Making Better Decisions
Decision Theory in Practice
Published on 8. July 2010
232 pages
978-1-4443-2814-1 (ISBN)
Description
Making Better Decisions introduces readers to some of theprincipal aspects of decision theory, and examines how these mightlead us to make better decisions.
* Introduces readers to key aspects of decision theory andexamines how they might help us make better decisions
* Presentation of material encourages readers to imagine asituation and make a decision or a judgment
* Offers a broad coverage of the subject including major insightsfrom several sub-disciplines: microeconomic theory, decisiontheory, game theory, social choice, statistics, psychology, andphilosophy
* Explains these insights informally in a language that hasminimal mathematical notation or jargon, even when describing andinterpreting mathematical theorems
* Critically assesses the theory presented within the text, aswell as some of its critiques
* Includes a web resource for teachers and students
Reviews / Votes
"The book is a modern take on decision making. The innovativescope will inspire instructors by encouraging them to include acombination rather than a subset of decision-theoretic,statistical, behavioral, and philosophical concepts in theircourses." --Marzena J. Rostek, University of Wisconsin "Written by a leading authority and teacher in the area ofdecision theory, this is a terrific combinedtextbook-handbook for students and practitioners ofmanagement. Indeed, it is a terrific book for everyone interestedin 'making better decisions.'" --Adam Brandenburger, New York University "This book is extremely effective for anyone who wants toacquire quick, basic understanding of old and new concepts ofdecision theory, with a minimum level of technicaldetails." --Ehud Kalai, Northwestern University "Gilboa is one of the leaders of the revolution that has sweptthrough the field of decision theory in the past few decades, inwhich mathematical methods of statistics and economics have beenintegrated with findings from modern psychology. In this book heprovides an accessible and practical survey of the state of theart, which encourages readers to reflect on - and try tosharpen - their intuitions and habits of decisionmaking. It would make an excellent primary or supplementarytext for an undergraduate- or masters-level course in decisiontheory. It should also be useful and enjoyable reading for anyonewho wants to learn about concepts that can be used and mistakesthat should be avoided when taking calculated risks." --Robert Nau, Duke University "Itzhak Gilboa is one of the deepest thinkers in modern decisiontheory. In this fascinating and wonderfully written book he usesthe fundamental models of decision making as a basis for reflectionupon several systematic patterns revealed by our everyday choices.He strikes a nice balance between analytical models, psychologicalinsights, and pragmatism with the end goals of improving ourdecision making and better understanding the decisions ofothers." --Tomasz Strzalecki, Harvard UniversityMore details
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10/2010
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Person
Itzhak Gilboa is a chaired Professor in the Department of Economics and Decision Sciences at HEC, Paris and in the Eitan Berglas School of Economics at Tel Aviv University, and Fellow of the Cowles Foundation at Yale University. He previously held the position of chaired Professor at the Kellogg School of Management at Northwestern University. Gilboa's research focuses on decision under uncertainty. He has worked with David Schmeidler on axiomatic foundation of non-Bayesian decision theory and contributed to research in complexity in game theory, evolutionary game theory, and social choice. He is co-author of A Theory of Case-Based Decisions (with David Schmeidler, 2001), and author of Theory of Decision under Uncertainty (2009) and of Rational Choice (2010).
Content
Preface viii
Acknowledgments x
1 Background 1
Suggested Reading 5
2 Judgment and Choice Biases 6
Introduction 6
Problems - Group A 9
Problems - Group B 12
Framing Effects 15
Brainstorming and Formal Models 20
Endowment Effect 22
Sunk Costs 27
Decision Trees 30
Representativeness Heuristic 34
Availability Heuristic 39
Anchoring 44
Mental Accounting 46
Dynamic Inconsistency 51
Exercises 53
3 Consuming Statistical Data 57
Introduction 57
Problems 58
Conditional Probabilities 63
Gambler's Fallacy 72
Biased Samples 77
Regression to the Mean 80
Correlation and Causation 81
Statistical Significance 84
Bayesian and Classical Statistics 85
Exercises 93
4 Decisions under Risk 98
Introduction 98
Problems 99
The Independence Axiom 102
Von Neumann and Morgenstern's Result 110
Measurement of Utility 113
Risk Aversion 116
Prospect Theory 123
Exercises 130
5 Decisions under Uncertainty 133
Introduction 133
Problems 134
Subjective Probability 141
Learning From the Fact We Know 151
Causality 163
The Sure Thing Principle 166
Alternative Models 171
Objective Probabilities 172
Exercises 174
6 Well-Being and Happiness 178
Introduction 178
Problems - Group A 179
Problems - Group B 180
Measurement Issues 184
What's Happiness? 186
Exercises 188
Appendix A: Optimal Choice 191
Appendix B: Probability and Statistics 195
Solutions 204
Index 210
