On my previous post I wrote about some of the basics of Decision Making from a Cognitive Psychology perspective. This post will be about the Expected Utility Model which offers a guide on how we make rational decisions.

Before I begin to describe this model further I must first define what utility is. Utility is the desirability of the outcome of a decision. Note that the idea of utility differs from person to person as individuals place value in different things. Mathematically, Expected Utility can be described as utility multiplied by the likelihood of occurrence.

The Expected Utility Model assumes that the decision maker will make a rational decision and choose the decision with the highest expected utility. This model states that decisions are made by performing (rough) calculations on expected utility and choosing the outcome with the highest.

Obviously we do not seem to always be acting rationally and we make decisions that are not optimal. This has to do with the subjective aspect of utility, that it differs from person to person. For example consider the two scenarios:
            -Option 1. A 100% percent chance of winning 300$
            -Option 2. A 65% chance to win 500$ and 35% chance of winning nothing.
More often than not people will choose option 1 over option 2. If we look back and calculate the expected utility of each option we find option 1 to have an expected utility of 300$ and option 2 to have 325$. People tend to prefer situations where rewards are certain and losses are uncertain.

As we see, the Expected Utility Model is not accurate in describing complex situations but offers psychologists a good tool for studying and observing decision making. Observing how decisions do not fit into this model offers insight in how our brain places value in certain things.
            For my next post I am planning on writing about online games and why many players like to shift blame of loss onto others.This is commonly seen in games where team play and cooperation is important. This phenomena causes much grief and anguish among video game communities. 

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10 responses to "Making Rational Decisions, The Expected Utility Model (Cognitive Psychology)"

  1. This is an excellent guide man. Thanks so much for sharing this buddy, great stuff.

  2. Interesting stuff, thanks a lot.

  3. I might read that guide later OR tweet pictures of my junk to my coworkers I haven't decided. a3

  4. This is interesting. This tool is related to treat gamblers too?

    I'm waiting for your next post. I don't really get why I get SO angry in online videogames, is the total opposite of my personality. haha.

  5. I can't wait to read your next post. My son (12 years old) does blame everyone else in online games.

    I'll read it to him word for word.

    p.S. This is why I play Madden

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  7. I will have to remember this! great info!

  8. This is pretty confusing for me, thanks for sharing anyway.

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