Making Better Decisions: Decision Theory in Practice
October 2010, ©2010, Wiley-Blackwell
- Introduces readers to key aspects of decision theory and examines how they might help us make better decisions
- Presentation of material encourages readers to imagine a situation and make a decision or a judgment
- Offers a broad coverage of the subject including major insights from several sub-disciplines: microeconomic theory, decision theory, game theory, social choice, statistics, psychology, and philosophy
- Explains these insights informally in a language that has minimal mathematical notation or jargon, even when describing and interpreting mathematical theorems
- Critically assesses the theory presented within the text, as well as some of its critiques
- Includes a web resource for teachers and students
1 Background 1
Suggested Reading 5
2 Judgment and Choice Biases 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
Mental Accounting 46
Dynamic Inconsistency 51
3 Consuming Statistical Data 57
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
4 Decisions under Risk 98
The Independence Axiom 102
Von Neumann and Morgenstern's Result 110
Measurement of Utility 113
Risk Aversion 116
Prospect Theory 123
5 Decisions under Uncertainty 133
Subjective Probability 141
Learning From the Fact We Know 151
The Sure Thing Principle 166
Alternative Models 171
Objective Probabilities 172
6 Well-Being and Happiness 178
Problems – Group A 179
Problems – Group B 180
Measurement Issues 184
What's Happiness? 186
Appendix A: Optimal Choice 191
Appendix B: Probability and Statistics 195
—Marzena J. Rostek, University of Wisconsin
“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.’"
—Adam Brandenburger, New York University
“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.”
—Ehud Kalai, Northwestern University
"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."
—Robert Nau, Duke University
"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."
—Tomasz Strzalecki, Harvard University
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