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Choice modelling attempts to model the decision process of an individual or segment in a particular context. Choice modelling may be used to estimate non-market environmental benefits and costs. [ 1 ] Many alternative models exist in econometrics , marketing , sociometrics and other fields, including utility maximization, optimization applied to consumer theory , and a plethora of other identification strategies which may be more or less accurate depending on the data , sample , hypothesis and the particular decision being modelled. In addition Choice Modelling is regarded as the most suitable method for estimating consumers’ willingness to pay for quality improvements in multiple dimensions. [ 2 ] The Nobel Prize for economics was awarded to a principal exponent of the Choice Modelling theory, Daniel McFadden . [ 3 ] [ edit ] Related terms for choice modelling
A truism is a claim that is so obvious or self-evident as to be hardly worth mentioning, except as a reminder or as a rhetorical or literary device and is the opposite of falsism . [ 1 ]
Satisficing , a portmanteau of satisfy and suffice , [ 1 ] is a decision-making strategy that attempts to meet an acceptability threshold. This is contrasted with optimal decision -making, an approach that specifically attempts to find the best option available. A satisficing strategy may often be (near) optimal if the costs of the decision-making process itself, such as the cost of obtaining complete information, are considered in the outcome calculation.
The fact that people's intuitive decisions are often strongly and systematically biased has been firmly established over the past 50 years by literally hundreds of empirical studies.
In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs , which are future costs that may be incurred or changed if an action is taken.
Prospect theory is a behavioral economic theory that describes the way people chose between probabilistic alternatives that involve risk , where the probabilities of outcomes are known. The theory states that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using certain heuristics .
The terms a priori ("from the earlier") and a posteriori ("from the later") are used in philosophy ( epistemology ) to distinguish two types of knowledge , arguments : A priori knowledge or justification is independent of experience (for example "All bachelors are unmarried"). Galen Strawson wrote that an a priori argument is one in which "you can see that it is true just lying on your couch.
In economics , utility is a representation of preferences over some set of goods and services. Preferences have a (continuous) utility representation so long as they are transitive, complete, and continuous. Utility is usually applied by economists in such constructs as the indifference curve , which plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively.
Decision theory in economics , psychology , philosophy , mathematics , and statistics is concerned with identifying the values , uncertainties and other issues relevant in a given decision , its rationality , and the resulting optimal decision .
Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
Sample flowchart representing the decision process to add a new article to Wikipedia.
Decision analysis ( DA ) is the discipline comprising the philosophy , theory , methodology , and professional practice necessary to address important decisions in a formal manner. Decision analysis includes many procedures , methods, and tools for identifying, clearly representing, and formally assessing important aspects of a decision, for prescribing a recommended course of action by applying the maximum expected utility action axiom to a well-formed representation of the decision, and for translating the formal representation of a decision and its corresponding recommendation into insight for the decision maker and other stakeholders . [ edit ] History and methodology The term decision analysis was coined in 1964 by Ronald A. Howard , [ 1 ] who since then, as a professor at Stanford University , has been instrumental in developing much of the practice and professional application of DA.