A simple model of decision making…

Posted on November 19, 2010

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Professor Wiggly: “As you can guess there’s no ‘right’ amount of confidence for dealing with uncertainty. If you have too much confidence – bigot – you don’t learn from experience. If you have too little you can’t make decisions – you procrastinate or depend on booze or popular ‘leaders’ to make your decisions for you. However I’ll tell you my favorite approach – the one in which I personally have the most confidence.”

Peter: “ Hey, hey Jenny – the Prof is going to tell us which theory of confidence he believes in  … in which one he has the most confidence… the one he’s biased toward.”

Professor Wiggly: ” OK Peter, an ‘expert’ is not suppose to admit that their biased it makes their clients lose confidence. Anyway here’s what I believe to be the most functional even though fallible model of making decisions in uncertain situations – like walking into the future. First let me share my main assumptions: 1. When facing uncertain or complex situations we automatically simplify them, cut them down to mind size, 2. Although we’re clever our brains can’t handle too much complexity, that’s why we rely on simplifying stereotypes, for instance ‘women are emotional’, ‘men are aggressive and horny’, ‘Scotts are tight’, Republicans are hard-hearted, Democrats are soft headed, etc.); 3. Since we can’t ‘see’ the future, we must rely on trusted beliefs –  ‘believing replaces seeing’.”

Jenny: “ I like that – since you can’t see the future, believing replaces seeing… believing is seeing. You travel into the future on trusted imaginary bridges.”

Peter: “OK, so I see myself  – imagine myself – eventually taking over my old man’s business, so whether I do well or not at university isn’t any big deal cause I’ve got it made.”

Professor Wiggly: “ Good example Peter. How are you doing at University?”

Peter: “ I haven’t failed … yet. But I’m not breakin my butt studying.”

Professor Wiggly: “So you’re very confident that you’ll be inheriting you’re father’s business. You trust the imaginary bridge into the future that you’ve constructed.”

Peter: “ Why shouldn’t I? I don’t do anything to offend my old man, and I know the business – I’ve been working there on summer holidays for 3 years.”

Professor Wiggly: “ Good, Peter’s given us a nice example on which to illustrate our model of how we make decisions under uncertainty, decisions about the unknown future. Decision theorists call it an anchoring and adjustment model. It proposes that we manage uncertainty by starting off with an anchor  – a belief or imaginary bridge – in which we have some confidence, and then adjust our belief or bridge as we go along to accommodate new information.”

Penny: “So Peter, has anything happened that’s caused you to increase or decrease your confidence in your imaginary bridge leading to the easy life?”

Peter: “ Not that I can think of. Well… my sister is showing some interest in the business. She worked there this summer. But she’ll probably get married and have kids so I don’t see her as a problem.”

Professor Wiggly:” That’s a good example of subsequent information that could lead to a major revision in your imaginary bridge. For instance maybe you’re sister’s new husband might like to join the business. Peter, if your sister inherits half the business that could lead to major changes in your future?”

Peter: “ I don’t like this model of decision making about the future.”

Professor Wiggly: “Bear with me for a bit, you may change your mind.  So our model starts with some kind of anchoring belief or initial estimate about the future in which you have some confidence. And then adds subsequent estimates or adjustments to that initial estimate in response to new information as it becomes available.

Penny: “ We learned that a good model is simpler than but similar too the reality that’s being modeled. And also that good models are those which are clear enough so you can describe them with a mathematical formula. But math scares a lot of people off. From what you’ve said so far your model sounds simple enough that even the number numb can understand it – even Peter.”

Peter: “ Ha ha. I’m not number numb.  So this model includes an initial belief or estimate (Ei) and confidence (C) in that belief or estimate, plus and adjuster of some kind (Aj) to factor in subsequent information or estimates (E1, E2…En). So when I look at my future my initial estimate  (Ei) is that I will inherit my dad’s business. I have high confidence (C) that I will. Then the Prof. tries to to screw up my pretty picture of the future with possible developments… like E1 (my sister inherits half the business), and (E2) she get married and her husband joins the business as an equal partner, and  God knows what happens…?”

Jenny: “Professor Wiggly can this anchoring and adjustment model help us make predictions about the future?”

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Posted in: Sciencing, Yer Thing