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Making Better Decisions
Decision Theory in Practice
“The book is a modern take on decision making. The innovative scope will inspire instructors by encouraging them to include a combination rather than a subset of decision-theoretic, statistical, behavioral, and philosophical concepts in their courses." “Written by a leading authority and teacher in the area of decision theory, this is a terrific combined textbook–handbook for students and practitioners of management. Indeed, it is a terrific book for everyone interested in ‘making better decisions.’" “This book is extremely effective for anyone who wants to acquire quick, basic understanding of old and new concepts of decision theory, with a minimum level of technical details.” "Gilboa is one of the leaders of the revolution that has swept through the field of decision theory in the past few decades, in which mathematical methods of statistics and economics have been integrated with findings from modern psychology. In this book he provides an accessible and practical survey of the state of the art, which encourages readers to reflect on – and try to sharpen – their intuitions and habits of decision making. It would make an excellent primary or supplementary text for an undergraduate- or masters-level course in decision theory. It should also be useful and enjoyable reading for anyone who wants to learn about concepts that can be used and mistakes that should be avoided when taking calculated risks." "Itzhak Gilboa is one of the deepest thinkers in modern decision theory. In this fascinating and wonderfully written book he uses the fundamental models of decision making as a basis for reflection upon several systematic patterns revealed by our everyday choices. He strikes a nice balance between analytical models, psychological insights, and pragmatism with the end goals of improving our decision making and better understanding the decisions of others."
—Marzena J. Rostek, University of Wisconsin
—Adam Brandenburger, New York University
—Ehud Kalai, Northwestern University
—Robert Nau, Duke University
—Tomasz Strzalecki, Harvard University
Itzhak Gilboa (Author)
9781444336511, Wiley
Hardback, published 1 October 2010
232 pages
23.6 x 16.3 x 2.4 cm, 0.49 kg
Making Better Decisions introduces readers to some of the principal aspects of decision theory, and examines how these might lead us to make better decisions.
Preface viii Acknowledgments x 1 Background 1 Suggested Reading 5 2 Judgment and Choice Biases 6 Introduction 6 Problems – Group A 9 Problems – Group B 12 Framing Effects 15 Brainstorming and Formal Models 20 Endowment Effect 22 Sunk Costs 27 Decision Trees 30 Representativeness Heuristic 34 Availability Heuristic 39 Anchoring 44 Mental Accounting 46 Dynamic Inconsistency 51 Exercises 53 3 Consuming Statistical Data 57 Introduction 57 Problems 58 Conditional Probabilities 63 Gambler’s Fallacy 72 Biased Samples 77 Regression to the Mean 80 Correlation and Causation 81 Statistical Significance 84 Bayesian and Classical Statistics 85 Exercises 93 4 Decisions under Risk 98 Introduction 98 Problems 99 The Independence Axiom 102 Von Neumann and Morgenstern's Result 110 Measurement of Utility 113 Risk Aversion 116 Prospect Theory 123 Exercises 130 5 Decisions under Uncertainty 133 Introduction 133 Problems 134 Subjective Probability 141 Learning From the Fact We Know 151 Causality 163 The Sure Thing Principle 166 Alternative Models 171 Objective Probabilities 172 Exercises 174 6 Well-Being and Happiness 178 Introduction 178 Problems – Group A 179 Problems – Group B 180 Measurement Issues 184 What's Happiness? 186 Exercises 188 Appendix A: Optimal Choice 191 Appendix B: Probability and Statistics 195 Solutions 204 Index 210
Subject Areas: Economics [KC]
