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An Information processing theory of human decision making under uncertainty and risk

Abstract

Computer-based experiments were made to observe and record the verbal behavior of subjects making decisions in quantitative task environments under uncertainty and risk. The subjects exhibited different categories of mental representation of the task environment. These representations form the basis of their search and optimizing techniques.

The second phase of the project consisted of generating a psychological theory of the above behavior, in the form of a computer program. Comparing the trace of the program with tape-recorded protocols may indicate the level of completeness of the theory. It was found that the information processing approach can successfully explain general characteristics of decision making behavior and also some individual idiosyncrasies.

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This terminology is not quite uniform. Most authors in Statistical Decision Theory and Economics have adopted the convention that in a situation of uncertainty there is no à priori information about the system at hand, consequently probability distributions of various alternative outcomes cannot be objectively specified. In cases involving risk, however, it is assumed that, relying on prior events of identical character, these frequency distributions are available. In the present work we have not distinguished between these two cases and Described the psychological state of the subjects as that under uncertainty. The element of risk is represented by the subjects' financial involvement in the outcome of the experiments. The adopted terminology and the distinction made here may be rather useful with experiments which aim at discovering correlation between subjects' behavior and varying pay-off matrices while the stochastic components of the environment stay stationary.

The work reported here was done at Carnegie Institute of Technology and was supported by the Advanced Research Projects Agency of the Office of the Secretory of Defense: Contract SD-146.

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Findler, N.V. An Information processing theory of human decision making under uncertainty and risk. Kybernetik 3, 82–93 (1966). https://doi.org/10.1007/BF00299900

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Keywords

  • Decision Making
  • Information Processing
  • Computer Program
  • General Characteristic
  • Mental Representation