Simpler Models of

Rational Decision
Making

• Rational Choice Theory

requires us to assign
probabilities and numerical
values to all possible outcomes
and choose the action with the
highest expected value.
• We now consider a couple of
models that do not require such
detailed information. We may
think of these as special cases of
the RCT model.
 The Case Where No
Probabilities Are
Needed
• In some decisions we know
very well what the outcome of
each option will be. The
dilemma is to determine which
outcome is of highest value.
• This situation is called decision
making with certainty.
• From a formal point of view,
this is a case of RCT where
there is only one outcome for
each action and it has a
probability of one.
An Example of Decision
Making with Certainty
• Many shopping decisions are
this nature.
• Should I buy a 24-pack of cola
in cans for $6 or four 6-packs of
cola in bottles for $3 each?
• The cans option is cheaper, but
I prefer the taste of cola in
bottles and it would be a little
nicer to offer drinks in bottles to
my friends.
• Here the only issue is balancing
money against aesthetics. I
know exactly what I’m getting
with each option.
Tips for Comparing and
Combining Values
• The cola case involved only two
value comparisons, cost and
style. Other cases can be much
more complex. When buying a
house, one may need to
consider the cost, distance from
work, number of bedrooms, size
of yard, quality of the local
schools, whether it has a good
place to set up a studio or
workshop, etc.
 Ben Franklin’s Advice
• “[M]y way is to divide a sheet of
papers into two columns, writing over
the one pro, and over the other con.
• I endeavor to estimate their respective
weights; and when I find two, one on
each side that are equal, I strike them
both out.
• If I find a reason pro equal to two
reasons con, I strike out all three.
• And though the weight of reasons
cannot be taken with the precision of
algebraic quantities, yet when each is
thus considered, separately and
comparatively, I think I can judge
better.”
 The Case where
Probabilities are Needed
but Missing
• Here we know that there is
more than one possible outcome
to an option but we are totally
uncertain as to how probable
the possible consequences are.
• This is called decision making
with complete uncertainty or
decision making under
ignorance.
• [Note that we are only ignorant
of the probabilities.]
 Example of Decision
Making with Missing
Probabilities
• Traveling in Central Europe you go to a
small restaurant which has only two
choices for lunch. With some difficulty
these are described to you as “Borscht”
and “Tagessuppe”.
• You know you dislike borscht (a beet
soup) quite a lot. But you have no idea
what the soup of the day would be like. It
could be much worse than borscht; it could
be much better.
• You have no idea at all how probable each
outcome would be - but you’re hungry and
these are your only options.
 Analysis of Soup Case

Choose Nearly
Borscht inedible

Makes
Choose Quite O.K.
you
Taggessuppe nice
wretch
 Adding Values

• By assumption, the probability of

detesting the borscht is one and we
have no idea how likely we are to
like the Taggessuppe.
• It is easy to rank order the outcomes:
if we’re lucky, the soup of the day
will be better than borscht; if we’re
not, it will be worse.
• There are two strategies at this point:
we could gamble or play-it-safe.
• Which strategy we use will depend
on our personality - and perhaps on
just how unsatisfactory we find the
borscht option.
Rank Orderings of Soup
Outcomes

Nearly
Choose
Inedible
Borscht
[3rd]

Makes
Quite O.K.
Choose you
Nice
Taggessuppe Wretch
[1st] [2nd]
[4th]
 Do We Actually Sneak
in Probabilities?
• Some philosophers doubt that
we ever choose without any
appeal to probabilities.
• If we gambled in the soup case,
we seem to have assumed that
the probability of wretched soup
was not very close to one.
• If we played it safe, we were
tacitly assuming that the
probability of getting a good
soup was not almost one.
 Treating the Soup Case
as a Problem of
Maximizing Expected
Value
• Suppose we assign equal
probabilities to the outcomes.
• If we now assign measures to
the values of the outcomes
(instead of just rank ordering
them), we can now calculate the
expected value of the two
options and compare them.
• When we already have
rankings, some people like to
assign zero to the worst, 100 to
the best and then set the in-
between values.
 Measures of Value of
Soup Outcomes

Nearly
Choose
Inedible
Borscht
[10]

Makes
Quite O.K.
Choose you
Nice
Taggessuppe Wretch
[100] [60]
[0]