Irrational Decisions Examples
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Escaping from Bad Decisions
Escaping from Bad Decisions presents a modern conceptual and mathematical framework of the decision-making process. By interpreting ordinal utility theory as normative analysis examined in view of rationality, it shows how decision-making under certainty, risk, and uncertainty can be better understood. It provides a critical examination of psychological models in multi-attribute decision-making, and evaluates the constitutive elements of "good" and "bad" decisions. Multi-attribute decision-making is analysed descriptively, based on the psychological model of decision-making and computer simulations of decision strategies. Finally, prescriptive examinations of multi-attribute decision-making are performed, supporting the argument that decision-making from a pluralistic perspective creates results that can help "escape" from bad decisions. This book will be of particular interest to graduate students and early career researchers in economics, decision-theory, behavioral economics, experimental economics, psychology, cognitive sciences, and decision neurosciences. - Provides a comprehensive background to the phenomena of bad decisions, considered in their economic, psychological and cognitive aspects - Reinterprets existing theories and phenomena and proposes a new overview of decision behaviors by integrating mathematical and psychological perspectives - Adapts model-based techniques, such as mathematical model based functional magnetic resonance imaging (fMRI) using mathematical models of the decision process
Bounded Rationality in Decision Making Under Uncertainty: Towards Optimal Granularity
This book addresses an intriguing question: are our decisions rational? It explains seemingly irrational human decision-making behavior by taking into account our limited ability to process information. It also shows with several examples that optimization under granularity restriction leads to observed human decision-making. Drawing on the Nobel-prize-winning studies by Kahneman and Tversky, researchers have found many examples of seemingly irrational decisions: e.g., we overestimate the probability of rare events. Our explanation is that since human abilities to process information are limited, we operate not with the exact values of relevant quantities, but with “granules” that contain these values. We show that optimization under such granularity indeed leads to observed human behavior. In particular, for the first time, we explain the mysterious empirical dependence of betting odds on actual probabilities. This book can be recommended to all students interested in human decision-making, to researchers whose work involves human decisions, and to practitioners who design and employ systems involving human decision-making —so that they can better utilize our ability to make decisions under uncertainty.
Essential Irrationality
Irrationalities in our behaviours have been observed to be essential aspects of our nature. Most of the irrationalities have their origin in the adaptive strategies developed by millions of years of evolution to cope with the environmental harsh conditions of our ancient past. Consequently, we developed quick response systems to meet successfully the challenges of our ancestral environment. They were essential for our survival, but a few have now become redundant in the modern conditions, and are looked down as ridiculous biases. Some irrationalities have actually been found to be essential and beneficial for the well being and growth of our species. During the last few thousand years of our development we additionally acquired a large number of belief systems, superstitions and faiths. Some of these beliefs are not quite rational and reasonable. They mould our personality by affecteting our opinions, decisions, actions and behaviours. We are what we believe. When you hold beliefs without ascertaining their validity, you start losing your ability to doubt and question your beliefs. Fortunately, along with these developments we also created a reservoir of verifiable knowledge by using rational methods during the last few hundred years of our existence. We have a responsibility to familiarise ourselves with these techniques to avoid pitfalls of assuming all beliefs to be true. This book discusses how these irrationalities affect our lives, and how to cope with them.