Decision analysis

Decision making can be divided into three systems: Emotional, rational, and perceptual systems.

The rational model is one where the beliefs and desires are supposed to be determined, but decision analysis of the last thirty years has shown that it doesn't work. Even people who are explicitly trained to used System 2 thinking (reasoning) in problems don't do so, even when they know they should.

It doesn't mean you shouldn't take decision analysis, just that decision analysis are not effective if decision-makers do not want to relinquish the intelligence function to somebody else.

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The nature of the human judgment

People are not accustomed to thinking hard. They are often satisfied with a plausible answer that comes quickly to mind.

The prospect theory - the empirical exploration of risk assessment, loss aversion, and reference dependence, explains why people consistently behave in ...

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Why decision-makers don't like decision analysis

Decision analysis is based on the idea that decision making is a choice between gambles. Managers think that they are fighting risk in a controlled way. The idea that you are gambling is an admission that you have lost control. It is detestable to decision managers, and the reason they reject dec...

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Mechanisms needed for individuals and groups

Both individuals and groups need mechanisms to review how their decisions are made.

Many businesses are averse to appointing someone to keep statistics on the decisions made and evaluate the biases, errors, the wrong forecasts, and the misjudged factors to make the p...

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The perception of risk

The perception of and reaction to risk is often dismissed as emotional. The first thing that happens is you're afraid, and from that fear, you feel risk. So the view of risk is becoming less cognitive while emotion becomes dominant.

Emotion is about what might hap...

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The law of small numbers

In statistical thinking, professional statisticians informally think the degree of the probability distribution in a small group will closely resemble the probability distribution in the overall population.

In other words, even people who should know better make these mistakes. When they'r...

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The two-system theory

There are two thinking systems, each with distinct characteristics.

System 1, or intuition. We think in this way most of the time. We respond to the world in ways that we're not conscious of and don't control. System 1 operations are fast, effortless...

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Group decisions are not risk-free

Groups are better equipped than individuals to recognize an answer as correct. But, when the whole group is susceptible to similar biases, groups are inferior to individuals.
Polarization can occur in groups. One major bias in risky decision making is optimism, while doubts are sup...

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