Decisions can be thought of as having five parts. Decision-making processes can fail if any part is misconceived or miscalculated. I will use this model of a decision-making process throughout the semester to illustrate a variety of concepts.
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This video was produced in January 2013 for my research methods seminar (SOC 334) at Queens College in the City University of New York. If you are enrolled in this class, you must also complete the assigned readings and exercises. Instructions will be posted on my web site and on Blackboard.
This video is part of an experiment in teaching with technology. In the coming semester, I plan on releasing other videos and an overview of this experiment. If you are interested, please visit my web site (www.josephncohen.org) and share your questions, corrections, thoughts or criticisms. I appreciate any feedback or advice on the video’s content (admittedly poor) production, or the format of moving my lectures to sets of short (5-10 minute) streaming videos.
We make decisions every day. Some of these decisions are trivial: Should I have a hamburger or pizza for lunch? Should I wear my blue or red shirt? Should I watch TV or surf the Internet tonight?
Others are more consequential:
Should I seek employment after graduating or pursue graduate school?
Should I propose to my girlfriend or consider another relationship?
Should I undergo a potentially life-saving yet dangerous operation?
Regardless of their significance, every decision impacts our lives. Even seemingly minor choices about food, attire, or leisure activities can accumulate and shape our lives.
So, what are decisions?
Decisions are choices we make among alternative actions to achieve a goal. It implies that we’re faced with multiple pathways to obtain what we want and must select one.
Decision-making has five elements:
Goals: These are the objectives we aim to achieve.
Options: These are the various paths available to us to reach our goals.
Potential Benefits: Every choice has an upside which brings us closer to our goal.
Risks: There’s always a chance things may not go as planned, diverting us from our objective.
Decision Rules: These are guidelines we use to determine the best option.
Consider Roy, concerned about his retirement savings. Roy’s primary aim is to amass sufficient funds for a comfortable retirement in approximately twenty years. To achieve this, he can invest in the stock market, bonds, or keep his money as cash.
To determine the best approach, one could consider historical data. For instance, examining the past performance of the Dow Jones Industrial Average may offer insight into potential stock market returns. Similarly, looking at the historical returns on ten-year Treasury bonds can provide an idea of potential bond yields.
While investing in stocks might offer the highest potential returns, it also comes with risks. Bonds offer slightly lower returns but might be more stable. Keeping money as cash has its downsides, especially with inflation eroding its value over time.
Decision rules help Roy evaluate which option aligns best with his priorities. He can aim to maximize profit, minimize risk, or focus on ethical investments. In our example, let’s say Roy chooses to prioritize profit.
In reality, decision-making can be more nuanced, with multiple overlapping objectives and varied decision rules. However, to simplify: if we examine historical data, it becomes evident that stocks have frequently provided the highest returns, making them a top choice for maximizing profits.
In conclusion, decisions encompass goals, options, potential benefits, risks, and decision rules. These choices guide our actions and thoughts, rooted in objectives we hope to achieve. Every choice carries potential rewards and risks, and we employ decision rules to determine the optimal course of action.