Desicion Making and Problem Solving Essay Example

have been made during the past half century in understanding problem solving and decision making. The progress already achieved holds forth the promise of exciting new advances that will contribute substantially to our nation's capacity for dealing intelligently with the range of issues, large and small, that confront us.

Much of our existing knowledge about decision making and problem solving, derived from this research, has already been put to use in a wide variety of applications, including procedures used to assess drug safety, inventory control methods for industry, the new expert systems that embody artificial intelligence techniques, procedures for modeling energy and environmental systems, and analyses of the stabilizing or destabilizing effects of alternative defense strategies. Application of the new inventory control techniques, for example, has enabled American corporations to reduce their inventories by hundreds of millions of dollars since World War II without increasing the incidence of stockouts. ) Some of the knowledge gained through the research describes the ways in which people actually go about making decisions and solving problems; some of it prescribes better methods, offering advice for the improvement of the process.Central to the body of prescriptive knowledge about decision making has been the theory of subjective expected utility (SEU), a sophisticated mathematical model of choice that lies at the foundation of most contemporary economics, theoretical statistics, and operations research.

SEU theory defines the conditions of perfect utility-maximizing rationality in a world of certainty or in a world in which the probability distributions of all relevant variables can be provided by the decision makers. In spirit, it might be compared with a theory of ideal gases or of frictionless bodies sliding down

inclined planes in a vacuum. ) SEU theory deals only with decision making; it has nothing to say about how to frame problems, set goals, or develop new alternatives. Prescriptive theories of choice such as SEU are complemented by empirical research that shows how people actually make decisions (purchasing insurance, voting for political candidates, or investing in securities), and research on the processes people use to solve problems (designing switchgear or finding chemical reaction pathways).

This research demonstrates that people solve problems by selective, heuristic search through large problem spaces and large data bases, using means-ends analysis as a principal technique for guiding the search. The expert systems that are now being produced by research on artificial intelligence and applied to such tasks as interpreting oil-well drilling logs or making medical diagnoses are outgrowths of these research findings on human problem solving.What chiefly distinguishes the empirical research on decision making and problem solving from the prescriptive approaches derived from SEU theory is the attention that the former gives to the limits on human rationality. These limits are imposed by the complexity of the world in which we live, the incompleteness and inadequacy of human knowledge, the inconsistencies of individual preference and belief, the conflicts of value among people and groups of people, and the inadequacy of the computations we can carry out, even with the aid of the most powerful computers.The real world of human decisions is not a world of ideal gases, frictionless planes, or vacuums.

To bring it within the scope of human thinking powers, we must simplify our problem formulations drastically, even leaving out much or most of what is potentially relevant. The

descriptive theory of problem solving and decision making is centrally concerned with how people cut problems down to size: how they apply approximate, heuristic techniques to handle complexity that cannot be handled exactly.Out of this descriptive theory is emerging an augmented and amended prescriptive theory, one that takes account of the gaps and elements of unrealism in SEU theory by encompassing problem solving as well as choice and demanding only the kinds of knowledge, consistency, and computational power that are attainable in the real world. The growing realization that coping with complexity is central to human decision making strongly influences the directions of research in this domain.Operations research and artificial intelligence are forging powerful new computational tools; at the same time, a new body of mathematical theory is evolving around the topic of computational complexity.

Economics, which has traditionally derived both its descriptive and prescriptive approaches from SEU theory, is now paying a great deal of attention to uncertainty and incomplete information; to so-called "agency theory," which takes account of the institutional framework within which decisions are made; and to game theory, which seeks to deal with interindividual and intergroup rocesses in which there is partial conflict of interest. Economists and political scientists are also increasingly buttressing the empirical foundations of their field by studying individual choice behavior directly and by studying behavior in experimentally constructed markets and simulated political structures. The following pages contain a fuller outline of current knowledge about decision making and problem solving and a brief review of current research directions in these fields as well as some of the principal research opportunities.