What is the decision?

The decision was defined as: “the ability to evaluate and choose, within a range of different options, the one that can guarantee us the best possible result”.

This capacity does not work in isolation and is not exhausted in a single act, but rather,  it requires the contribution of psychological skills of a cognitive and emotional type and unfolds over a period of time. Therefore, to indicate its complexity, it is more correct to speak of decision-making.

 

What are the foundations of the decision?

• the cognitive bases

that is to find information, pay attention, memorize, process and compare them with each other to weigh costs and benefits

• the emotional basis

emotions are an integral part of the decision-making process at different times: being happy, or sad, or angry, or disappointed, or anxious while we have to evaluate the different options influences our approach to choice. Also, we try to make the good, right decision - the decision that will not make us regret in the future, that will not make us regret the options we have discarded.

 

How many decisions do we make every day?

Some sources claim that we make an average of 35,000 decisions every day.

Do they seem too many? Maybe yes, but certainly  the number depends on various factors such as age, environment, that's the set of social, cultural and working conditions in which the individual has to live. 

Let's do a test: try to count them.

 

Are all decisions the same?

No. We can classify them using several criteria:

a. degree of security linked to the outcome of the decision

• choices in conditions of certainty:  a certain result will undoubtedly manifest itself in the presence of a given action

We are in the context of the classical theories they describe  the rational choice made by a fully rational individual. Making a rational choice in conditions of certainty means selecting an option within a menu. We know the outcome, or possible outcomes, of this choice.

• choices under risk conditions: the probabilities of the various events are known

We are in the field of probabilistic calculation: eg: lotteries, gambling, but also the medical field, the insurance field, ...

• choices under conditions of uncertainty: when the probabilities of the different outcomes are unknown

Uncertainty is connected to a subjective probability, to perception. Perception is the process through which the individual organizes and interprets his own sensory impressions to give meaning to the environment, it is the way in which the individual perceives the reality.

Most of our decisions are made  in conditions of uncertainty.

 

b. length of decision making 

Some decision-making processes are short, as they are exhausted in a single moment and the consequences are usually immediate.

Others are long, because they require more moments and more consecutive phases. We are in the filed of intertemporal choices.

 

c. processing principle: superficial or systematic processing

the social psychology and Kahneman explain to us how the decision-making process is characterized by two distinct ways of thinking: one fast and intuitive (System 1- S1), the other slower and more reflective (System 2-S2).

• surface processing - S1

we normally pay superficial attention to the enormous volume of information that we have or that are coming to us from the external environment. We draw inferences, we make judgments by relying on the most accessible and salient information, we use mental shortcuts with minimal processing effort. Heuristics are guided by S1.

• systematic processing - S2

But sometimes  we are motivated to evaluate them more in depth.

This happens when we notice that events do not match our expectations or when our motivational principles (mastery, affiliation) are threatened, then we devote time and energy to process the information more fully and thoroughly. Here then that S2 intervenes and carries out a laborious and strenuous  job, subtracting more cognitive resources.

 

What are the approaches to the study of the decision in the context of risk and uncertainty?

Two approaches:

• Normative approach

is based on normative theories, i.e. on theories that define the rational choice made by a fully rational individual who, thanks to the application of the probabilistic calculus and other logical-mathematical calculations is always able to maximize its usefulness.

The normative approach studies the axioms and criteria underlying these decisions.

Within this approach the theories developed by economists and mathematicians are placed.

The reference theory is the Expected Utility Theory of von Neumann and Morgenstern (1947)

• Descriptive approach

it is based on descriptive theories that is on theories that describe how individuals choose and make a decision in reality.

Within this approach the theories developed by psychologists, starting from the 1970s, are placed.

The fundamental presupposition of the descriptive approach to the study of the decision is constituted by the concept of "bounded rationality". This concept was developed by Simon in the 1950s to indicate the limits inherent in the cognitive abilities of the individual: limits relating to memory, attention, the way of reasoning, the limited available time. Furthermore, an individual influenced by the point of view of friends and relatives and by their way of acting, who conforms to their judgments which take on the value of a social norm.

A decision maker  who, necessarily having to come to a decision, uses efficient adaptive forms of reasoning, intuitive judgments, mental (heuristic) shortcuts that help him to extricating oneself in an uncertain world and often runs into  systematic errors of reasoning (bias). An individual who will eventually make a good enough choice;  not the best ever.

The reference theory is the Prospect Theory, formulated by the Israeli psychologists D. Kahneman (Nobel prize in economics 2002) and A. Tversky in 1979. 

With the descriptive approach, we are in the field of Behavioral Economics, discipline  which studies the effects of psychological, cognitive and emotional, cultural and social factors on the decisions of individuals and highlights how these choices are far from those hypothesized by the standard models of classical economic theory

 

Why is it important to know the dynamics of decision making?

Know, understand the basics, the dynamics of the decision-making process  is essential  in order to avoid some mental traps and come to a better decision, a decision that will make us feel good, that will not make us regret.

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Take a better decision!