Models/Theories of decision making

Classical Decision Theory

Earliest model of decision making

Ratings and weights are OBJECTIVE

Reflects strengths of an economic perspective

Followed by the model of economic man and woman, and subjective expected utility theory

Model of economic man and woman assumptions

Decision makers are fully informed of all possible decisions and outcomes

Infinitely sensitive to subtle distinctions

Fully rational in regard to their choice of options

Assumption of infinite sensitivity

Evaluation of difference between the 2 outcomes

Assumption of rationality

People’s ability to maximize something of value

Subjective Expected Utility Theory

Ratings and Weights are SUBJECTIVE

Allows for a greater allowance of psychological makeup if decision makers

States that human action has 2 primary goals:

• Seek pleasure

• Avoid pain

Subjective Utility

Calculation based on judged weightings

Subjective Probability

Calculation based on estimates of likelihood