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Making better decisions - Coggle Diagram
Making better decisions
Decision making processes.
Rational choice model
exhaustive search and review of all alternatives.
yield optimal outcome
Utility maximisation
Satisficing Model
Limited search for alternatives
satisfactory outcome
decisions are based on behavioral economics..
Rational decision process
establish the criteria
identify the possible alternatives.
Clarify the problem
4.Collect information about the relevant costs and benefits.
relevant
Avoidable costs
Opportunity costs
Out of pocket costs
irrelevant
Sunk costs
Unavoidable costs
Heuristics
Availability Heuristics
Anchoring Heuristics
Representative Heuristic
Biases
Sunk cost bias
only include relevat information
disregard past losses/investments
Loss aversion
set benchmarks for performance
keep a record of historical performance over time
Confirmation bias
Establish a decision criteria before searching for alternatives
encourage a thorough search and analysis of all alternatives
Status quo bias
value the opportunity costs
check the default setting