Tuesday, December 31, 2013

Prescriptive vs. Behavior Decisions for a smarter 2014!

New Year's resolutions are all about making smarter and more rational decisions that can maximize your welfare. Traditional economists like to say that people always choose according to their own best interest. They have a model called prescriptive decision making, which includes the following sequential steps:
  1. Identify your options.
  2. Determine the probability of each outcome.
  3. Decide the utility--the perceived benefit--associated with each option
  4. Choose the option with the highest expected utility.
If you're like most people, however, then you don't always make rational choices. Our frames of reference are influenced by intuition, which isn't rational. Our rationales may be based in tacit knowledge, which we understand but can't communicate to others. Sometimes, we still choose irrational alternatives even with clear visualization of better choices. For example, do we really weigh romantic decisions according to a prescriptive behavior model? 

Behavioral economists have challenged the prescriptive decision-making model, arguing that rationality is bounded by frame of reference and cognitive limitations. In other words, when we view all options as painful, then we perceive the situation as a no-win scenario even when one option may have more utility than the others. We can't generate every possible alternative nor can we completely evaluate the utility of each possible alternative. 

Fortunately, by crowdsourcing decision making, we can bring more perspectives to bear on our choices and thus improve decision quality. "Satisficing," a term developed by Nobel laureate Herbert A. Smith, enables faster and smarter choices because we choose "good enough" over "perfect." By crowdsourcing decision making and engaging the collective intelligence in outcome visualization, we make stronger decisions about which outcomes are "good enough" for everyone. We do this by substituting the crowd's collected tacit knowledge for our individual subjective evaluation of events.

Tools like RankTab, which collect crowd wisdom and translate it into visual results, can help you to make faster and smarter decisions in the coming year. The collective intelligence often sees aspects of choices that individual subjective evaluation cannot. Of course, crowdsourcing can't guarantee that all of your choices in 2014 will be rational. Maybe in some cases, as in the case of romance, rationality is overrated.

No comments:

Post a Comment