DISI

Department of Information Engineering and Computer Science

Notes of

Innovation & Entrepreneurship

Lesson of 8 November 2016Decision Models

Thanks to the efforts ofStefano Fioravanzo Matteo Fioranzato Linda Bertolli Annalisa Tomasini

Academic year 2016/17

Announcement: Last battle poll resulted in a difference of just one vote. Even if that seems unfair,the team with one vote more wins → Full Disclosure Team is the winner.

What is a decision?

[REC: from 10th minute, Lecture 12, part I] Lesson begins.

The topics of this lectures can be found in chapters 5-6-7 of the I&E book.

We start considering what is the difference between a decision and a choice. Is the former a resultof the latter? How do decision happen, and how do they connect to the environment? We reason thathaving a choice does not imply the making of a decision.Moreover, a choice implies an action.

We need to take into account which are the final goals of our decisions. Also, how to evaluate the bestchoice, which is based on an evaluation, a preference. Preferences are part of the decision process.

Another aspect to consider are the consequences of our decisions.

The connection between the state of the world and goals is that reaching the goal is passing fromone state of the wolrd to another.

Another keyword in this discussion about decisions is the aspiration level.

So, finally we have defined these concepts:

• preferences

• aspirations

• goals

• consequences

We need to find ways to relate them and to put them in order.

One option is this: I know my goals, and choose based on my preference. Maximize the function thatgets to my desired levels.

We try to find some hierarchy of these concepts like:

1. preferences

2. set goals

3. the act

4. get consequences

Where do aspirations fit in this flow? Are they at the very beginning (what I want to reach, myexpectations) or at the very end (what I can reach at the end)?

Sometimes the goal cannot be well defined at the beginning, so after some “random” actions the goalcan be defined (because we have more knowledge). Some examples where the goals are following theaction: (act first and then set the goal):

1. Already bought ticket and going to a match

2. Football player realizing there is money

There is no software capable of changing preferences by itself (An example of a machine doing thiscould be HAL 9000 which decided to kill the crew members, but we are still far form having somethinglike this in reality).

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We can see ourselves as softwares that iterate: start from the preferences, set the goal, the aspirationlevels, then take some action and evaluate the consequences, iterating the process to improve.

[REC: from 35,10th minute, Lecture 12, part I]

Let’s now recap and make things more formal:

Decision Making

“Decision making is the study of identifying and choosing alternatives based on the values and pref-erences of the decision maker (. . . )”“Decision making process of sufficiently reducing uncertainty and doubt about alternatives to allow areasonable choice to be made from among them”

(As Robert H., 2012)

• Identify as many alternatives as possible

• Choose the one that has

– Highest probability of success or effectiveness

– Best fits with our goals, desires

Is it so easy? Of course, not. The decision making process is mutable, and depends on the environ-ment in which the decision hast to be taken.

Substantive and Procedural rationality:

• Substantive rationality: refers to the concept of rationality that grew up within economics

• Procedural rationality: refers to the concept of rationality developed within psychology

The two field grew up separately, since they try to answer a set of different questions. But are ofcourse related: Prospective decision.

Prospective (Substantive) Decision Making

PROSPECTIVE = you look at the future.

Focuses on something likely or expected to happen.

• Describes the way people choose between probabilistic alternatives that involve risk (probabilitiesof outcomes are known).

• People make decisions based on the potential value losses and gains rather than the final outcome.

How decisions happen in an “out-side” environment? (probabilities are exogenous: certainty and riskenvironments).

Olympic Rationality

“Procedural rationality is the behavior that, given conditions and constraints is the outcome of ap-propriate deliberation”

(H. Simon)

It is a method for systematically selecting among possible choices based on reasoning and facts

• Favors objectives data and a formal process of analysis over subjectivity and intuition.

• This model assumes that the decision maker has full or perfect information (all relevant dataare available to the decision maker). [Olympic → something perfect]

• Assumes that people will make choices that will benefits for themselves and minimize any cost.

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[Example: “Wargames movie”, take a look at this movie and at the role of the supercomputer (makethe computer play)]

There are two models:

1. In certainty: we have all the information to take the correct decision (here we have only theACTION, the possible decision is only one, all is certain, the probability of take a decision is 1).

2. In risk: the action now is performed after considering risk as discount factor/expected value. Itdepends on the probability.

In real life one case we thought we had an olympic rationale, is the stock market. We thought thatthe market was perfect. Until the fifties, we thought that decision were either certainty of risk.

Procedural Rationality

Some behavior is procedural when it is the outcome of deliberation. Procedural rationality dependson the process (routine) that generates the decision:

(Bounded) Procedural Rationality

In the decision making process rationality is limited by:

• The available information, but we have to search, we have limitation in acquiring knowledge

• Cognitive limitations of mind

• Time available to make the decision

• aspirations that can change through iterations

Fully rational decision making is not realistic because of the intractability of natural decision problemsand because of the finite computational resources available for making them.

[5 minutes’ break]

[REC: from 2,56th minute, Lecture 12, part II] Press managers presentation

• “Geotermia: L’Italia deve invidiare l’Islanda?” [must Italy envy Island?] In Italy, 40% of theenergy needs are satisfied from renewable sources, a lot of this is from geothermic technologies.Recently Iceland applied advanced geothermal technologies.

• “FBI in new Hillary Clinton email investigation 11 days before presidential election”. FBIreopened Clinton’s email investigation just 11 days before the elections, to close it the day beforeelection day. Question: what was the purpose of this?

• “U.S. fears Russia will orchestrate a cyber-attack on Election Day”

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• “U.S. Govt. Hackers Ready to Hit Back If Russia Tries to Disrupt Election”

• Funny video about a “cool Toilette” (link: https://www.youtube.com/watch?v=E4Gp8h4qOEk).

[REC: from 12,36th minute, Lecture 12, part II]

Bounded Rationality in Uncertainty

Eventually cycle again:

• Go back to change aspiration

• Go back to acquire more information and better know the world

This condition can be found in many real situations:

• Looking for a job

• Expectation of a given average mark of University’s exams

• Some board game examples: Monopoly, Risiko

• 13 days’ movie

• Cuba missile crisis: apply routines to military escalations. In this scenario, we have:

– The US want to protect the country (preferences)

– The US want the missiles out of Cuba in exchange of a no invasion (aspiration)

– The cabinet inquire the possibility of an offer of no invasion (information)

– The US make the offer (action)

– The USSR refuse the offer (uncertainty consequence)

– I check if they would exchange missiles with those in Turkey (bounded information acqui-sition)

– I might make an offer to take away missiles from Turkey (aspirations)

What is important is the consistency between preferences and consequences/achievements. To pre-serve rationality means to preserve your coherence. You change your habits in order to be coherent,to preserve the consistency. I do what I want: I can change what I do or I can change what I want tobe coherent. Rational means keeping a logic between these pieces, I can go backwards.

Next week we will talk about ambiguity, let’s think about it. And think also about retrospectivesoftware.

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⇒ KEYWORD for this lecture

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