Decision Making and Intuition

• Opposite of Rational decision making.

• Being more instinctive, subjective and subconscious in nature.

• Intuition, in fact refers to individual’s inborn ability to synthesize

information quickly and effectively.
Theoretical elements of intuition and decision making

• Pattern Recognition – Configurations and relationships are recognized

in information and events;

• Similarity Recognition – Similarities and differences, in past and

present situations are identified;

• Sense of Salience – recognizing the importance of events and

information, and affect this has on judgements.
Decision-Making Heuristics and Biases
• Heuristics – simple rules of thumb to make decisions. Kahneman and
Tversky examined how these heuristics introduce bias in decision-
making.

• Bias – refers to departures from rational theory that produces

suboptimal decisions.
Decision-Making Heuristics
• Representative Heuristics – Judgements are made on the basis of
things with which we are familiar, or inferred from “representative”
characteristics;

• Anchor Heuristics – Decisions are made based on an anchor like

“value” and then adjustments are made from that start point;

• Availability Heuristics – Judgements are built on the information that

is readily available, or on easily recalled memory/experience.
Common Decision-Making Biases
• Bandwagon Effect – Tendency to believe outcomes will occur because
others believe the same thing;

• Confirmation bias – Tendency to search for information that supports

one’s preconceived beliefs and to ignore information that contradicts
those beliefs;

• Loss Aversion – Characteristics of individuals who tend to more

strongly prefer avoiding losses rather than acquiring gains.
Common Decision-Making Biases
• Overconfidence – When assessing the ability to predict future events.
Tendency to believe that the forecasts are better than they truly are.

• Unrealistic Optimism – Individuals’ tendency to believe that they are

less susceptible to risky events.
Decision-Making Conditions:

Risk and Uncertainty

• Risk – Situations in which statistical probabilities can be attributed to
alternative potential outcomes.

• Uncertainty – Situations where the probability that a particular

outcome will occur is not known in advance.