Decision theory
Chapter 3 - Experiential Growth Method®
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Welcome to the Decision theory page
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Choice or decision
When we choose, we make an inconsequential selection based on purely personal, subconscious motives. That’s what most of us do when we think we’re deciding. But a decision is a very different thing indeed. A decision is the rational result of a methodical process that considers all possible outcomes of a finite number of distinguishable alternatives; it’s the opposite of choosing.
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Core ideas
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Rational decision theories
This first series of theories starts from goals, through values, to realise interests.
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Homo Economicus
The history of the term dates back to the 19th century when John Stuart Mill first proposed the definition of homo economicus. He defined the economic actor as one "who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained", suggesting a person has an infinite capacity to make rational decisions.
Rational decisions
The idea of homo economicus plays a role in economic theory, stating that man makes rational decisions in the pursuit of wealth, avoiding unnecessary work in the best interest of him. He always makes rational decisions in his own best interest because he has all the necessary information to make that decision.
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Normative Decision Theory
This prescriptive approach outlines how decisions should ideally be made to maximize rationality and utility.
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Causal Decision Theory (CDT)
CDT focuses on the causal consequences of choices. It suggests that decision-makers should select options that lead to the most preferred outcomes based on causal relationships.
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Evidential Decision Theory (EDT)
EDT considers the evidential value of actions, taking into account correlations between choices and outcomes, even when there's no direct causal link.
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Human decision theories
This second set of theories starts from the human perspective, which is that we have interests, experience values , and thus pursue goals.
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Prospect Theory
Prospect theory was developed by Kahneman and Tversky. It describes how people make decisions when all outcomes carry risk. It suggests that losses have a greater psychological impact than equivalent gains.
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Dual-Process Theory
This model suggests that decision-making involves two distinct cognitive processes: a fast, intuitive system (System 1) and a slower, more deliberative system (System 2).
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Descriptive Decision Theory
This approach studies how decisions are actually made, accounting for biases, emotions, and cognitive limitations.
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Intertemporal Choice Theory
This focuses on decisions where different actions lead to outcomes realized at different times, considering factors like discount rates and time preferences.
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Deep dive
Informed decision
An informed decision refers to a decision made by an individual after acquiring adequate knowledge about the subject and considering their interests, values, and goals (preferences). It also involves enacting the decision by taking part in the relevant activity or abstaining from it.
To be able to support informed choice, it is important to understand what an informed choice or decision actually is. Marteau and colleagues (Marteau et al., 2001) propose three key components
- (i) the individual has adequate knowledge,
- (ii) the individual makes a decision that is consistent with their interests, values or preferences
- (iii) the individual ultimately enacts their decision
The processes of informed choice, informed decision-making and shared decision-making are similar in informing and actively involving the individual in making the decision.
Making an informed decision takes time
- Determine the issue
- Gather data
- Research your options
- Consider the outcomes
- Make a decision
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