MHR 405 Lecture Notes - Lecture 7: Subjective Expected Utility, Bounded Rationality, Sunk Costs
24 Jul 2018
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Decisions: the choice made from two or more alternatives. The view in decision making that people should, and typically do, use logic and all available information to choose the alternative with the highest value. Describes how individuals should behave in order to maximize some outcome. 1) subjective expected utility- expectancy of satisfaction resulting from choosing a specific alternative determines choice with highest value (maximization) 2) decision making process systematic stages of decision making. Know options the decision maker is able to identify all relevant options in an unbiased manner. Clear preferences rationally assumes that the criteria and alternatives can be ranked and weighted. Specific decisions criteria are constant and the weights assigned to them are stable over time. Full information is available because there are no time or cost constraints. The choice alternative will yield the highest perceived value. Limitations on one"s ability to interpret, process, and act on information.
