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mardi 23 juillet 2019

Cognitive Psychology : Making Rational Decisions, The Expected Utility Model

Cognitive Psychology : Making Rational Decisions, The Expected Utility Model
Cognitive Psychology : Making Rational Decisions, The Expected Utility Model


On my previous post I wrote about some of the basics of Decision Making from a Cognitive Psychology perspective. This post will be about the Expected Utility Model which offers a guide on how we make rational decisions.

  • the expected utility model its variants purposes evidence and limitations : 



Before I begin to describe this model further I must first define what utility is. Utility is the desirability of the outcome of a decision. Note that the idea of utility differs from person to person as individuals place value in different things. Mathematically, Expected Utility can be described as utility multiplied by the likelihood of occurrence. 
Mind Not Found -Cognitive Psychology : Making Rational Decisions, The Expected Utility Model
Cognitive Psychology : Making Rational Decisions, The Expected Utility Model

The Expected Utility Model assumes that the decision maker will make a rational decision and choose the decision with the highest expected utility. This model states that decisions are made by performing (rough) calculations on expected utility and choosing the outcome with the highest.

Obviously we do not seem to always be acting rationally and we make decisions that are not optimal. This has to do with the subjective aspect of utility, that it differs from person to person. For example consider the two scenarios:

            -Option 1. A 100% percent chance of winning 300$
            -Option 2. A 65% chance to win 500$ and 35% chance of winning nothing. 

More often than not people will choose option 1 over option 2. If we look back and calculate the expected utility of each option we find option 1 to have an expected utility of 300$ and option 2 to have 325$. People tend to prefer situations where rewards are certain and losses are uncertain.

Cognitive Psychology : Making Rational Decisions, The Expected Utility Model
Cognitive Psychology : Making Rational Decisions, The Expected Utility Model


As we see, the expected utility model its variants purposes evidence and limitations is not accurate in describing complex situations but offers psychologists a good tool for studying and observing decision making. Observing how decisions do not fit into this model offers insight in how our brain places value in certain things.

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