What Is Optimal Foraging Theory?

Kahneman’s article is an analysis of intuitive thinking and how it guides our decision-making. Although primarily aimed at the field of psychology, it is an interdisciplinary article with applications in economic theorising. Kahneman attempts to differentiate between two systems of thought, one of intuition (system 1) and one of reasoning (system 2), and argues that many judgements and choices are made intuitively, rather than with reason (a slower and more deliberate process). Intuitive decision making, which encompasses heuristics, although generally more efficient and rapid, makes the agent potentially subject to errors due to framing effects or violations of dominance. The analysis of the studies and theoretical situations also provides criticism of the commonly held model of the rational agent within economics. The article also further conceptualises Kahneman’s theory, the Prospect Theory (Kahneman & Tversky, 1979), which has descriptive applications of people’s choice in decision-making situations involving risk and known probability of outcomes. These situations are typically unexplained by the more normative rational agent model.

17. Environments exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they are aware of the probabilities associated with their occurrence

There are two kinds of errors people make when trying to decide what the right thing is to do, and those are errors in estimating the odds that they're going to succeed, and errors in estimating the value of their own success.

What choices are driven

When humans make a decision, it often turns out to be “predictably irrational” (Ariely, 2009). They always deviate systematically from expected decision rather show an inclination towards a certain way of thinking. This consistency of behavioral or decision bias can be very helpful to identify consequences or outcomes in a different

Almost everyone uses decision-making on a daily basis. The ability to make decisions is significant because possible outcomes can outweigh losses depending on the decision you choose to make. Decision-making helps to solve everyday problems, but has also been beneficial to solving several scientific issues like Bechera, Damasio, Damasio, and Anderson (1994) did in their study of the Iowa Gambling Task. There were a total of 50 participants in their study, where 44 men and women were from a normal control group and 6 men and women were E.V.R subjects. The subjects are told to select a card from four decks until they are told to stop. The subjects receive money depending on the deck they choose from. After so many turns and receiving money, they

This analysis includes two articles focusing of the paradox of choice, “More is More: Why the Paradox of Choice Might Be a Myth” by Derek Thompson and “The Paradox of Choice” by Barry Schwartz. "More Is More: Why the Paradox of Choice Might Be a Myth" started off with an example on jams. Researchers presented many types of jams to attract shoppers. In one experiment six different types of jams were presented for the shoppers, the other experiment presented twenty-four types of jams. There were much more sales for the twenty-four types of jams than the six types of jams. Derek Thompson, the author, went on to explain that having options make us more confident in the choices we make. Another research was conducted, where participants were asked if they would buy the only TV that was at a Best Buy store, even if it was what they were looking for. Only nine percent of the participant said they would buy it, because they want to compare that television to other televisions to see if they are getting a good deal.

As Roger Penrose summed it up pithily: "It is a mysterious thing, in fact, how something that looks attractive may have a better chance of being true than something which looks ugly. I have noticed on many occasions (in my own work) where there might, for example, be two guesses that could be made as to the solution of a problem, and in the first case I'd think how nice it would be if it were true; whereas in the second case I’d not care very much about the result even if it were true. So often, in fact, it turns out that the more attractive possibility is the true

Me and my dad are sitting in a treestand. We have seen a couple does. A couple small bucks but no shooters. It is still the morning so we still have time. It is about midday and we are getting out of our stand to go get lunch. So we got lunch and are headed back. We are back to the stand now. We have been sitting there for a couple of hours. It is about dark now and we hear something far away. So we look and it is a monster buck but it is way too far to shoot with my bow. So I try to grunt it in but it won't come. It is the next day now and we are in our blind today because it is a little windy. We are sitting there and I hear something. So I look over and it is a small buck. So we are watching it and we see something from far away. I get the binoculars and it is a monster. So I try to rattle this time but it still don’t come. So the last day we go back to the treestand. We have seen a lot of does. Then I hear something so I look around and I see a doe and it is just standing there. So I see movement behind it and it is the monster buck. So I get the grunt out and I grunt. Then, all the sudden he comes running. So I get

Consider an example of a very hungry shopper (forgot to have lunch) went to the grocery store to d his weekly shopping. If his present state of hunger provokes him to buy a large dinner portion for consumption on the day later in the week when he will eat lunch in his office, then he had made an error in predicting the future outcome that has led to a bad choice. His outcome was labelled as ‘projection bias’ since the shopper was projecting his current mental state onto a future one. The projection bias entails violation of utility maximization.

Personal decision making is influenced by a range of biases, many of which we are unconscious of. Being more aware of these biases reveals how individual decision making can be improved. (Reference…)

Myriad decisions affront us every day. Each decision is decomposable into sub-decisions. For instance, consider the mental turmoil or apathy required to determine whether you shall go grocery shopping. First, you determine an initial need for grocery shopping (i.e., you are out of milk, eggs, etc.). Next, you consider what you would rather (an evaluation of utility) do. This cost-benefit analysis continues until going seems to bring greater utility or until staying does. Though these calculations require a second or so in your mind, in decomposing this choice, one finds a series of individual decisions contributing to the final. These subdecisions may “How much is milk worth my going to the store?” or “How much does this television show dissuade me from going to the store?” However, one can go deeper still. In answering each of the above subquestions, you subconsciously evaluate the options on a scale of utility. Consider this concept, though: for any arbitrarily selected value on that scale, you must subconsciously “decide” if the value is satisfactory--a boolean decision (see Fig. 1). Additionally, all but the lowest layer of subdecisions are considerable as independent decisions in different contexts. Accordingly, these decisions are likewise decomposable to final boolean decisions, assuming all high level “decisions” are decomposable. Also note these boolean decisions are never consciously considered in first order as that requires additional levels of

For this reason people may tend to think that certain settings are neutral since we are used to them. However the person that presents the choices will in most cases tend to bias the decisions in one way or another (Thaler, et al. 61).

The human mind is a fascinating thing, doing more work then we can possibly imagine and much more than we ever think about. The conscious part of the mind that controls our decision making abilities is itself controlled by many forms of biases operating both in the conscious and unconscious parts of the mind , many of which we never realize are even there. These decision affecting biases can be the difference between making a wise decision and a bad one. One such instance this holds true for is when deciding rather it’s time to give an employee a raise or not.

Prospect theory is an important alternative descriptive theory for decision-making under unreliable situation (Kahneman and Tversky 1979), which includes real life selection and psychological analysis between choices that involve risk. Prospect theory, which efforts to explain individual make decisions between risky replacements based on the value of potential gains and losses (Wakker 2010), advanced from expected utility theory, which explains that investors want to maximize expected utility of wealth when unclearly situations (Blavatskyy 2007). According to Kahneman and Tversky (1992), more recent researches perceived nonlinear preferences in choices that do not involve definite events in prospective theory. The concept of framing effect refers description invariances (Kahneman and Tversky 1992). To be specific, individual always makes the same decision in identical choice conditions. Also, decision makers have tendency to