This chapter reviews normative and descriptive aspects of decision making. Expected Utility Theory (EUT), the dominant normative theory of decision making, is often thought to provide a relatively poor description of how people actually make decisions. Prospect Theory has been proposed as a more descriptively valid alternative. The failure of EUT seems at least partly due to the fact that people’s preferences are often unstable and subject to various influences from the method of elicitation, decision context, and goals. In novel situations, people need to infer their preferences from various cues such as the context and their memories and emotions. Through repeated experience with particular decisions and their outcomes, these inferences can become more stable, resulting in behavior that is more consistent with EUT.
Keywords: decision making; preference; expected utility theory; prospect theory; multiattribute decisions; decisions from experience
Article. 16300 words.
Subjects: Psychology ; Cognitive Psychology
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