Chapter No: 02

How people make decisions

involving multiple objectives
 Introduction
Unaided decision
• People make decisions involving multiple
objectives so that human intuition and
thinking seems limited to meet the criteria
and conclusion of sound decisions .
• They heavily rely on machines, systematic
mechanisms , equipment's and simulations.
 Introduction
• Multiply 8 by 7 by 6 by 5 by 4 by 3 by 2 by 1 in
your head. Answer is 40320.
• The conclusion from this ‘thought experiment’ is
that the human mind has a ‘limited capacity’ for
complex calculations and that technological
devices, such as calculators, complement our
consciously admitted cognitive limitations.
• Which do you believe produced the most valid
answer? Your intuition? Or the calculator?
 • Heuristics Techniques (find" or "discover)
• Simon used the term bounded rationality to
refer to the fact that the limitations of the
human mind mean that people have to use
‘approximate methods’ to deal with most
decision problems and, as a result, they seek
to identify satisfactory, rather than optimal,
courses of action.
• ‘fast and frugal heuristics’
 Cont…
• Heuristics was founded by Hungarian
mathematician George Polya in 1945 .
He used four principles that from the basis for
problem solving.
1. Try to understand
2. make a plan
3. carry out this plan
4. evaluate and adapt
 Methods used by ‘Polya’
• Dividing technique
• Inductive Method (Generalization)
• Reduction method (Reduced problems)
• Constructive method (by steps)
• Local search method
 Heuristics used for decisions involving
multiple objectives

• Compensatory strategy: An option’s poor

performance on one attribute is compensated
by good performance on others.
• Example: A computer’s reliability and fast
processor speed may be judged to compensate
for its unattractive price.
• Non-compensatory strategy: This would not be
the case in a non-compensatory strategy.
 Compensatory vs Non Compensatory
strategy.
• In compensatory choice models the overall
value (Utility) of an object is weighted average
of the object on some set of attributes.

• non compensatory choices consider the

attributes sequentially and benefits on the
some attributes may not overbalance
shortfalls on others
 Heuristics used for decisions involving
multiple objectives
1. The recognition heuristic
2. The minimalist strategy
3. Take the last
4. The lexicographic strategy
5. Elimination by aspects (EBA)
6. Sequential decision making: satisficing:
7. Reason-based choice:
 The recognition heuristic

• If one of two objects is recognized and the other is not,

the recognized option is chosen due to higher value
with respect to the criterion.
• Interestingly, the recognition heuristic can reward
ignorance. A more knowledgeable person might
recognize both options and therefore be unable to
employ the heuristic.
• It is a bias wherein humans place a higher value on
something they recognize rather than something
unfamiliar.
 The minimalist strategy
• In this heuristic the decision maker first
applies the recognition heuristic, but if
neither option is recognized the person will
simply guess which is the best option.
 Take the last
• This is the same as the minimalist heuristic
except that people recall the attribute that
enabled them to reach a decision last time
when they had a similar choice to make.
• If none of the previously used attributes
works, then a random attribute will be tried.
 The lexicographic strategy
• This describes comparative preferences
where an individual prefers any
amount/quality of one good (x) to any
amount of another (y).
• If the two products are equal on the most
important attribute , one can move to the
next most important, and, if still equal to the
next most important, etc.
 Cont…
• This simply involves identifying the most
important attribute and selecting the alternative
which is considered to be best on that attribute.
• Example: In choosing a car, price may be more
important than size, which in turn is more
important than top speed.
• Like the earlier heuristics the lexicographic
strategy involves little information processing
(i.e. it is cognitively simple) if there are few ties.
 Elimination by aspects (EBA)
A model of decision making technique
developed by Amos Tversky in 1970.
When faced with multiple options this method
first identifies a single attribute or feature that is
most important to the decision maker.
 Cont…
• The most important attribute is identified and a
cutoff point is then established.
• Any alternative falling below this point is
eliminated.
• The process continues with the second most
important attribute and so on.
• However, the major flaw in EBA is its failure to
ensure that the alternatives retained are, in fact,
superior to those which are eliminated. This arises
because the strategy is non-compensatory.
 Sequential decision making: satisficing
• The key aspect of satisficing is the aspiration
level of the decision maker which
characterizes whether a choice alternative is
acceptable or not.
• Simon’s satisficing theory is most usefully
applied to describe sequential choice
between alternatives that become available
(and indeed may become unavailable) as
time passes.
 Reason-based choice:
• When faced with the need to choose, decision
makers often seek and construct reasons in
order to resolve the conflict and justify their
choice to themselves and to others’.
 Factors that affect how people make
choices
1. The time available to make the decision.
2. The effort that a given strategy will involve.
3. Knowledge about the environment.
4. The importance of making an accurate decision.
5. Whether or not the decision maker has to justify
his or her choice to others.
6. A desire to minimize conflict (for example, the
conflict between the pros and cons of moving to
another job).
Effort–accuracy framework
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