Graduate Thesis Or Dissertation
 

An investigation of the influence of choice structure on decision making behavior

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  • The behavior of individuals in decision making under risk was investigated using choice structures of greater complexity than the types examined in previous studies. The experiment performed consisted of two phases. In Phase I a basic utility function for money was derived for each subject using lotteries with two equally likely outcomes--the type considered most conducive for determining one's true preferences. In Phase II each subject responded to lotteries with three, four, and five outcomes. The probability distributions used for the complex choice structures corresponded to "even-odds," "long-shots," and "almost-sure-thing" risk patterns. In order to induce realistic responses, one lottery was selected at random by each subject and played using real money. The complex lotteries for the experiment were generated by a computer program based on a "steepest descent" type of algorithm. Such lotteries were designed to have specified expected value, variance, skewness, and number of outcomes. The effects of lottery size and skewness as measured by the deviations from the basic utility function were studied by an analysis of variance. For this purpose a 3 x 3 random block factorial design was set up with four replications. For subjects with significant effects, Scheffe's method was employed for a study of simple contrasts. The evaluation of the results based on deviations from the basic utility function showed that in the face of increased complexity and uncertainty all subjects tended to become more extravagant. This strongly suggests a rise in the aspiration level as the choice structure is made more complicated. Further experimentation appears to be warranted to define more clearly an individual's reaction to increasing complexity in the decision environment. It was also found that skewness was a significant source of variation. A cautious interpretation of the results suggests that the deviations from the basic utility function become larger as the type of odds changes from the most preferred to the least preferred pattern for a given type of decision maker. Lottery size was judged to be a significant source of variation, but only for a small number of participants. At the levels specified for lottery size and skewness, it was concluded that these factors do not interact. The results obtained from this experiment appear in agreement with the findings from previous experiments with much simpler choice structures. It is also worth noting that the conclusions from the statistical analysis of the deviations were generally supported by each subject's personal evaluation of the importance of the factors studied, thus suggesting an awareness of the dominant factors in the decision environment. In conclusion, the findings of this research provide additional support to the argument that modern utility theory, particularly the von Neumann-Morgenstern model, is more valuable as a prescriptive rather than as a predictive or descriptive "tool" for human decision making. As such, its most promising role seems to be that of integrating the subjective inputs to a decision problem. In this role, utility theory will perform three crucial functions. First, it will provide a sound basis for formulating decision rules consistent with the overall objectives of a system. Second, it will serve as a means for communicating desired attitudes to key decision centers. Finally, it will enable the design of control systems that induce behavior consistent with overall objectives rather than dependent on personal idiosyncracies.
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file details DervitsiotisKostasN1968.pdf 2017-08-17 Público Baixar