If we know that certain ways of making decisions are associated with real-life success, is this then how we should decide? In this paper the relationship between normative and descriptive theories of decision-making is examined. First, it is shown that the history of the decision sciences ensures that it is impossible to separate descriptive theories from normative ones. Second, recent psychological research implies new ways of arguing from the descriptive to the normative. The paper ends with an evaluation of how (...) this might affect normative theories of decision-making. (shrink)

Current psychology of human reasoning is divided into several different approaches. For instance, there is a major dispute over the question whether human beings are able to apply norms of the formal models of rationality such as rules of logic, or probability and decision theory, correctly. While researchers following the “heuristics and biases” approach argue that we deviate systematically from these norms, and so are perhaps deeply irrational, defenders of the “bounded rationality” approach think not only that the evidence for (...) this conclusion is problematic but also that we should not, at least not very often, use formal norms in reasoning. I argue that while the evidence for heuristics and biases is indeed questionable, the bounded rationality approach has its limits too. Most especially, we should not infer that formal norms play no role in a comprehensive theory of rationality. Instead, formal and bounded rules of reasoning might even be connected in a more comprehensive theory of rationality. (shrink)

There are two prominent viewpoints regarding the nature of rationality and how it should be evaluated in situations of interest: the traditional axiomatic approach and the newer ecological rationality. An obstacle to comparing and evaluating these seemingly opposite approaches is that they employ different language and formalisms, ask different questions, and are at different stages of development. I adapt a formal framework known as SCOP to address this problem by providing a comprehensive common framework in which both approaches may be (...) defined and compared. The main result is that the axiomatic and ecological approaches are in far greater agreement on fundamental issues than has been appreciated; this is supported by a pair of theorems to the effect that they will make accordant rationality judgements when forced to evaluate the same situation. I conclude that ecological rationality has some subtle advantages, but that we should move past the issues currently dominating the discussion of rationality. (shrink)

This paper focuses on tacit versus explicit uses of plural performance metrics as a primary methodological characteristic. This characteristic usefully distinguishes two schools of normative analysis and their approaches to normative interpretations of bounded rationality. Both schools of thought make normative claims about bounded rationality by comparing the performance of decision procedures using more than one performance metric. The consistency school makes tacit reference to performance metrics outside its primary axiomatic framework, but lexicographically promotes internal axiomatic consistency as the primary, (...) and in most cases sufficient, normative outcome with which to undertake welfare comparisons. The consistency school's axiomatization program, in both neoclassical and behavioral forms, pre-commits to welfare interpretations that follow a hierarchy of rationalities based on the stringency of restrictions that different axiomatizations impose on choice data. In contrast, the ecological rational.. (shrink)

It is widely held that Bayesian decision theory is the final word on how a rational person should make decisions. However, Leonard Savage--the inventor of Bayesian decision theory--argued that it would be ridiculous to use his theory outside the kind of small world in which it is always possible to "look before you leap." If taken seriously, this view makes Bayesian decision theory inappropriate for the large worlds of scientific discovery and macroeconomic enterprise. When is it correct to use Bayesian (...) decision theory--and when does it need to be modified? Using a minimum of mathematics, Rational Decisions clearly explains the foundations of Bayesian decision theory and shows why Savage restricted the theory's application to small worlds. The book is a wide-ranging exploration of standard theories of choice and belief under risk and uncertainty. Ken Binmore discusses the various philosophical attitudes related to the nature of probability and offers resolutions to paradoxes believed to hinder further progress. In arguing that the Bayesian approach to knowledge is inadequate in a large world, Binmore proposes an extension to Bayesian decision theory--allowing the idea of a mixed strategy in game theory to be expanded to a larger set of what Binmore refers to as "muddled" strategies. Written by one of the world's leading game theorists, Rational Decisions is the touchstone for anyone needing a concise, accessible, and expert view on Bayesian decision making. (shrink)

From the O.J. Simpson verdict to peace-making in the Balkans, the critical role of human judgement--complete with its failures, flaws, and successes--has never been more hotly debated and analyzed than it is today. This landmark work examines the dynamics of judgement and its impact on events that take place in human society, which require the direction and control of social policy. Research on social policy typically focuses on content. This book concentrates instead on the decision-making process itself. Drawing on 50 (...) years of empirical research in decision theory, Hammond examines the possibilities for wisdom and cognitive competence in the formation of social policies, and applies these lessons to specific examples, such as the space shuttle Challenger disaster and the health care debate. Uncertainly, he tells us, can seldom be fully eliminated; thus error is inevitable, and injustice for some unavoidable. But the capacity for make wise judgments increases to the extent that we understand the potential pitfalls and their origin. The judgment process for example involves an ongoing rivalry between intuition and analysis, accuracy and rationality. The source of this tension requires an examination of the evolutionary roots of human judgement and how these fundamental features may be changing as our civilization increasingly becomes an information and knowledge-based society. With numerous examples from law, medicine, engineering, and economics, the author dramatizes the importance of judgment and its role in the formation of social policies which affect us all, and issues the first comprehensive examination of its underlying dynamics. (shrink)

It is widely held that Bayesian decision theory is the final word on how a rational person should make decisions. However, Leonard Savage--the inventor of Bayesian decision theory--argued that it would be ridiculous to use his theory outside the kind of small world in which it is always possible to "look before you leap." If taken seriously, this view makes Bayesian decision theory inappropriate for the large worlds of scientific discovery and macroeconomic enterprise. When is it correct to use Bayesian (...) decision theory--and when does it need to be modified? Using a minimum of mathematics, Rational Decisions clearly explains the foundations of Bayesian decision theory and shows why Savage restricted the theory's application to small worlds. The book is a wide-ranging exploration of standard theories of choice and belief under risk and uncertainty. Ken Binmore discusses the various philosophical attitudes related to the nature of probability and offers resolutions to paradoxes believed to hinder further progress. In arguing that the Bayesian approach to knowledge is inadequate in a large world, Binmore proposes an extension to Bayesian decision theory--allowing the idea of a mixed strategy in game theory to be expanded to a larger set of what Binmore refers to as "muddled" strategies. Written by one of the world's leading game theorists, Rational Decisions is the touchstone for anyone needing a concise, accessible, and expert view on Bayesian decision making. (shrink)

Ken Hammond has been an influential figure in the study of decision making; with this book, he aims to show why mistaken judgments happen, how to make better decisions, and how to understand the thought modes operating in the political process.

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in The Oxford Handbook of Corporate Social Responsibility, ed. Paul Anand, Prasanta Pattanaik, and Clemens Puppe, forthcoming 2007.