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Lecture 9

INST 354 Lecture Notes - Lecture 9: Behavioural Sciences, Adaptive Learning, Vacuous TruthExam

Information Studies
Course Code
INST 354

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INST354 Lecture 9: Decision Making 2
The answer to this question appears to depend in large part on the field of the person asking
it. Traditional economists, looking at the aggregate behavior of many individual decision makers
in broad economic contexts, are satisfied that the principle of maximizing expected utility does
describe what happens. As Gary Becker (1976), Nobel Prizewinning behavioral scientist, puts
it, “All human behavior can be viewed as involving participants who maximize their utility from a
stable set of preferences and accumulate an optimal amount of information and other inputs
from a variety of markets(p. 14). Becker and many of his colleagues have taken this assertion
seriously and have provided insightful analyses of nonfinancial, nonmarket behaviors including
marriage, education, and murder.
There are good reasons to start with the optimistic hypothesis that the rational, expected
utility theory and the descriptivehow people really behavetheories are the same. After all,
our decision-making habits have been “designedby millions of years of evolutionary selection
and, if that weren’t enough, have been shaped by a lifetime of adaptive learning experiences.
Surely, truly maladaptive habits will have been eliminated by the pressures of evolution and
learning and maybe, optimistically, only the rational tendencies are still intact.
In contrast, psychologists and behavioral economists studying the decision making of
individuals and organizations tend to reach the opposite conclusion from that of traditional
economists. Not only do the choices of individuals and social decision-making groups tend to
violate the principle of maximizing expected utility; they are also often patently irrational. (Recall
that irrationality as discussed here means that the chooser violates the rules of rational decision
making and chooses contradictory courses of action. We are not talking about the nature of the
goals of the decision maker; we are talking about the failure to pursue those goals coherently,
whatever those goals might be for the individual.) What is of more interest is that people are not
just irrational, but irrational in systematic ways—ways related to their automatic or bounded”
thinking habits. Chapters 4 through 10 of this book are devoted to a discussion of these
systematic irrationalities.
Those behavioral scientists who conclude that the rational model is not a good descriptive
model have also criticized the apparent descriptive successes of the rational model reported by
Becker and others. The catch is that by specifying the theory in terms of utility rather than
concrete values (like dollars), it is almost always possible to assume that some sort of
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