Decision Theory Made Relevant: Between the Software and the Shrink

27 Pages Posted: 15 May 2018

See all articles by Itzhak Gilboa

Itzhak Gilboa

Tel Aviv University - Eitan Berglas School of Economics; HEC Paris - Economics & Decision Sciences

Maria Rouziou

HEC Paris - Marketing

Olivier Sibony

McKinsey & Co. Inc.

Date Written: January 1, 2018

Abstract

Decision theory offers a formal approach to decision making, which is often viewed and taught as the rational way to approach managerial decisions. Half a century ago it generated high hopes of capturing and perhaps replacing intuition, and providing the “right” answer in practically all managerial situations. Today it seems fair to say that decision theory has not lived up to these expectations. Behavioral science provides ample evidence that managers fail to follow the dicta of decision theory, even when these are explained to them. As a result, executives often find decision theory frustrating and useless and prefer to rely on their intuition. This paper suggests that this extreme conclusion is unwarranted and calls for a re-appraisal of decision theory. We propose that it should not always be regarded as a mathematical tool that produces the answer; rather, it can be viewed as a framework for a dialog between the decision maker and the decision theorist. In one extreme, the decision theorist studies the problem and provides the “correct’’ answer. But in another, the decision theorist only challenges the decision maker’s intuition and logic. In between, a whole gamut of possible dialogs exists, in which decision theory doesn’t replace intuition, but supports and refines it.

Suggested Citation

Gilboa, Itzhak and Rouziou, Maria and Sibony, Olivier, Decision Theory Made Relevant: Between the Software and the Shrink (January 1, 2018). HEC Paris Research Paper No. ECO/SCD-2018-1266. Available at SSRN: https://ssrn.com/abstract=3178715 or http://dx.doi.org/10.2139/ssrn.3178715

Itzhak Gilboa (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-6423 (Phone)
972-3-640-9908 (Fax)

HEC Paris - Economics & Decision Sciences

Paris
France

Maria Rouziou

HEC Paris - Marketing ( email )

Paris
France

Olivier Sibony

McKinsey & Co. Inc. ( email )

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