The minds behind our choices
Bounded rationality and prospect theory.
- Level
- Bitesize
- Learning time
- 1 hour 15 minutes
- Where
- Solving Complex Problems and Decision Making
- Price
- £39
When you step up to a higher level, what you paid in the last 12 months for lower-level courses inside the bigger course comes off its price, in proportion to how much of each is inside it, whichever topic it's from. Courses at the same or a lower level don't give credit against each other. A Focus course or above always costs at least £15. Read the full terms
Certificate of Completion
Overview and Outcomes.
Overview
Intelligent, well informed people still do not optimise, and this module explains why. It draws on Herbert Simon's administrative model, bounded rationality and satisficing, and on Mintzberg's non sequential model of identification, development and selection. The Kodak digital camera case shows how a run of individually satisfactory decisions can prove fatal, and the module offers practical questions for testing whether good enough is still good enough. This module explores Kahneman and Tversky's prospect theory and its three building blocks: loss aversion, reference dependence and diminishing sensitivity. It shows how losses loom roughly twice as large as equivalent gains, how gain and loss framing changes choices, and why sunk cost reasoning keeps failing projects alive, using the Concorde case. It offers practical habits and questions for separating a decision that protects a loss from one that weighs a future.
What you'll develop
In this Bitesize, you will develop the ability to:
- Explain Simon's bounded rationality and distinguish satisficing from optimising by their stopping rules.
- Describe Mintzberg's non sequential model and plan checkpoints that keep a looping decision purposeful.
- Assess whether a satisfactory answer still holds by asking against which criteria it was judged and how long ago those were chosen.
- Explain loss aversion, reference dependence and diminishing sensitivity, and how they depart from the classical rational model.
- Identify sunk cost reasoning in a continue or stop decision and apply habits that loosen loss aversion's grip.
The Modules.
1 hour 15 minutes of learning.
- 03Bounded Rationality: How Decisions Really Get MadeIntelligent, well informed people still do not optimise, and this module explains why. It draws on Herbert Simon's administrative model, bounded rationality and satisficing, and on Mintzberg's non sequential model of identification, development and selection. The Kodak digital camera case shows how a run of individually satisfactory decisions can prove fatal, and the module offers practical questions for testing whether good enough is still good enough.39 min
- 04Prospect Theory: How We Really Weigh Gains and LossesThis module explores Kahneman and Tversky's prospect theory and its three building blocks: loss aversion, reference dependence and diminishing sensitivity. It shows how losses loom roughly twice as large as equivalent gains, how gain and loss framing changes choices, and why sunk cost reasoning keeps failing projects alive, using the Concorde case. It offers practical habits and questions for separating a decision that protects a loss from one that weighs a future.38 min
Keep going.
Part of the Solving Complex Problems and Decision Making topic, also sold whole as Clear calls in complex times.
Go deeper, and pay only the difference
- You are hereBitesize, 1 hour 15 minutes, £39
- Next stepFocus, How we really decide, 2 hours 30 minutes, £69. Already own the Bitesize? You pay £30.
- Explore, How decisions really get made, 6 hours 30 minutes, £129. Already own the Bitesize? You pay £90.
- The whole topicImmerse, Clear calls in complex times, 13 hours 30 minutes, £249. Already own the Bitesize? You pay £210.
When you step up to a higher level, what you paid in the last 12 months for lower-level courses inside the bigger course comes off its price, in proportion to how much of each is inside it, whichever topic it's from. Courses at the same or a lower level don't give credit against each other. A Focus course or above always costs at least £15. Prices per person. Read the full terms
Also part of: Clear heads on AI
Other Bitesize in the Solving Complex Problems and Decision Making topic
- Solving is not decidingProblem solving and decision making basics1 hour 15 minutes£39
- The value of a dissenting voiceGroupthink and problem structuring methods1 hour 15 minutes£39
- Fast thinking, slow thinkingKepner Tregoe, OODA loop and decision rights1 hour 15 minutes£39
- Weighing the optionsCost benefit analysis and data for decisions1 hour 15 minutes£39
- Different minds, different routesDesign thinking and Kirton KAI problem solving1 hour 15 minutes£39
- Getting to the root of itRoot cause analysis: five whys and fishbone1 hour 15 minutes£39
