some person or group in their morally relevant behavior. 2.1 CONCLUSION This chapter introduces students to the tenets of DT that includes conceptual definition of DT, the decision and theoretical question about decision and the three major theories of decision i.e normative, descriptive and prescriptive. DT is a body of )nowledge and related analytical techniques designed to help a decision ma)er choose among a set of alternatives in light of their possible consequences. DT is applicable to conditions of certainty, ris), or uncertainty. In general, DT deals with human decision ma)ing in the extent of insufficient information and incomplete control over events. DT involves two entities i.e decision ma)er and an arbitrary nature. The decision ma)er performs analyses and cognitively chooses some courses of action in an optimal fashion. In this way DT lead to discussion of at least normative and descriptive theories or approaches that may facilitate decision ma)er in ma)ing decision. 5ormative theory is explanation about how decisions would be made. Descriptive theory is an explanation what people actually do and what people are observed to do when ma)ing decision. <rescriptive theory is articulation of the correct principles that people ought to apply when ma)ing decision.

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Introduction To Decision Theory Chapter 1 IMS 555

1OINT TO 1ONDER .ain goal of decision theory is deciding which action to ta)e 5ormative Theory tries to describe how a hypothetical, infinitely intelligent being would ma)e decisions reasonably accurate account of how individuals actually ma)e decisions under uncertainty =oth normative and descriptive theories have significant role in decision ma)ing

ACTIVITIES *tudent should further explore0 The concept of decision theory The realist, optimist, pessimist and opportunist views of decision .ore conceptual definition of decision from the vast literature of D. The concept of structured problem The concept of unstructured6Ill&*tructured <roblem The >oncept of 5ormative Theory The normative aspect of decision theory The >oncept of Descriptive Theory The descriptive aspect of decision theory

STUDY QUESTIONS 1ART A: DEFINITION Please define the following terms: . 2. +. -. @. Decision Theory Decision Theoretical ?uestion 5ormative Theory Descriptive Theory

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Introduction To Decision Theory Chapter 1 IMS 555

1ART B: SHORT ANSWER Answer the following questions:

. Discuss the importance of decision theory. 2. 4ow decision relate to our everyday3s lifeA +. Discuss the normative approach of decision theory with examples. -. Discuss the descriptive approach with examples. @. Discuss the prescriptive approach with examples. FURTHER READING =e))er, 4., Thornton, B.C., #irey, >..., >onnelly, B., 4ewison, B., Dobinson, ..=., Eilleyman, B., .acIntosh, .., .aule, #.B., .ichie, *., <earman, #.D., ! FFF". Informed decision ma)ing% an annotated bibliography and systematic review. 4ealth Technology #ssessment, +! ". =ell, D. /, Daiffa, 4 G Tvers)y, #. ! FF@" Decision ma)ing% descriptive, normative and prescriptive interactions, ,*#% >ambridge ,niversity <ress. >lemen, D. ! FFH". Making Hard Decisions: An Introduction to Decision Analysis , 2nd edition. =elmont >#% Duxbury <ress. Doerr, $. 4. G .itchell T. D., ! FFI". The >onsequences of Dole&conferred =ias and =ase& rate 5eglect, Decision *ciences Bournal, 2F!2"pp.-H &-JI Crant, * and Kan Landt, T. !2MMI". /xpected ,tility Theory, In <. #nand, <. <attanai) and >. <uppe !/ds", Handbook of ational and !ocial "hoice, Nxford ,niversity <ress. 4ansson, *. N. ! FF-". Decision Theory % # =rief Introduction. Department of <hilosophy and the 4istory of Technology, Doyal Institute of Technology !$T4". *toc)holm. $eefer, D. E, $ir)wood, >. (. and >orner, B. E, !2MM-". <erspective on Decision #nalysis #pplications, FFM12MM , Decision #nalysis, ! " pp. -122 Eichenstein, *., G *lovic, <. !2MMH". The >onstruction of <reference. 5ew Oor)% >ambridge ,niversity <ress. .autner, T. !/d" ! FFF". The <enguin Dictionary of <hilosophy. Eondon% <enguin. Dusso, B. /. and >arlson, $. #. 2MM2. Individual Decision&ma)ing. In% (eit', , (ensley, !/ds.", 4andboo) of .ar)eting, *age, Eondon, pp +J &-MI. *tewart, T. D. ! FFJ". 2orecast value% Descriptive decision studies. In D. (. $at' G #. 4. .urphy !/ds.", /conomic value of weather and climate forecasts !pp. -J& I ". 5ew Oor)% >ambridge ,niversity <ress. Thagard, <. !2MM . 4ow to ma)e decisions% >oherence, emotion, and practical inference. In /. .illgram !/d.", #arieties of practical inference . >ambridge, .#% .IT <ress, pp+@@&+J Tupara, 4. !2MMI". 2acilitating functional decision ma)ing in midwifery% lessons from decision theory. 5ew Lealand >ollege of .idwives Bournal, #pr , 2MMI.

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