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Decision making: Descriptive, normative and prescriptive interactions
JOURNAL
OF MATHEMATICAL
PSYCHOLOGY
34,
242-245
Book DAVID
(1990)
Review
RAIFFA, AND AMOS TVERSKY. Decision Making: Descriptive, Normative and Prescriptive Interactions.
BELL, HOWARD
New York/London: Cambridge University Press, 1988. Pp. 450. $65.00 (hard), $29.95 (paper). Reviewed Hal BARBARA MELLERS
David Bell is Professor of Business Administration at the Harvard Business School. Howard Raiffa is Frank Plumpton Ramsey Professor of Managerial Economics at the Harvard Business School. Amos Tversky is Professor of Psychology at Stanford University. All of them are experts in decision making. The reviewer is an Associate Professor at the University of California, Berkeley. Her research interests are in human judgment and decision making. ‘i” 1990 Academic Press. Inc.
In recent years, the field of decision making has benefitted greatly from a renewed interest in how people face choices involving uncertain outcomes. Decision Making: Descriptive, Normative, and Prescriptive Interactions is a collection of outstanding articles that addresses the general topic of decision making from three different perspectives: (1) how people make decisions, (2) how “rational” people should make decisions, and (3) how less rational people, who aspire to rationality, might do better. The book brings together these different approaches to decision making, summarizes ongoing work in the field, and synthesizes research in the different areas. Decision Making, edited by David Bell, Howard Raiffa, and Amos Tversky, is based on a conference celebrating the 75th anniversary of the Harvard Business School held in Boston on June 16-18, 1983. There are 28 chapters, many of which have been published elsewhere, written by experts in the field of decision making. Two thirds of the papers focus on theories of decision making; one third deal with applications. Three theoretical topics are covered: conceptions of choice, beliefs and judgments about uncertainty, and values and utilities. Applications of theory include medical decision making, managerial decisions, public policy questions, and more. During the last four decades, the field of decision making has emerged from contributions in statistics, mathematics, economics, psychology, operations research, management science, and other domains. The interdisciplinary nature stems from the fact that traditionally, there have been two quite distinct perspectives to decision making-descriptive and normative. The descriptive approach 242 0022-2496190
$3.00
CopyrIght t? 1990 by Academic Press. Inc. All rights of reproductmn m any form reserved.
BOOK REVIEW
243
focuses on how people make choices, how peoples’ cognitive capacities or limitations affect choice, and the discrepancies between actual decisions and normative models. The normative approach addresses the question of how people should make decisions if they wish to obey certain laws, principles, or axioms that reflect our conceptions of logical, rational behavior. Decision Making introduces a third perspective-namely, prescriptive decision making. This category describes the concerns of the consultants or decision analysts who want to help people make better decisions by devising methods that incorporate normative theories with factors that are not included in the theories but have been shown empirically to influence decisions. Prescriptive decision making is a useful category because it highlights differences between the normative theorists whose aim is to derive models of decision making that are logically consistent and reflect our conceptions of rationality, and the practitioners who wish to help improve real-world decisions and train people to become better decision makers in the long run. Bell, Raiffa, and Tversky (Chap. 1) point out a number of differences and similarities among the three approaches. One interesting way to compare these perspectives is to consider the criteria used to evaluate them. Descriptive theories are evaluated according to their empirical validity, or the extent to which the predictions of the models correspond to actual behavior. Normative theories are evaluated on the basis of their theoretical adequacy, or the degree to which they provide acceptable idealizations and capture intuitively appealing axioms of rational choice. Prescriptive approaches are more difficult to assess and are supposedly evaluated according to their pragmatic value or their ability to help people make better decisions. But since there is rarely a control group available for comparison purposes, evaluations are probably more often based on the extent to which people believe their decisions have been improved and are willing to pay for such help and guidance. The aim of the book is to show how these different disciplinary approaches influence one another. Although there are many ways in which these perspectives interrelate, two general directions of influence are clear: (1) the effects of descriptive results on normative theory building, and (2) the influence of empirical findings on prescriptive approaches. EFFECTS OF DESCRIPTIVE RESULTS ON NORMATIVE THEORIES
The foundations of a normative theory of decision making are probably based on von Neumann and Morgenstern’s axiomatic basis of decision theory and the Bayesian approach to uncertainty. There has been an accumulation of empirical evidence showing the descriptive shortcomings of these foundations. Some of the early demonstrations, such as the Allais paradox and Ellsberg’s paradox, were viewed as interesting anomalies. Descriptive theories were proposed to account for these effects, but the normative framework remained intact.
244
BOOK
REVIEW
Later, with increasing evidence that decisions vary as a function of the task, the context, the frame, etc., and subjective beliefs systematically deviate from the rules of probability, the normative theories themselves were questioned. Several chapters in the book are devoted to this theme. March (Chap. 2) argues that the normative framework, which posits a decision maker with prespecified alternatives, consequences, states of the world, preferences, and beliefs, does not capture the dynamic nature of the world and the decision maker’s uncertainty about his or her own future preferences. Simon Chap. 3) says people don’t optimize, they satisfice. Shafer (Chap. 10) points out that two assumptions built into subjective expected utility are highly questionable on empirical grounds, namely (1) preferences are well-defined and (2) values and beliefs can be disentangled. In an attempt to build a more general framework that can account for the descriptive results, some decision theorists have attempted to relax the axioms within the normative theory. A number of formulations that exclude one or another axiom have been proposed. Fishburn’s (Chap. 4) skew-symmetric bilinear theory is one example. See Tversky and Kahneman (Chap. 9) for an excellent summary of this work. Another approach taken by decision theorists has been to retain the axioms but modify one or more of them. Bell (Chap. 16) has suggested that feelings of anxiety, disappointment, regret, etc. should be included in a normative framework. He devises an ingenious theory by modifying the utility function to reflect these anticipated feelings. Disappointment theory (and regret theory) can account for some interesting empirical violations of the traditional normative framework.
EFFECTS
OF DESCRIPTIVE
FINDINGS
ON
PRESCRIPTIVE
APPROACHES
A second major theme is the influence of the empirical work on the prescriptive approaches. A number of chapters point out that preferences are often not welldefined (see, e.g., Slavic, Fischhoff, & Lichtenstein, Chap. 8, or Fischhoff, Slavic, & Lichtenstein, Chap. 18). Several chapters mention the issue of framing effects, or changes in peoples’ choices among normatively equivalent options presented in different formats. McNeil, Parker, and Tversky (Chap. 26) asked subjects to imagine they had lung cancer and choose between two therapies on the basis of probability assessments for the future. The majority of subjects (82%) favored surgical treatment when the mortality rates were presented. But when the probabilities were given in terms of survival rates, the percentage of subjects who favored radiation treatment increased from 18% to 44%. Thus, choices can be influenced by the framing of the question. These studies and others show that people violate dominance, transitivity, and other cornerstones of rational choice. Prescriptive techniques should presumably help people avoid these “errors.” But if people think one way, are consultants really helping them make better decisions by having them think another way? The accumulation of empirical evidence has lead to an increased awareness of the
BOOK
REVIEW
24.5
complexities faced by the decision analyst. But the answers to these questions are not obvious. For example, what should the decision analyst do about framing effects? Should as many frames as possible be presented or is one point of view somehow ‘better” than the others? If preferences are as unstable as some suggest, does it really even matter? Another question for the decision analyst is what to do about feelings of anxiety, joy, disappointment, elation, etc. Should they play a role in prescriptive analysis or should they be viewed as merely transient psychological states that any disciplined decision maker could shake? To the extent that the decision maker is willing to trade off dollars to avoid regret or disappointment, it may be quite useful to incorporate these psychological states into a prescriptive approach. Part of the difficult in answering these questions lies in the fact that evaluations of this approach to decision making are more difficult than evaluations of the other approaches. Is the process or the outcome most important in prescriptive methods? The final chapter in the book is an edited transcript of discussions from the conference about medical decision making. This delightful chapter provides insightful comments about how practitioners should react to the empirical evidence against expected utility theory. In summary, Decision Making: Descriptive, Normative, and Prescriptive Interactions gathers together a large number of truly outstanding articles and gives the reader a good sense for where the field of decision making has been and in which directions it is currently moving. Although some of the chapters do require a technical background, many of them can be enjoyed by people without much training in probability, statistics, economics, or psychology. For those who work in the area, this book is “must” reading and will undoubtedly become a classic in the field of decision making.
OF MATHEMATICAL
PSYCHOLOGY
34,
242-245
Book DAVID
(1990)
Review
RAIFFA, AND AMOS TVERSKY. Decision Making: Descriptive, Normative and Prescriptive Interactions.
BELL, HOWARD
New York/London: Cambridge University Press, 1988. Pp. 450. $65.00 (hard), $29.95 (paper). Reviewed Hal BARBARA MELLERS
David Bell is Professor of Business Administration at the Harvard Business School. Howard Raiffa is Frank Plumpton Ramsey Professor of Managerial Economics at the Harvard Business School. Amos Tversky is Professor of Psychology at Stanford University. All of them are experts in decision making. The reviewer is an Associate Professor at the University of California, Berkeley. Her research interests are in human judgment and decision making. ‘i” 1990 Academic Press. Inc.
In recent years, the field of decision making has benefitted greatly from a renewed interest in how people face choices involving uncertain outcomes. Decision Making: Descriptive, Normative, and Prescriptive Interactions is a collection of outstanding articles that addresses the general topic of decision making from three different perspectives: (1) how people make decisions, (2) how “rational” people should make decisions, and (3) how less rational people, who aspire to rationality, might do better. The book brings together these different approaches to decision making, summarizes ongoing work in the field, and synthesizes research in the different areas. Decision Making, edited by David Bell, Howard Raiffa, and Amos Tversky, is based on a conference celebrating the 75th anniversary of the Harvard Business School held in Boston on June 16-18, 1983. There are 28 chapters, many of which have been published elsewhere, written by experts in the field of decision making. Two thirds of the papers focus on theories of decision making; one third deal with applications. Three theoretical topics are covered: conceptions of choice, beliefs and judgments about uncertainty, and values and utilities. Applications of theory include medical decision making, managerial decisions, public policy questions, and more. During the last four decades, the field of decision making has emerged from contributions in statistics, mathematics, economics, psychology, operations research, management science, and other domains. The interdisciplinary nature stems from the fact that traditionally, there have been two quite distinct perspectives to decision making-descriptive and normative. The descriptive approach 242 0022-2496190
$3.00
CopyrIght t? 1990 by Academic Press. Inc. All rights of reproductmn m any form reserved.
BOOK REVIEW
243
focuses on how people make choices, how peoples’ cognitive capacities or limitations affect choice, and the discrepancies between actual decisions and normative models. The normative approach addresses the question of how people should make decisions if they wish to obey certain laws, principles, or axioms that reflect our conceptions of logical, rational behavior. Decision Making introduces a third perspective-namely, prescriptive decision making. This category describes the concerns of the consultants or decision analysts who want to help people make better decisions by devising methods that incorporate normative theories with factors that are not included in the theories but have been shown empirically to influence decisions. Prescriptive decision making is a useful category because it highlights differences between the normative theorists whose aim is to derive models of decision making that are logically consistent and reflect our conceptions of rationality, and the practitioners who wish to help improve real-world decisions and train people to become better decision makers in the long run. Bell, Raiffa, and Tversky (Chap. 1) point out a number of differences and similarities among the three approaches. One interesting way to compare these perspectives is to consider the criteria used to evaluate them. Descriptive theories are evaluated according to their empirical validity, or the extent to which the predictions of the models correspond to actual behavior. Normative theories are evaluated on the basis of their theoretical adequacy, or the degree to which they provide acceptable idealizations and capture intuitively appealing axioms of rational choice. Prescriptive approaches are more difficult to assess and are supposedly evaluated according to their pragmatic value or their ability to help people make better decisions. But since there is rarely a control group available for comparison purposes, evaluations are probably more often based on the extent to which people believe their decisions have been improved and are willing to pay for such help and guidance. The aim of the book is to show how these different disciplinary approaches influence one another. Although there are many ways in which these perspectives interrelate, two general directions of influence are clear: (1) the effects of descriptive results on normative theory building, and (2) the influence of empirical findings on prescriptive approaches. EFFECTS OF DESCRIPTIVE RESULTS ON NORMATIVE THEORIES
The foundations of a normative theory of decision making are probably based on von Neumann and Morgenstern’s axiomatic basis of decision theory and the Bayesian approach to uncertainty. There has been an accumulation of empirical evidence showing the descriptive shortcomings of these foundations. Some of the early demonstrations, such as the Allais paradox and Ellsberg’s paradox, were viewed as interesting anomalies. Descriptive theories were proposed to account for these effects, but the normative framework remained intact.
244
BOOK
REVIEW
Later, with increasing evidence that decisions vary as a function of the task, the context, the frame, etc., and subjective beliefs systematically deviate from the rules of probability, the normative theories themselves were questioned. Several chapters in the book are devoted to this theme. March (Chap. 2) argues that the normative framework, which posits a decision maker with prespecified alternatives, consequences, states of the world, preferences, and beliefs, does not capture the dynamic nature of the world and the decision maker’s uncertainty about his or her own future preferences. Simon Chap. 3) says people don’t optimize, they satisfice. Shafer (Chap. 10) points out that two assumptions built into subjective expected utility are highly questionable on empirical grounds, namely (1) preferences are well-defined and (2) values and beliefs can be disentangled. In an attempt to build a more general framework that can account for the descriptive results, some decision theorists have attempted to relax the axioms within the normative theory. A number of formulations that exclude one or another axiom have been proposed. Fishburn’s (Chap. 4) skew-symmetric bilinear theory is one example. See Tversky and Kahneman (Chap. 9) for an excellent summary of this work. Another approach taken by decision theorists has been to retain the axioms but modify one or more of them. Bell (Chap. 16) has suggested that feelings of anxiety, disappointment, regret, etc. should be included in a normative framework. He devises an ingenious theory by modifying the utility function to reflect these anticipated feelings. Disappointment theory (and regret theory) can account for some interesting empirical violations of the traditional normative framework.
EFFECTS
OF DESCRIPTIVE
FINDINGS
ON
PRESCRIPTIVE
APPROACHES
A second major theme is the influence of the empirical work on the prescriptive approaches. A number of chapters point out that preferences are often not welldefined (see, e.g., Slavic, Fischhoff, & Lichtenstein, Chap. 8, or Fischhoff, Slavic, & Lichtenstein, Chap. 18). Several chapters mention the issue of framing effects, or changes in peoples’ choices among normatively equivalent options presented in different formats. McNeil, Parker, and Tversky (Chap. 26) asked subjects to imagine they had lung cancer and choose between two therapies on the basis of probability assessments for the future. The majority of subjects (82%) favored surgical treatment when the mortality rates were presented. But when the probabilities were given in terms of survival rates, the percentage of subjects who favored radiation treatment increased from 18% to 44%. Thus, choices can be influenced by the framing of the question. These studies and others show that people violate dominance, transitivity, and other cornerstones of rational choice. Prescriptive techniques should presumably help people avoid these “errors.” But if people think one way, are consultants really helping them make better decisions by having them think another way? The accumulation of empirical evidence has lead to an increased awareness of the
BOOK
REVIEW
24.5
complexities faced by the decision analyst. But the answers to these questions are not obvious. For example, what should the decision analyst do about framing effects? Should as many frames as possible be presented or is one point of view somehow ‘better” than the others? If preferences are as unstable as some suggest, does it really even matter? Another question for the decision analyst is what to do about feelings of anxiety, joy, disappointment, elation, etc. Should they play a role in prescriptive analysis or should they be viewed as merely transient psychological states that any disciplined decision maker could shake? To the extent that the decision maker is willing to trade off dollars to avoid regret or disappointment, it may be quite useful to incorporate these psychological states into a prescriptive approach. Part of the difficult in answering these questions lies in the fact that evaluations of this approach to decision making are more difficult than evaluations of the other approaches. Is the process or the outcome most important in prescriptive methods? The final chapter in the book is an edited transcript of discussions from the conference about medical decision making. This delightful chapter provides insightful comments about how practitioners should react to the empirical evidence against expected utility theory. In summary, Decision Making: Descriptive, Normative, and Prescriptive Interactions gathers together a large number of truly outstanding articles and gives the reader a good sense for where the field of decision making has been and in which directions it is currently moving. Although some of the chapters do require a technical background, many of them can be enjoyed by people without much training in probability, statistics, economics, or psychology. For those who work in the area, this book is “must” reading and will undoubtedly become a classic in the field of decision making.