Introduction To Decision Theory Chapter 1

IMS 555

INTRODUCTION TO
DECISION THEORY

CHAPTER OVERVIEW
Introduction to Decision Theory

Overview of decision theory

Theoretical questions about

decisions
Normative approach
Descriptive approach

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Introduction To Decision Theory Chapter 1

IMS 555

LEARNING OBJECTIVES:
After studying this chapter, you should be able to:
1. Understand the concept of Decision Theory (DT)
2. Understand issues about the nature of decisions
3. Describe the concept of normative approach of DT
4. Describe the concept of descriptive approach of DT

1.1

INTRODUCTION
This chapter presents preliminary discussions about decision that include short
overview, relationship between decision and theoretical question with examples and
theories or approach of decision as critical parts in discussing the decision subject.
The goal of this presentation is the nurture of firm understanding on the essential
tenets about decision.

2.1

OVERVIEW OF DECISION THEORY

In the simplest term, Decision Theory (DT) is theory about decisions. Academic
discussion about decision theory is critical due to that there exist many theories about
decision. Knowing all the theories that underlying the decision made would enable
one to at least:- realize the principle and methodological one follows, mechanisms
and supports required for that principle and reach into a justifiable and firm decision.
Within the decision theory, there are normative and descriptive theories or
approaches with prescriptive appears as variation of normative theory. The variety of
ways to conceptualizing and looking at decisions yield many different research
cultures and traditions. Some are heavily rely on mathematics, some explore
psychological dimensions and others might focus on the methodological aspects of
decision.

3.1

DECISIONS AND THEORETICAL QUESTION ABOUT DECISION

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A decision is a resolution that one chooses from a variety of alternatives. Many

formal conceptual definitions for decision are available. Examples are;

i.

a position arrived at after consideration

ii. the identification of and commitment to a course of action

iii. decision relates to the activity to decide as the final point of decision
making process that has involved complex processes of problem
solving
From all these definitions, we learn that decision is stem from some theoretical
questions or there must be some theoretical questions in the ground prior to making
decision. In this sense, the theoretical questions are problem that requires resolution.
The relationship between the decision and theoretical questions is inevitable since
there would be no decision without problem. The following propositions are examples
of theoretical problems and the decisions to all these propositions are relative.
What would I dress to lecture today?
The decision made would depend on the frequent use of apparel, availability and
readiness and perhaps suitability with activities to be conducted in the lecture
session.
Which restaurant would I go for lunch this afternoon?
The decision might depend on the time available, attraction of dishes or other
external influences such as colleagues or weather.
Should I purchase imported or local car?
Issues such as pride, price and value, maintenance, loan facility and other
considerations will significantly influenced the purchasing decision.
In our everydays life, child or adult, man or woman, we face a series of heavy or
light problems that seek for or involve decision. In this sense, theorizing about
decision can be thought as theorizing about our daily activities. However, we limit
decision theory to include those that worth attended and unstructured or illstructured; and exclude those are straight forward and structured. This limitation
led by that

in any unstructured situations or problems, there exist a set of

alternatives to choose from and one chooses in a systematic way, not in random.

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The selection is often based on goal directed activities, and hence decision theory
is concerned with goal-directed behavior in the presence of options.
Decision theory has two goals i.e to describe how agents do make decisions
(descriptive decision theory) and to prescribe how agents should make decisions
(prescriptive decision theory). A third branch of decision theory, normative decision
theory, tries to describe how a hypothetical, infinitely intelligent being would make
decisions.
4.1

NORMATIVE THEORY
A normative decision theory is a theory about how decisions would be made. In this
theory, the norms or standard practice that a decision maker follows and acts in
reaching a resolution is critical. It addresses the activities in making decision which
involve some standard processes. Normative decision theory seeks to provide an
axiomatic, consistent basis for decision making.
Most of decision theory and/or analysis said to be normative or prescriptive rather
than

descriptive. It concerns with what people should do, with emphasis on

procedural dimension. Thus the tasks of identifying the best decision to take,
assuming an ideal decision taker who is fully informed, ability to compute with perfect
accuracy and fully rational would be vital in this theory.
5.1

DESCRIPTIVE THEORY
Descriptive decision theory attempts to explain what people actually do and what
people are observed to do when making decision. In another word it explains the
processes that must be going through by a decision maker. In this sense, descriptive
theory attempts to know how decisions are made and explains what exactly occurs in
human cognitive when they make decision. In a descriptive study, the decision model
is determined by the user's behavior, and the goal is to obtain an accurate model of
the user's actual decision process.
Descriptive approach requires a detailed and thorough understanding of the task that
faces the decision maker. It is as important to understand the decision maker's task,
or "environment," as it is to understand how she mentally processes information. Due
to that descriptive theory is more heading toward cognitive thinking, reasoning and
mental activities, it is capable to nurture a new idea, concept and knowledge which
would assist in improvement of decision making. In this way, descriptive theory
concerned with describing human judgment and decision making in a scientific way.

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Descriptive models are evaluated according to their ability to reproduce the behavior
of the decision maker.
As descriptive theory deals with what people actually do and what people are
observe to do, it simply an observation and description of what happens when
people make decision. For example, we might observe people who are speaking
some language, and simply record what they say and try to determine the rules, if
any, that determine what they say; perhaps they sometimes use double-negatives,
like I dont want no eggs. In such a case, we would simply observe what they do,
and try to account for why it is they are doing that. This would be a descriptive
grammar. In the context of ethics, we might undertake a descriptive ethical enquiry,
trying to determine the principles that some person or group of people use when
making their morally relevant decisions: perhaps they do whatever they feel like, or
perhaps they do what they think will lead to the greatest overall happiness of people.
Whatever the details, the descriptive task would simply seek to determine what
ethical principles, if any, are in fact being used by some person or group in their
morally relevant behavior.
6.1

CONCLUSION
This chapter introduces students to the tenets of DT that includes conceptual
definition of DT, the decision and theoretical question about decision and the three
major theories of decision i.e normative, descriptive and prescriptive. DT is a body of
knowledge and related analytical techniques designed to help a decision maker
choose among a set of alternatives in light of their possible consequences. DT is
applicable to conditions of certainty, risk, or uncertainty. In general, DT deals with
human decision making in the extent of insufficient information and incomplete
control over events. DT involves two entities i.e decision maker and an arbitrary
nature. The decision maker performs analyses and cognitively chooses some
courses of action in an optimal fashion. In this way DT lead to discussion of at least
normative and descriptive theories or approaches that may facilitate decision maker
in making decision. Normative theory is explanation about how decisions would be
made. Descriptive theory is an explanation what people actually do and what people
are observed to do when making decision. Prescriptive theory is articulation of the
correct principles that people ought to apply when making decision.

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POINT TO PONDER
Main goal of decision theory is deciding which action to take
Normative Theory tries to describe how a hypothetical, infinitely intelligent being
would make decisions
reasonably accurate account of how individuals actually make decisions under
uncertainty
Both normative and descriptive theories have significant role in decision making

ACTIVITIES
Student should further explore;
The concept of decision theory
The realist, optimist, pessimist and opportunist views of decision
More conceptual definition of decision from the vast literature of DM
The concept of structured problem
The concept of unstructured/Ill-Structured Problem
The Concept of Normative Theory
The normative aspect of decision theory
The Concept of Descriptive Theory
The descriptive aspect of decision theory

STUDY QUESTIONS
PART A: DEFINITION
Please define the following terms:
1.
2.
3.
4.
5.

Decision Theory
Decision
Theoretical Question
Normative Theory
Descriptive Theory

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PART B: SHORT ANSWER

Answer the following questions:

1. Discuss the importance of decision theory.

2. How decision relate to our everydays life?
3. Discuss the normative approach of decision theory with examples.
4. Discuss the descriptive approach with examples.
5. Discuss the prescriptive approach with examples.
FURTHER READING
Bekker, H., Thornton, J.G., Airey, C.M., Connelly, J., Hewison, J., Robinson, M.B., Lilleyman,
J., MacIntosh, M., Maule, A.J., Michie, S., Pearman, A.D., (1999). Informed decision
making: an annotated bibliography and systematic review. Health Technology
Assessment, 3(1).
Bell, D. E, Raiffa, H & Tversky, A. (1995) Decision making: descriptive, normative and
prescriptive interactions, USA: Cambridge University Press.
Clemen, R. (1996). Making Hard Decisions: An Introduction to Decision Analysis, 2nd
edition. Belmont CA: Duxbury Press.
Doerr, K. H. & Mitchell T. R., (1998). The Consequences of Role-conferred Bias and Baserate Neglect, Decision Sciences Journal, 29(2)pp.461-478
Grant, S and Van Zandt, T. (2008). Expected Utility Theory, In P. Anand, P. Pattanaik and C.
Puppe (Eds), Handbook of Rational and Social Choice, Oxford University Press.
Hansson, S. O. (1994). Decision Theory : A Brief Introduction. Department of Philosophy
and the History of Technology, Royal Institute of Technology (KTH). Stockholm.
Keefer, D. L, Kirkwood, C. W. and Corner, J. L, (2004). Perspective on Decision Analysis
Applications, 19902001, Decision Analysis, 1(1) pp. 422
Lichenstein, S., & Slovic, P. (2006). The Construction of Preference. New York: Cambridge
University Press. Mautner, T. (Ed) (1999). The Penguin Dictionary of Philosophy.
London: Penguin.
Russo, J. E. and Carlson, K. A. 2002. Individual Decision-making. In: Weitz, , Wensley,
(Eds.), Handbook of Marketing, Sage, London, pp 371-408.
Stewart, T. R. (1997). Forecast value: Descriptive decision studies. In R. W. Katz & A. H.
Murphy (Eds.), Economic value of weather and climate forecasts (pp. 147-181). New
York: Cambridge University Press.
Thagard, P. (2001. How to make decisions: Coherence, emotion, and practical inference. In
E. Millgram (Ed.), Varieties of practical inference . Cambridge, MA: MIT Press,
pp355-371
Tupara, H. (2008). Facilitating functional decision making in midwifery: lessons from decision
theory. New Zealand College of Midwives Journal, Apr 1, 2008.

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