The greatest part of the decisions theory is either normative or descriptive. Normative decision theory always tries to achieve the highest expected value outcome. The theory suggests that a completely rational person will arrive at the utmost expected value with perfect accuracy. It is apprehensive with identifying the best decision to take. Ways in which people make a decision according to this theory are mostly prescriptive approaches with systems and methodologies that aim to help individuals reach the best and most beneficial decisions (Bell & David, 2013). My opinion about normative theory is that it is not ideal and practical for real-life application. The only time this is applicable is when using the provided systems aims methodologies which may not be satisfactorily applicable in all situations.
In economics, for example, this approach is meant to suggest what economy is ought to be. Policy actions and other regulations are recommendations to realize the desirable goal. Normative economics focuses on the desirability of certain aspects of the economy with particular economic policies being upheld while others are seen as unpleasant. It is associated with positive consideration hence positive outcomes. Social interactions according to this theory should be intended to achieve harmonious relationships among people.
On the contrast, descriptive decision theory relates more to what will happen in a situation rather than what should happen. This theory takes into consideration outside factors that influence my decisions towards less ideal, less coherent ends (Kacelnik & Alex, 2007). It characterizes and explains regularities in the choices that people are willing to make Decisions I make according to the descriptive theory are based on an evaluation of uncertainty, risks and expected level of benefits following the decision. This is closely related to the prior version of probability where the probe is linked to the moral and irrational. This theory, in my opinion, appears more rational though the combination of both would be a more applicable approach. The descriptive theory would apply best to people who are intelligent and morally upright because it is not bent to rule or specific systems to do things. When a situation arises that require a decision made, evaluation of the matter to decide if to use normative or descriptive approach to reach the decision is a crucial aspect of life (Stanovich, Keith, Richard, & West, 2015).
The descriptive theory allows for evaluation of risks and possible outcomes of every decision, my decision to believe in God is based on simple logic and the risk evaluation of not believing in God while considering the benefits attached to the decision (Vroom, Victor, & Jago, 2009). This theory requires information processing efforts, information load and utilization and awareness of the possible outcomes.
In general view of life, every decision that I make lies between these two approaches of decision making. They are both concerned with similar phenomena but from diverse perspectives. There are areas in life where application one of the theories will not yield results and will require a combination of the two.
Expected Utility Theory
Expected utility theory by Morgenstern an American economist suggests that decisions are made as a choice between risks or uncertain prospects by taking into consideration the expected value utility value the valued sum obtained by summing up the utility values of the result multiplied by the respective probabilities (Caplin, Andrew, & Leahy, 2001). Utility corresponds to the range to which the decision making would wish the outcome to occur. To follow this theory of decision making I have to answer the question of what utility numbers in the formula refer to and if they belong to the same value scale as the utility numbers that represent my choices under certainty (Starmer & Chris, 2010). Another question important to be answered is; is the valued sum procedure of summing up probability and utility totals the only ones to be considered and if there are any other alternatives or rather attractive models how I will arbitrate this conflict.
This theory requires the maximization of the expected monetary values which is achieved by either non- addictive or non- probabilistic theories (Plous & Scott., 2001). Business people who are successful are believed to be taking into consideration the aspects of this theory to target the right customers as well as achieve maximum results from the investment. In this case, every risk that is taken by the decision maker here is believed to be worth taking with the end result better than the loss that would probably come along with it. When I am making a decision that needs critical analysis of the influence and the impacts of the decision made, and which will have lasting effects this concept of decision making applies best (Edwards & Ward., 1999). The fact that the decision is meat through a though calculation of the outcome, there is a huge possibility that this will work out as expected given that all the variables considered remain constant.
However, this means of decision making can be costly where huge losses are incurred following the assumption that all the variable are meant to be constant. In case any of the assumed probabilities change, the result expected will be subject to change (Moscati & Ivan, 2016). There are shortcomings related to the theory as all variable assume that there is a binary relation of equal or lesser risky prospects. Whenever a variable that is put into consideration changes, the risk mighty go higher than expected. From this, I learn that while making decisions I need to be accurate on the ideas that I consider while calculating the variables that are a possibility going to lead to risks. Expected utility theory deals with the analysis of the situation and I must make decisions in uncertainty without knowing the outcomes that will result from the decision.
St Petersburg Paradox
This is a theoretical game that is economical in perspective that takes the end value as the only decision criterion. This leaves me with a high risk of making misguided and irrational decisions. This paradox was first untaken and solved in Daniel Bernoulli's Exposition of a new theory on the measurement of risk. St Petersburg solved it by making differences between expected value and expected utility (Trevino & Enrique, 2017). Expected utility weighed utility multiplied by probabilities, instead of weighing the outcome. The purpose of the paradox is to define the value I would be willing to pay for me to play a lottery game that plays as follows; a coin is tossed and if the coin lands as heads I am paid $2 if I decide to flip the coin again and it turns out as heads I am paid another $2. However, the amount is doubled and put in the pot. If I toss the coin and the coin flip is tails then that means that the game is over but I retain the pot with the money regardless (Bhattacharya, Rajeev, & Podder, 2017).
Mathematically speaking, I would be willing to pay any price to play this game. A flip coin would land heads an infinite times in a row. The cost benefit analysis is therefore obvious that I will definitely be rich because for a single time cost of the fee I stand to gain a lot of money (Blavatskyy & Pavlo, 2013). Considering the possibilities of the decision I would make following this paradox, the expected utility which leads to irrational decision dictates whether I should play this game. On the other hand, if I take the normative way of decision making, I will empty all my savings to play the game. According to the descriptive assessment, I would not play the game for more than a handful of dollars because my chances of willing the dollars will be virtually nil (Rieger, Oliver, & Wang, 2009). St Petersburg suggests that the utility will increase with my wealth since if I have more money I will have better chances of increasing my dollars.
Taking into consideration the facts that apply in real life, there are no chances of winning the lottery if I do not clearly know the rules that apply to the game. Furthermore the fact that I have a chance to invest everything I have without considering the possibilities of losing because there is a chance of doubling the money is not logical at all.
This paradox to me seems to take the figure of gambling which if I have to make logical considerations is that I might be gaming against people who are way better than I am so I first need to perfect my skills. Another thing is that if I had to play alone and this game is structured to work for my good, where is this money in terms of a head flip for a dollar coming from?
In real life, I need to consider not just the gain of the decision but critically evaluate the cost to arrive at the end. Among all the above theories this one, in particular, surprises me the most.
Satisficing vs Maximizing
Maximizing is spending time and effort to ensure a solution to a problem has been achieved and the best solution reached. This necessitates exploration and analysis to guarantee the best alternative to the solutions has not been overlooked there's confidence in the evaluation process having all the options exploited (Byron & Michael, 2006). Satisfying is taking the first option that contents the requirement. When a decision is reached first, it may not guarantee the best solution. Most people normally tend to be maximizers or satisfices depending on the situation they are in. when working on a well- paying job that is demanding and that I value, I might end up maximizing my career while I satisfice my physical exercise (Schmidtz & David., 2004). Recent research proves that those who value maximization make better choices while the satisfiers enjoy their choices more, they also are believed to spend less time and create less stress in making the choices. According to elementary economics suggest that an upright decision is to maximize utility, in this case, the utility is how pleasant a task or a choice is to an individual. Some people struggle to get the best from their every decision (Roojen, 2013).
The assumption in economics is that individuals are usually rational and are completely aware of information regarding their choices (Slote & Michael, 2009). This then means that rational beings will always make decisions that maximize their satisfaction by approaching decision making with the end being achieving the best results. According to behavioral economics suggest that it is impossible to maximize every opportunity and option due to human cognition limitation.
On the other hand satisficing are individuals that are comfortable to settle for good enough option. For them, it must not be the best option but it is what they are comfortable with. This kind of people is less likely to regret if a better option presents itself after the decision has been made. This theory differentiates people in terms of how happy and comfortable they feel while making their decisions and how beneficial the decision is for them (Oppenheimer, Daniel, Meyvis, & Davidenko, 2009).
I personally find that I make the most decision based on how comfortable I am and I find that this is satisfying even when I do n...
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