Behavior: Decision Theory: Guide to Choice-Making

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It is an obvious fact that life is not as simple as a game of ticktacktoe, and in more complex situations man, despite the powers of his intellect, all too frequently makes mistakes. For many years, science has been grappling with the problem of how to assist man in coping with the vagaries of choice. One of the best-known of these efforts is the "theory of games" evolved by Mathematician John von Neumann and Economist Oskar Morgenstern in 1944, which attempts to translate human decision-making into pure mathematics.

Decision theory goes one step further by trying to accommodate the elusive factors of chance and human inconsistency. One of the basic principles is the distinction between value and utility—the difference in zeal, for instance, with which a rich man and a poor man will chase a windblown dollar. Like game theory, decision theory accepts human rationality. Unlike game theory, which holds that the optimal strategy is to lose no more than necessary, decision theory argues that the human contestant ought to be moved to win all he possibly can.

Game theory posits opponents of equal intelligence and craftiness, while decision theory accepts individual variation and unpredictability—including human failure to calculate risks in a logical manner. It is now known that in many situations the human subject will consistently undervalue the probabilities. In one war-problem experiment at Michigan, Psychologist Edwards carefully loaded the odds against peace at 99 to 1. His subjects, consulting the evidence, intuitively set the odds at less than 5 to 1. This human conservatism toward risk, repeatedly confirmed in the laboratory, has led decision theorists to reliance on a mathematical principle known as Bayes' theorem. Formulated by Thomas Bayes, an 18th century British cleric, it states how probabilities, or opinions about how likely an event is to occur, ought to be appraised in the light of new information. In effect, the decision theorists propose that while man can rationally reach conclusions from an original set of circumstances, he tends to cling stubbornly to these conclusions even if they are contradicted by subsequent evidence.

In an increasingly complex world, this conservative attitude toward new facts may well have significant impact on the decisions that affect human survival. Edwards cites the hypothetical example of a U.S. general digesting information from American intelligence in Europe: The general learns that Soviet troops in unprecedented number have crossed the East German border. An agent reports the boast of a Russian colonel, drunk in a Berlin Bierstube, that Chancellor Kiesinger has only a month to live. From Black Sea stations, Russian submarines move out in unfamiliar formations. The U.S. general must decide in a very short time whether these ominous data require a response —and, if so, what sort of response.