By Paul Goodwin &
George Wright
ISBN: 978-0-470-71439-3
© 2009 John Wiley &
Sons, Ltd
www.wileyeurope.com/c
ollege/goodwin
© 2009 John Wiley & Sons, Ltd
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How people make decisions
involving
multiple objectives
© 2009 John Wiley & Sons, Ltd
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Examples of decisions involving multiple
objectives
• Choosing a holiday
 liveliest nightlife
 least crowded beaches
 most sunshine
 most modern hotels
 lowest cost
• Choosing a company to supply goods
 best after-sales service
 fastest delivery time
 lowest prices
 best reputation for reliability
© 2009 John Wiley & Sons, Ltd
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Bounded rationality
• The limitations of the human mind mean
that people use “approximate methods” to
deal with most decision problems
• As a result they seek to identify
satisfactory, rather than optimal, courses of
action.
• These approximate methods, or rules of
thumb, are often referred to as “heuristics”
© 2009 John Wiley & Sons, Ltd
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Heuristics
• These heuristics are often well adapted to
the structure of people’s knowledge of the
environment
• Quick ways of making decisions, which
people use, especially when time is limited,
have been referred to as “fast and frugal
heuristics”
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Compensatory v non
compensatory strategies
• Compensatory strategy -poor performance
on some attributes is compensated by good
performance on others
- Not the case in a non-compensatory
strategy.
• Compensatory strategies involve more
cognitive effort.
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The Recognition heuristic
• Used where people have to choose between
two options.
• If one is recognized and the other is not, the
recognized option is chosen
• Works well in environments where quality
is associated with ease of recognition
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The Minimalist strategy
• First apply recognition heuristic,
• If neither option is recognized, simply guess
which is the best option.
• If both options are recognized, pick at random
one of the attributes of the two options and
choose best performer on this attribute
• If both perform equally well on this attribute, pick
a 2nd attribute at random, and so on..
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Take the last
• Same as minimalist heuristic except that people
use attribute that enabled them to choose last time
when they had a similar choice
• If both options are equally good on this attribute,
choose the attribute that worked the time before,
and so on.
• If none of the previously used attributes works, a
random attribute will be tried.
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The Lexicographic strategy
• Used where attributes can be ranked in order of
importance.
• Involves identifying most important attribute and
selecting option which is best on that attribute
(e.g. choose cheapest option)
• In there’s a ‘tie’ on the most important attribute,
choose the option which performs best on the 2nd
most important attribute, and so on.
© 2009 John Wiley & Sons, Ltd
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The semi-lexicographic strategy
• like the lexicographic strategy -except if
options have similar performance on an
attribute they are considered to be tied
• It can lead to violation of transitivity
axiom….
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Example…
‘If the price difference between brands is
less than 50 cents choose the higher quality
product, otherwise choose the cheaper
brand.’
Brand
Price
Quality
A
$3.00
Low
B
$3.60
High
C
$3.40
Medium
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A is preferred to B
B is preferred to C
But:
C is preferred to A
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Elimination by aspects (EBA)
• The most important attribute is identified
and a performance cut-off point is
established.
• Any alternative falling below this point is
eliminated.
• The process continues with 2nd most
important attribute, and so on…..
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Example: Choosing a computer system
Aspect 1: £45m price limit
Aspect 2:
Delivery time < 40 months
Aspect 3:
Must have training course provided
System
A
B
C
D
E
F
Price (£m) Del time (mths) Course?
60
55
No
32
35
No
44
59
Yes
70
68
Yes
25
67
Yes
44
38
Yes
© 2009 John Wiley & Sons, Ltd
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Example: Choosing a computer system
Aspect 1: £45m price limit
Aspect 2:
Delivery time < 40 months
Aspect 3:
Must have training course provided
System
A
B
C
D
E
F
Price (£m) Del time (mths) Course?
60
55
No
32
35
No
44
59
Yes
70
68
Yes
25
67
Yes
44
38
Yes
© 2009 John Wiley & Sons, Ltd
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Example: Choosing a computer system
Aspect 1: £45m price limit
Aspect 2:
Delivery time < 40 months
Aspect 3:
Must have training course provided
System
A
B
C
D
E
F
Price (£m) Del time (mths) Course?
60
55
No
32
35
No
44
59
Yes
70
68
Yes
25
67
Yes
44
38
Yes
© 2009 John Wiley & Sons, Ltd
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Example: Choosing a computer system
Aspect 1: £45m price limit
Aspect 2:
Delivery time < 40 months
Aspect 3:
Must have training course provided
System
A
B
C
D
E
F
Price (£m) Del time (mths) Course?
60
55
No
32
35
No
44
59
Yes
70
68
Yes
25
67
Yes
44
38
Yes
© 2009 John Wiley & Sons, Ltd
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Strengths & Limitations of EBA
•
•
•
•
Easy to apply
Involves no complicated computations
Easy to explain and justify to others.
Fails to ensure that the alternatives retained
are superior to those which are eliminated.
- this arises because the strategy is noncompensatory.
© 2009 John Wiley & Sons, Ltd
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Sequential decision making:
Satisficing
• Used where alternatives become available
sequentially
• Search process stops when an alternative is
found which is satisfactory in that its
attributes’ performances all exceed
aspiration levels
• These aspiration levels themselves adjust
gradually in the light of alternatives already
examined.
© 2009 John Wiley & Sons, Ltd
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Reason-based choice
• Shafir et al:
“when faced with the need to choose,
decision makers often seek and construct
reasons in order to resolve the conflict and
justify their choice to themselves and to
others”.
© 2009 John Wiley & Sons, Ltd
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Some consequences of reason-based
choice
• Decisions framed as “choose which to
select…” can lead to different choices to
those framed as “ choose which to reject”
• Irrelevant alternatives can influence choice
• Attributes can be rejected if they have
weakly favorable or irrelevant attributes
© 2009 John Wiley & Sons, Ltd
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Example of reason-based choice
Candidate A
Candidate B
Average written communication skills
Excellent written
communication skills
Satisfactory absenteeism record
Very good absenteeism
record
Average computing skills
Excellent computer skills
Reasonable inter-personal skills
Awkward when dealing
with others
Average level of numeracy
Poor level of numeracy
Average telephone skills
Poor telephone skills
© 2009 John Wiley & Sons, Ltd
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Factors that affect how people make choices
• Time available to make decision
• Effort that a given strategy will involve
• Decision maker’s knowledge about the
environment
• Importance of making an accurate decision
• Whether or not the choice has to be justified to
others
• Desire to minimize conflict (e.g. conflicts between
the pros and cons of the alternatives).
© 2009 John Wiley & Sons, Ltd
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Decoy effects
Sports car with
free insurance
Image of
car
You can’t make
your mind up
Saloon with
free insurance
Offer elsewhere of Saloon
car without free insurance
makes this deal look
attractive
You choose the saloon!
© 2009 John Wiley & Sons, Ltd
Space for family &
luggage
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Phantom decoys
Price
discount
on cheap Cheap laptop
laptop
You can’t make
your mind up
Expensive
laptop
Weight of
laptop (kg)
Offer of price discount
on cheap laptop makes
it look more attractive
-even though the offer
is no longer available
Cost of laptop ($)
© 2009 John Wiley & Sons, Ltd
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Choice by unique attributes
Destination A
Good restaurants
Destination B
Lots of good
nightspots
Destination C1
Lots of good
nightspots
Most people chose A
Destination A
Good restaurants
Destination B
Lots of good
nightspots
Destination C2
Good restaurants
Most people chose B
© 2009 John Wiley & Sons, Ltd
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Emotion and choice
• Sad moods prompt detailed analytic
thinking
• Happy moods –less detailed analysis
• ‘Affect heuristic’ –feeling generally
positive or negative about a decision option
influence one’s perceptions of the risks or
benefits it might bring
© 2009 John Wiley & Sons, Ltd
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Justifying choices already made
People asked to rate relative
importance of aspects of
different jobs
Then asked to choose a job
The asked to re-rate relative
importance of job aspects
Revised ratings shifted to provide stronger support for the
favored job
© 2009 John Wiley & Sons, Ltd
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Partitioning the total cost of an item changes
preferences
• Cost of a television
A: $199 + $30 shipping
Option A
appeared to be
more attractive
B $229 including shipping
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