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Example: To decide which armchair to buy, Josh may list the features he considers important in an armchair. For example, he might list attractiveness, comfort, and price. Then, for each armchair, he rates each feature on a scale from +5 to –5. He also weights each feature according to its importance. For instance, if he considers comfort to be twice as important as price, he multiplies the ranking for comfort by 2. Josh then adds up the ratings for each armchair. The chair with the highest ranking wins.
Another strategy for making decisions about preferences is called elimination by aspects, which involves eliminating alternatives based on whether they do or do not possess aspects or attributes the decision maker has deemed necessary or desirable. People often use this type of strategy when a large number of options and features have to be evaluated.
Example: When using this strategy to choose his armchair, Josh sets a minimum criterion for each feature he thinks is important. For example, minimum criteria for attractiveness, comfort, and price of an armchair might be blue color, soft fabric, and under $300, respectively. He then compares the two armchairs according to these minimum criteria, starting with the most important criterion. An armchair that doesn’t meet a criterion gets eliminated, and the remaining one wins.
When making choices about preferences, people select between known features of alternatives. In other types of decisions, however, they have to decide between unknown outcomes. This type of decision-making involves taking risks.
Example: If Eric is trying to decide whether to buy a $5 raffle ticket, a risk is involved, since he has only a 1 in 1000 chance of winning a $500 prize.
People make risky decisions by judging the probability of outcomes. Strategies people use to make risky decisions include calculating expected value, estimating subjective utility, and using heuristics.
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