11 Expected Utility & Decision-Making

Larrick (2012) Broaden the Decision Frame to Make Effective Decisions; Li et al. (2018) The Evolutionary Mismatch Hypothesis

Expected value (EV)

Sum of each outcome's value × its probability

EV formula

EV = Σ P(Xᵢ) × Xᵢ

Decision-making under risk

Probabilities of possible outcomes are known

Decision-making under ambiguity

Probabilities of possible outcomes are unknown but can be estimated

Expected utility (EU)

Sum of each outcome's utility × its probability

EU calculation

Assign utilities, estimate probabilities, multiply them, then sum across outcomes

Instrumental rationality

Making the best decisions to achieve your goals, given your preferences

Intrinsic values

Things valued for their own sake

Instrumental values

Things valued because they help achieve other goals

Value traps

Focusing on instrumental goals at the expense of intrinsic values

Five Whys

Repeatedly asking why to uncover deeper goals and intrinsic values

Goal decomposition

Breaking vague goals into specific, actionable subgoals

SMART goals

Specific, Measurable, Attainable, Relevant, Time-bound

Fundamental motives

Seven evolved motives: self-protection, disease avoidance, affiliation, status, mate acquisition, mate retention, kin care

Evolutionary mismatch

Evolved mechanisms produce maladaptive outcomes in modern environments

Adaptive lag

Environment changes faster than psychological mechanisms can adapt

Forced mismatch

A new environment is imposed on an organism

Hijacked mismatch

A novel stimulus excessively activates an evolved mechanism

Narrow decision frame

Considering too few objectives, alternatives, or future outcomes

Three forms of narrow framing

Narrow future, narrow objectives, narrow alternatives

Broad decision frame

Considering multiple objectives, alternatives, and possible future states

Multi-attribute decision-making

Comparing alternatives across multiple objectives and attributes

Scenario analysis

Considering possible futures, their probabilities, and their consequences

Consider the alternative

Ask why your preferred answer might be wrong

Check all four cells

Examine both presence and absence of the predictor and outcome

Wisdom of crowds

Combining independent perspectives can improve decisions

Expert intuition

Fast decisions based on domain-specific experience and clear feedback

Analysis paralysis

Decision-making becomes difficult due to excessive information or alternatives