The Theory Of Decision Making - 1944 Words

In our everyday life we are in front of multiple decisions to take, from the easy ones as what coffee to get to the more complicated ones, as what jobs to apply for. The word ‘Decision’ originated from Latin word ‘de ciso’ which indicates ‘cutting off’. This implicates that the act of deciding is to come to a conclusion among different options. How many options are available though? Throughout the years, many behavioural scientists proposed different theories in order to explain how we face decisions and act before them. Do we calculate them all accurately before ‘cutting off’? One of the most recognized theories for decision making is the von Neumann- Morgenstern utility theorem (1944), which states that the decision-maker in front of all the different choices will behave as if he is maximizing the expected value of some function defined over the potential outcomes. Based on the expected utility, the von Neumann-Morgenstern model i s constructed upon the fundamental assumption that humans behave in a perfect rational way being able to calculate all the options and choosing among them the one that allows to maximize the expected utility. However, as the major critics to this model sustain, individuals are not fully rational when taking decisions. Their cognitive process is limited to the complexity of the environment in which they are taking decisions. The homo economicus is portrayed as capable of solving complex problems of optimization of resources allocation as well asShow MoreRelatedDecision Making And The Prospect Theory1490 Words   |  6 PagesIntroduction Decision making is the act of choosing the best solution to a problem depending on its value and the preferences of the decision maker. 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