Decision behavior in urban development: A methodological approach and substantive considerations

Ada Psychologica 45 (1980) 95-117 0 North-Holland Publishing Company

DECISION BEHAVIOR IN URBAN DEVELOPMENT: A METHODOLOGICAL APPROACH AND SUBSTANTIVE CONSIDERATIONS * Robin M. HOGARTH Graduate School of Business, University of Chicago

Claude MICHAUD INSEAD.

Fontainebleau

Jean-Louis

and Centre de Recherche

d’Urbanisme,

Paris

MERY

Centre de Recherche

d ‘Urbanisme, Paris

Planning failures in urban development have emphasized the importance of anticipations in decision making. This paper explores ways of making such anticipations explicit and, by describing two field studies, also comments on issues, explanatory concepts and variables that have been relatively neglected in both theoretical and experimental decision research. These include: delays in decision making activity; imitation behavior; procedural uncertainty; the conditions under which abstract and/or concrete information will be acted upon; and the dynamic, interactive nature of decision making. The paper illustrates and discusses the use of signed digraphs to represent decision makers’ anticipations as cognitive maps elicited on the basis of semi-directive interviews. However, it is stressed that for this methodology to realize its full potential (to describe decision processes and to aid policymakers), there is a need for basic theoretical work concerning both the manner in which people encode causal assertions in memory and how such representations can be accessed.

1. Introduction Anticipations are such, are accorded In economics, for his classic treatise sequently attested

a crucial input to decision making activity and, as great importance in both economics and psychology. example, Keynes stressed the role of anticipations in (Keynes 1936). Furthermore, empirical work has subto the importance of anticipations in accounting for

* This research was funded by the Centre de Recherche d’urbanisme, Paris, France. It is based on a book in preparation tentatively titled Urbanisme et amdnagement: dkision et anticipation. Requests for reprints may be sent to: R.M. Hogarth, Graduate School of Business, Center for Decision Research, University of Chicago, Chicago,IL 60637, U.S.A.

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variations in economic activity (see e.g., Katona 1979). In psychology, anticipations play a crucial role in Kelly’s (1955) construct theory, social judgment theory (Brehmer 1976), attitude research (Triandis 197 I), social learning theory (Rotter 1966), behavioral decision theory (Slavic et al. 1977) and several other formulations [ 11. Despite fundamental differences in assumptions, both economics and psychology have recently converged on the notion that people base anticipations on their implicit causal models of reality. Thus, people do not necessarily extrapolate trends when making predictions; instead, they manipulate information in accordance with their models. In economics, this viewpoint is represented by proponents of the rational expectations hypothesis which postulates that the causal model is the “relevant economic theory” (Muth 1961: 316). In psychology, the concept of causal schema (or schemata) has become prominent through the writings of Bruner (1973), the influence of Kelly’s (1955) construct theory, Minsky’s (1975) frames, Abelson’s (1976) scripts and several aspects of attribution theory (e.g., Ross 1977). The idea, however, is not new. Bartlett (1932) introduced the notion of a causal schema (borrowed from neurology) to indicate the manner in which an individual represents in the mind the network of interconnections between events, objects, concepts or persons in any particular environment; and Lewin, Tolman and others also referred to the similar notion of ‘cognitive maps’ in the 1930s and 1940s. The objective of this paper is to explore the basis of anticipations in real world decision making using the concept of cognitive map just discussed [ 21. It was stimulated by the following concern: interventions by local authorities in France to implement plans for urban development have frequently been unsuccessful. Either desired effects have not occurred, have occurred with considerable delay, or in some cases have produced effects contrary to those intended. Furthermore, these results have sometimes been surprising in that local government intentions would seem to be in the interests of the community. Since planning is of central importance in France, identifying reasons for failures is an issue of national concern. In this work, we argue that causes of failures

[ 1 ] We accord the same meaning to the words ‘anticipations’ and ‘expectations’. [2] The term ‘cognitive map’ in this context should not be confused with the meaning used in environmental psychology where such maps refer to the mental representation people have of the physical environment.

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in planning can be illuminated by understanding the anticipations made by both ‘planners’ and the ‘planned’. First, in respect of the same situation, planners and planned could have different cognitive maps with the result that the meaning accorded to the same data could be quite different and even result in incompatible actions by both parties (cf. Stewart and Gelberd 1976). This point is particularly important in France where there is an inherent contradiction in government planning, namely: although the state plans many activities, people are permitted to exercise free choice. Thus, to be implemented, plans must become directives which take account of the preferences of individuals (for a penetrating discussion of this topic, see Hayek 1944). Second, since real world processes are complex relative to human conceptual skills (Simon 1969), we expected to find deficiencies in the cognitive maps of the planners. Specifically, deficiencies concerning factors that planners can not control and their appreciation of the basis of anticipations made by others would have important implications. Although difficult, and subject to lack of rigorous controls, the need to investigate anticipations in real world settings should not be underestimated. On the one hand, the armchair speculations underlying economists’ behavioral assumptions are usually only tested against aggregate data. Observation of real decision making processes could lead to different and more fruitful economic theories (Cyert et al. 1979; Simon 1979). Second, whereas psychologists are not shy at inferring mental processes, this is normally done in controlled laboratory conditions. However, there have been several warnings of late that the findings of laboratory studies may not generalize to more realistic settings (Ebbesen and KoneCni in press; Hammond 1978). Consequently, for psychologists the study of real world decision making should be more than an adjunct to laboratory research. Finally, since the research also had practical considerations, we wished to develop a methodological approach for examining real problems. The paper is organized as follows: the second section describes the empirical observations made at two field sites as well as the methodology deemed most appropriate. In the third section, we discuss, on the basis of our observations, several ways in which descriptive studies of decision making are either deficient or need re-orientation. Several hypotheses for future research are presented. Finally, methodological issues arising from this and similar work are discussed.

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2. Empirical studies The relocation decision at A. The first (and essentially pilot) study was done in the southern French town of A. The issue was the following: the downtown area had become severely congested by both a growing tourist industry and the activities of local traders and small businessmen. Local government therefore created two new industrial zones on the outskirts of the town and encouraged businesses to relocate in more spacious working conditions. However, there was considerable reluctance to move. From our first series of semi-directive interviews, a number of points emerged: (1) The small businessmen were faced with two related decisions: (i) whether or not to move from the congested downtown area; and (ii) if yes, where to relocate. In addition to the two new industrial zones there was also a third zone about 15 kilometers outside the town. This third zone, however, was not given serious consideration since its reputation was ‘incompatible’ with the nature of the businessmen’s activities. (2) The major concern of the businessmen relative to the relocation decision was the survival of their firms. They perceived the decision as having potential repercussions on their clientele as well as on suppliers and staff (who, for example, would have to travel to and from a new, and often less convenient, work location). They feared the ‘regret’ they would incur if relocation were the wrong decision. (3) Most of the small businessmen had never faced a relocation decision. They had not developed procedures for dealing with this kind of decision and this itself seemed to induce great uncertainty. (4) We found, therefore, that the subject of our concern was not so much to explain decision behavior, as delays in making decisions. (5) At the time of the field trip, one of the two industrial zones was completely occupied, whereas the second was almost empty. How did the businessmen overcome their reticence to move and why did they go to one as opposed to the other industrial zone? Two related and interesting phenomena were observed (although they do not explain everything). First, we were struck in the interviews by the importance of information in the form of direct concrete observation. As one businessman put it: “I won’t believe they are really going to make a canal

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until either I see bulldozers on the site by myself or on television”. Second, the actions of other economic agents provided an important source of concrete information. Indeed, the process leading to the occupation of the first zone appeared to be as follows: a medium-sized and well-established local company bought a large allotment on the zone and moved there. Once this happened, a few, and then many small local businessmen followed. The zone that had been virtually empty for several years was occupied within a few months. It is important to state that the zone quickly became successful in that firms moving there prospered (they no longer suffered from the congestion of the town and even started to trade more amongst themselves. The zone also attracted sole-traders offering specialized services, e.g., plumbing). The zone quickly acquired a healthy commercial reputation. What appeared to have happened was a kind of imitation behavior. The first (and locally prestigious) firm to relocate on the zone set in motion a process which was followed by other smaller firms. The interviews offered several clues concerning this process. First, there is a general belief that the actions of others have some rationale. People do not attribute the important actions of others to chance [ 3 I. Second, people recognize that what may be rational for one person is not necessarily rational for another (themselves, for example). For people to assume that what is rational for others is also rational for themselves presupposes a perceived compatibility between the parties in terms, for example, of type of business, life-style, shared values, etc. At A many comments concerning the relocation decision were related to similarity of type of business (e.g., heavy vs. light industry, wholesalers or services), size of operations, origins (local vs. foreign to the region), etc. The small businessman of A feels secure when located next to a solid, medium-sized local company in a similar industry. A large ‘foreign’ company is too powerful. It could, for example, upset the local labor market. The third industrial zone, for instance, was characterized by newcomers of this kind as well as potential political conflicts. Thus we observed imitation of compatible others, behavior for which a theoretical psychological interpretation can be found in various balance theo[3] We asked a taxi-driver at A why people had mainly moved to one as opposed to the other industxial zone. He shrugged his shoulders and replied: “I don’t know; but there must be a reason”. A.R. Lock writes that the imitation behavior observed at A “is familiar both from models of diffusion of new products and from patterns of retail business acquiring spaces in new shopping centers. It is akin to reference group patterns”. See also Kunreuther (1976).

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rim (see e.g., Brown 1962). Moreover, imitating the actions of a compatible economic agent (deemed to have either greater access to information and/or superior rationality), must frequently be a good heuristic. (6) The small businessmen generally had poor cognitive maps for dealing with the relocation decision. On the other hand, we also interviewed a professional manager in a medium-sized company operating at the national level. This person had a well-developed analytic framework for facing the relocation problem which was capable of handling abstract as well as concrete data. In fact, his final decision was to locate on the second (and virtually unoccupied) industrial zone. Indeed, he even stated (and we confirmed this one year later), that his company’s decision to locate on the second zone would encourage smaller companies to do the same. The results of this study were encouraging. First, it did seem possible to obtain the data to construct cognitive maps on the basis of face-toface interviews. However, it was also clear that interviews were the only means of obtaining data from these kinds of decision makers (see section 3). Second, at a substantive level, our initial investigations had been rich yielding: (a) the importance of delays in decision making processes; (b) the salience to decision makers of concrete as opposed to abstract information; (c) imitation behavior of compatible others which stressed the point that not only are there different kinds of decision makers, but that actions provide information and can influence others; and (d) awareness of important differences in cognitive maps, viz., the small businessmen on the one hand, and the professional manager on the other. Urban planning at B. Several visits were made to the site of our second study, the coastal town of B. The map of B in fig. 1 facilitates understanding the situation. Due to its unique geographical location, the waterfront provides one of the main attractions of the town. Furthermore, the center of the town (just in front of the waterfront) is accentuated by the position of (a) the railway line, which cuts across the town separating the center (which lies south of the railway line) from the rest of the town, and (b) a large boulevard that descends directly from the north of the town ending at the town center itself.

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N W Neighboring

E

+s

/I%__.

__---

Fig. 1. Map of B.

The problem that attracted our attention was the following: the 1960s and early 1970s had seen a development boom in and around the town due both to an influx of immigrants and an increasing number of people wishing to establish holiday and/or retirement homes in the area. The development resulted in congestion in the downtown area (also compounded by tourists in the summer). To counteract the congestion, the mayor had introduced a series of measures to restrict new building. However, this did not resolve the problems of congestion; furthermore, the property market had collapsed in the sense that although prices remained high there were many unsold apartments and local building firms (which directly and indirectly account for much employment in the area) faced considerable economic difficulties 141. In analyzing this situation, our methodology consisted of (1) identifying the different ‘actors’, (2) representing their causal reasoning patterns in the form of cognitive maps as exemplified in the work of Axelrod (1976), and (3) attempting to reconstruct the chain of events by considering the conjuction of the cognitive maps of the different (41 Although accurate statistical data are hard to find to verify these statements, lected by a local trade organization are consistent with tlie facts as stated here.

figures col-

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actors. The cognitive maps were constructed after several series of interviews varying in form from quite loose discussions (at the outset) to a semi-directive pattern based on a detailed guide which evolved from our earlier experiences. (See also section 3.) The following classes of actors were identified at B: (1) the mayor; (2) building developers who could be classified as (a) large and international, (b) medium and local/regional, and (c) small and local; (3) estate agents; and (4) property/land owners. We did not interview people about to or having acquired property in the town since such purchasers could be easily characterized by both developers and estate agents who knew their markets well (particularly the latter). We now discuss the cognitive maps of the above actors and present our representation of the maps of (a) the mayor, (b) property/land owners, and (c) medium-sized developers. For reasons of space we shall not present the cognitive maps of the other actors, although we do describe relevant aspects of their decision making behavior. Consider fig. 2 which shows the cognitive map of the mayor [ 5 I. We represent a cognitive map as a ‘signed digraph’ in the manner of Axelrod (1976) where concept variables (e.g., intended actions, perceptions of others, problems and objectives) are indicated within and by circles or blocks, The perceived causal connections between concept variables are drawn by arrows linking ‘cause’ to ‘effect’. The sign of the arrow can be positive (+), negative (--), or nonexistent (0). A positive sign indicates that increases (decreases) in an effect are due to increases (decreases) in a cause; a negative sign implies that increases are associated with decreases or vice versa ; and ‘0’ indicates that there is no common variation. Fig. 2, for example, is to be read from left to right, where on the right are indicated the mayor’s objectives, and on the left, the actions/ means he undertook relative to the objectives. The links and the concept variables between the actions/means and objectives explain the mayor’s reasoning. For instance (and reading from right to left), the mayor’s objectives on the right are served (+) by achieving his subobjectives. However, these subobjectives are threatened (-> by certain problems, e.g., congestion in the center of town, overuse of public facilities, [S] It should be noted that at the time of writing we had not been able to interview the mayor himself. The mayor’s map was constructed from interviews with third parties. However, we hope to interview the mayor in the future and so to confirm/disconfirm different aspects of our representation of his cognitive map.

Fig. 2. Cognitive map of mayor of B (see explanation in text).

mid- income

apartments

.Satisfy and keep rich clientele

m.

5

3

P

3 E

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and the patchy disappearance of the green zones northeast and northwest of the town. (The latter refers to the construction of many small villas on the hilly green areas at the edges of the town.) The problems are aggravated (+) by the activities of developers constructing buildings with many small, medium-income apartments and small villas on the hills. Thus the mayor sees use of bureaucracy and a building freeze policy as a way of reducing (-) the activities of the developers and thus counteracting the problems which diminish his ability to achieve his objectives. If the causal path between two concept variables has either an even number or no minus signs, then increases in the first variable imply increases in the second (alternatively decreases in the first imply decreases in the second). An odd number of minus signs implies changes in the opposite direction (i.e., increase and decrease, or decrease and increase). For example, in the path from the mayor’s action ‘use the bureaucracy to force a freeze on building activity’ to his objectives, there are two minus signs. Thus the mayor sees this action as serving his objectives. Because of its unique geographical site and reputation, the mayor essentially saw B as a town for international festivals and an accompanying luxury tourist and resort trade coexisting with its traditional working population involved in commerce, services and small local industries suited both to the traditional population of the town and the support services necessary for its vocation. He did not believe that the town should become a vacation and retirement spot for middle-income people (a point entirely missed by some developers - see below). To counteract the problems indicated in his cognitive map (fig. 2), he attempted to enforce an urban policy consisting of: (a) freezing building activity he did not like through bureaucratic procedures; (b) introducing legislation reducing the number of floors that could be built on land (i.e., reduction of the plot ratio); (c) special permissions granted to build certain types of hotels (i.e., for a luxury tourist trade); (d) dividing the physical space of the town into two parts: first, the center for the luxury trade and essential ancillary services; and second, for the working classes, land east of the town where he built an industrial zone, subsidized low-income housing, and provided beach facilities (to avoid people’in the east using the main town beaches ‘reserved’ for the rich); and (3) he attempted to persuade neighboring townships to reduce construction so that more people from those towns would not also use the facilities of B. (This action was not successful, hence the dotted line in fig. 2.)

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We detected three important failures in the mayor’s reasoning. First, the mayor did not control the area which affected his decision problem. As can be seen from fig. 1, anyone could enter the town and use its facilities; indeed’ the geography of the site encouraged this. Thus the boom in building activities in neighboring townships also effected congestion at B. A related #point was the international aspect of B. Local conditions could be and were affected by the actions of foreign property investors whom the mayor could not control. Second, the mayor attempted to use the same blocking tactics in the center of town as in the hilly suburban districts. However, he failed to note a crucial difference between the two areas. The center of town, and particularly the waterfront area, had property that was unique in the world by nature of its location. (This property would be what Hirsch (1976) has referred to as a “positional good”.) Consequently, property sold in the downtown area, and particularly on or near the waterfront, would always command a premium; restricting building here was therefore a feasible policy in that this accentuated an existing luxury market. On the other hand, the property locations on the hills were not unique to the town of B, but common to the whole area. Thus the property market of the hilly areas formed part of a larger regional market which the mayor’s policies could not control. Third, the mayor’s actions reduced activity in the construction industry and this had adverse consequences on employment in the local economy, The effect of the actions of the mayor were direct, by blocking both the number of building permits and the size of buildings (i.e., number of floors), and indirect in that his actions also made renovation of old buildings in and near the center of town less feasible for mediumsized developers (see below). The latter result was, of course, contrary to the mayor’s own objective of preserving the character of the town. In many ways, it seemed that the mayor had seen a series of developments threatening the character of the town; he was therefore trying to ‘stem the tide’ until conditions would possibly change. We now consider the other actors at B, dealing respectively with the large national and international developers, estate agents, small local developers, proberty owners, and the medium-sized developers. There were a number of large national and international developers at B who were mainly concerned with luxury-type apartment buildings. For these developers, investments at B represented part of a portfolio. Consequently, they were able to remain fairly detached from the

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mayor’s specific actions and also to have a power of negotiation with him (since they could always go elsewhere). Furthermore, these developers had important financial backing and were thus able to withstand downturns in the economy and take a long-term view. An essential feature to note about estate agents is that they are remunerated on a fixed commission basis with rates established by law. Thus their interest lies in the total value of transactions (volume X price). The estate agent’s capital is knowledge of the supply and demand sides of the market; that is, property for sale or development and a portfolio of customers, respectively. In the 1960s and early 1970s many small local developers had also been active in the market in respect of ‘one-off’ property deals. Sometimes these people were, in fact, estate agents. In any event, they did not depend on development per se for their livelihood. Deals were opportunistic; that is, knowledge of a particular piece of land for sale and specific potential customers created an opportunity. If this was financed by banks and authorized by local authorities, the small developer could carry through the operation himself. Otherwise, he could try to sell his opportunity to a larger developer. The small developer could, of course, be blocked by the mayor’s actions; and this is indeed what happened. The cognitive map of a property owner is shown in fig. 3 [6]. As far as we could observe, owners of property with development potential considered their property mainly in terms of security for themselves. Furthermore, their cognitive maps were quite simple. From time to time they would have some indication of the value of their property. This was achieved by concrete observation of how much other property was fetching in the market (usually the selling price per square meter of new apartments) together with information from estate agents prospecting potential sales, and adjustments they themselves made to such estimations to account for inflation. It should be added that the first two sources of concrete information were usually on the high side; owners had a tendency to make favorable comparisons with other property (often being confused about the relative advantages of their locations and discounting the importance of sales made at lower prices) and estate agents, acting as intermediaries between owners and devel[6] Other tha_n the mayor at B, cognitive maps represent the reasoning that is typical of each class of actors.

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Fig. 3. Cognitive map of property owners at B. This map is not drawn following the conventions of Axelrod (1976). It shows the different sources of information leading to an aspiration selling price. This selling price is then compared with others leading, when the offer is smaller (-) to rejection and the action ‘wait’; when the offer is acceptable (- or +) the owner might do a reconversion operation or sell.

opers, were clearly interested in high prices, given their fixed percentage commission mode of operation. This process resulted in owners having high aspiration prices which, if not matched by developers, meant that they preferred to wait until they might receive the right offer. Owners, generally speaking, never lowered their stated selling prices; however, they could obtain the actual prices asked by waiting until inflation caught up with their stated aspirations (inflation over the period was at an annual rate of about 12%). This meant, of course, both that their decision to sell was delayed and that their ability to adjust aspirations appropriately for inflation was deficient. It should be added that several deals were not straight sales, but involved rebuilding or renovation with the property still belonging to the owner after the operation. In such cases, one calculation that the owner could make was the difference between rents currently received and those expected after the conversion. If the comparison was not favorable, the owner did not agree to the operation. Notions concerning the mayor’s legislation and attempts to reduce the amount of building were significantly absent from the owner’s cognitive maps. Estimations of the value of property were not based on any real ‘causal’ models; rather anticipations were adaptive, fitting the latest positive (for the owners) indications observed. For most owners, developers had the image of ‘sharks’. They therefore often entrusted

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their affairs and negotiations to estate agents. Medium-sized developers, operating at a local and regional level, were small businessmen entirely dependent upon development for their livelihood. Their cognitive map is shown in fig. 4. The chain of reasoning of the medium-sized developers was as follows: ‘they knew a certain segment of the market well - mainly middle-income people seeking vacation and/or retirement homes. This segment had been a good market and they perceived it to be the source of the town’s development. They knew what this segment of the market could afford to pay for a dwelling of a certain minimum size. Consequently, for any given squaremeterage of floor space, which yielded an expected total revenue, they could estimate the value (to them) of development land by a straightforward accounting procedure. Prior to the mayor’s actions, the medium-sized developer prospered. However, the mayor’s action to restrict the number of floors that could be built on a given piece of land (as well as some subsequent national legislation) had a sudden and dramatic effect on the property market. The price a developer could afford to pay for land decreased sharply. The abstract, accounting nature of the developers’ reasoning (as well

Fig. 4. Cognitive map of a medium-sized developer at B. The point to note here is that the developer’s reasoning starts with his appreciation of his clientele and thus what he can afford to pay owners for property for development.

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as the mechanisms of property legislation) was totally incomprehensible to owners who could not understand why developers were suddenly offering less for their properties. This was all the more incomprehensible to them since (a) they knew that property for development was becoming rarer, and (b) they could observe apartments being sold at ever increasing prices at and near the waterfront (the so-called ‘positional goods’). Parenthetically, two points should be made with respect to the medium-sized developers. First, their profitability depended crucially upon the speed with which they could sell their operations. Second, they were heavily dependent upon estate agents to do this. Estate agents therefore enter the medium-sized developer’s cognitive map in two ways: (1) as a means for selling an operation; and (2) as an intermediary (possible adversary) in dealings with people with property or ground to sell. Finally, it should be clear that the medium-sized developers’ operations were considerably curtailed by the actions of the mayor. Several have responded by diverting their activities to other towns in the area. A striking behavioral aspect of our interviews was the frustrations felt by the medium-sized developers. This can be understood by conceptually ‘over-laying’ the cognitive maps of the different actors. The mayor’s actions blocked development in the center of town and rendered it difficult in the outskirts (at least in the short run). However, part of the frustration experienced was due to misunderstanding the mayor’s intentions and the consequent errors in attributions concerning his actions. The mayor and the developers had quite different conceptions of the town. Frustrations also arose from differences between developers and property owners. The former used an economic, accounting rationale to value property; the latter extrapolated prices from observations. The developers’ cognitive maps had a greater capacity to adapt to changes in circumstances (e.g., legislation introduced by the mayor) than those of the owners. Thus during an upswing in economic activity, and during a period of inflation, the developers could (and did) profit at the expense of the owners; however, when there was a downswing (as induced by the mayor’s legislation), the owners did not reduce their prices fast enough in real terms to allow developers the possibility of profitable operations.

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3. Discussion and implications We discuss four concerns arising from our observations at A and B: (1) whereas understanding how people make decisions is important, it is also necessary to understand why people delay making decisions; (2) the differences between the cognitive maps of people involved in the same decision processes and the implications this has on the type of information to which different people will or can react; (3) the fact that whereas people do not make decisions on the basis of an explicit expected utility model, their actions are coherent to them and based on sensible (to them) causal reasoning; and (4) the interactive nature of decision making. For example, to understand the collapse in the property market at B, it is necessary to put into place what seems like several pieces from a complex mosaic. This raises both substantive and methodological issues for the study of decision behavior. We now discuss these issues. (1) Despite earlier work in social psychology (Festinger 1964), decision researchers have paid little attention to why people delay making decisions. In a rare analysis, Corbin (in press) suggests three types of nondecisions: refusal, delay and inattention. Included in the first (i.e., refusal) is the notion that remaining with the status quo has two psychological advantages: first, it involves less uncertainty than other alternatives; and second, there may also be “less responsibility associated with the effects of ‘doing nothing’ than with some conscious choice” (Corbin in press). Both these ideas are linked to two crucial aspects of decision making: (a) the sources and components of uncertainty; and (b) choice criteria. We consider that there are at least three sources of uncertainty: (a) lack of knowledge about events that could affect outcomes; (b) ambiguity concerning the consequences of actions - with respect both to the specification of consequences and the individual’s preferences; and (c) procedural uncertainty concerning means to handle and process the decision, e.g., specifying relevant uncertainties, what information to seek and where, how to invent alternatives and assess consequences, etc. Whereas the first source of uncertainty has been extensively studied in the literature and the second discussed (March 1978), the third appears to have been ignored. For example, in psychology most studies present people with well-defined choice problems. In economics, people are assumed to know how to choose. Indeed, procedural uncertainty is

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excluded from formal models of decision making. (How, for example, would one represent procedural uncertainty in probabilistic terms?) However, for unprogrammed decisions (to use the language of Cyert el’ al. 1956), our observations indicate that procedural uncertainty is both an important source of anxiety and can lead to decision delays. Consider, for instance, the small businessmen at A or property owners at B. Our observations at A and B also indicated that many decision makers delayed taking action to avoid the regret of making the wrong decision. These situations were characterized by both large but ambiguous consequences ‘for the decision makers and high procedural uncertainty. What decision criteria can people appeal to in such circumstances? A simple notion fitting our observations is that people wish to believe that they act responsibly (cf Hogarth in press: ch. 4). Consequently, when in a state of high psychological regret, people will delay making a decision to avoid possible accusations of irresponsibility, from others or even themselves. Implicit, too, in the notion of psychological regret is the idea that alternatives are evaluated against the reference point of the status quo, hence its attraction when the perceived cost of an error is high (cf , Parkes 197 1; Kahneman and Tversky 1979). However, and this remains to be tested empirically, we hypothesize that if situations have low psychological regret, the status quo, although still a reference point, will not necessarily have an implicit attraction. We believe that the concept of psychological regret has much promise for explaining risk-related behavior (i.e., risk seeking or avoiding) and should be investigated more fully in future work. However, such research should investigate ill-structured and ambiguous situations in addition to the explicit gambles used in laboratory research (cJ: Kahneman and Tversky 1979). Corbin (in press) argues that before a person decides, the subjectively perceived state of uncertainty must fall below a certain threshold level. Predicting when this will happen, therefore, requires specification of the types of mechanism capable of reducing a person’s uncertainty. At A this was the concrete observation of other compatible economic agents (leading to imitation behavior). At B we observed property owners turn their affairs over to professionals (i.e., estate agents) who, in effect, absorbed uncertainty for their clients. We should add that actions such as imitating the behavior of compatible others or entrusting one’s affairs to specialists represented ‘responsible’ behavior and thus also undoubtedly reduced psychological regret.

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Our tentative conclusion or hypothesis, therefore, is that delays in decisions will occur in situations of both high psychological regret and procedural uncertainty. However, a reduction in either the regret or uncertainty (or both) can lead to action. (2) There were large differences between the cognitive maps of the various classes of actors at A and B. Some had large and complex maps (e.g., the mayor of B); others had simple causal schemata even though the decisions were important to them (e.g., small businessmen at A, property owners at B). These observations raise two crucial questions: (a) how do cognitive maps develop? and (b) how does the structure of the maps affect the ability to process information? Hypotheses related to both these questions have been suggested by Abelson (1976). He states that cognitive maps (or “scripts”) can be distinguished on a continuum of complexity ranging from “episodic”, through “categorical” to “hypothetical”. Moreover, the more complex scripts can only develop once the lower levels have been formed. Consider, for example, the differences at B between the cognitive maps of the property owners and the medium sized developers. The former had limited cognitive maps (i.e., episodic scripts concerning their own property or that of an acquaintance); the latter had well-developed hypothetical scripts for assessing the profitability of specific operations. There is therefore support for Abelson’s hypothesis that “The more he is burdened with many similar decisions to make, the more a decision maker is likely to employ hypothetical processes” (Abelson 1976: 39). Furthermore, it is not hard to imagine that should an owner gain sufficient experience in making property deals, he or she could also develop appropriate hypothetical scripts. (We were informed that some owners had made many deals; however, we were unable to interview them and thus to test this hypothesis within the same class of actors.) A second specific hypothesis of Abelson is: “The attainment of hypothetical processing mode on one decision task does not substantially generalize to another decision task. There is, in other words, repeated reversion to episodic mode on new decision tasks” (Abelson 1976: 39). Our observations suggest that this hypothesis is too simplistic. It was true for the small businessmen at A who, despite welldeveloped hypothetical scripts for dealing with their recurrent trading situations, had difficulty in evaluating the relocation problem. However, the sophisticated professional manager of the medium-sized company at A (who subsequently decided to relocate on the second, almost

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empty zone), specifically developed a hypothetical script for generating and evaluating alternative sites. Analytical sophistication could therefore moderate Abelson’s hypothesis. The greatest practical difference between well- and poorly-developed cognitive maps lies in the relative ability of the former to handle abstract information. Indeed, the importance of concrete information was highlighted at both A and B and has important implications for implementing government plans in a ‘free-directive’ economy such as France (see also Nisbett et al. 1976). Since information that is concrete for one person could be abstract for another, it is instructive to speculate on the differences between concrete and abstract information and why concrete information has more impact. Generally speaking, by concrete information is meant data that are vivid and usually appeal to several senses - frequently involving personal experiences or observation of incidents (see also Abelson 1976: 39, hypothesis lb). Concrete information is often characterized by: (a) direct association with the object of interest, i.e., not necessitating any intermediate conceptual links; (b) short spatio-temporal contiguity with the event of interest; and (c) vividness which enables it to be easily encoded in memory and thus subsequently recalled. Parenthetically, we suggest two psychological reasons or mechanisms to explain the dominance of concrete over abstract information. First, studies of memory reveal that data coded on several dimensions (such as the recounting of an incident as opposed to hearing a statistical fact) are more easily remembered (Baddeley 1976). Multidimensional coding has greater impact than uni-dimensional. Second, an important dimension of learning causal relationships between variables is spatio-temporal contiguity (Michotte 1963). For example, the connection between, say, a government announcement and an economic event is often not evident. There are time lags, and people also receive other information in the intervening period. However, the link between concrete information (e.g., seeing bulldozers on an industrial site) and an event (people buying land there) is both short and unambiguous. A further important notion related to concrete information is our specification that perceived compatibility between economic agents is a necessary condition for imitation behavior. Thus to induce people to act in accordance with government plans, not only are the concrete actions of others essential, but so is perception of compatibility between relevant actors.

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(3) An issue raised by our interviews was the extent to which each class of actor was behaving ‘rationally’. It would be difficult to say that the cognitive maps contained flagrant inconsistencies. On the other hand, the “bounded rationality” hypothesis of Simon (1955) found considerable support in that the cognitive maps were not sufficiently well developed for seeing various implications of the actors’ goals and viewpoints. For example, the mayor at B apparently did not see the implication of his policies on local employment, the medium-sized developers misinterpreted the mayor’s intentions, and the property owners did not understand effects of changes in the law affecting the development possibilities of their land. However, all seemed to be acting rationally within the scope of their perceptions of the situation. It is often stated that ‘information overload’ (relative to human processing capacity) is a major obstacle in decision making. However, for many of the decision makers we observed, we would instead support the comments of Morgan made with respect to consumer behavior that “. . . the most important problems of the consumer are not information overload, but lack of any cognitive structure” (1978: 61). Decision making theories in both psychology and economics are well developed for structured decision problems. The important issues of real making, however, are much more concerned with world decision developing a structure in the first place. (4) The dynamic, interactive nature of decision making processes was much in evidence in our studies. An action by one actor, for instance, becomes information for another. Considering decision making over time adds a level of complexity in that the moment an actor makes a decision also becomes an important variable. However, as stated by Simon (1955), decision making needs to be studied across time since future anticipations are affected by past decisions. Much descriptive research has nonetheless adopted a static perspective and could consequently have misrepresented both the nature of decision making processes and intuitive abilities (Hogarth 1979). In the work reported here, we effectively adopted a systems dynamics and engineering approach (cf: Coyle 1977) involving: (a) defining the separate actors - or parts - of the systems studied; (b) characterizing actors by their cognitive maps; and (c) attempting to understand the situation by considering interactions of the parts within a dynamic framework. Whereas we did not pursue the systems dynamics methodology to the extent of building simulation models (cf Hall 1976),

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formal modeling would be a logical next step. In particular, such models have the capacity to incorporate both positive and negative feedback loops, crucial notions that are lamentably absent from most decision research (see also Weick 1977). However, such developments may be premature since the current state of the art is deficient in the most crucial respect, that is defining model inputs, ie., the cognitive maps. Although some researchers have not hesitated to attempt mechanical translation of verbalizations to cognitive maps (Jones et al. 1979), the manner of encoding verbalizations as causal assertions lacks theoretical guidelines. Basic theoretical work on understanding both how causal assertions are represented in the mind and can be assessed is essential for the development of the methodology. Meanwhile, researchers should proceed with caution. In our work, we adopted the precautions of an inter-disciplinary research team (a psychologist, an economist and an urban planning specialist), and having at least two of us present at interviews (to permit subsequent comparison and discussion of notes). We have also attempted to make our interviewing methods explicit. Finally, in many ways the research reported here is within the tradition of social judgment theory (Brehmer 1976; Hammond et al. 1977) and extends that paradigm operationally beyond regression-type modeling. As such, the approach can be used both to describe decision processes and as a cognitive aid for policymakers. Work on the latter is currently also under way.

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