Mendelsohn_Risk and Uncertainty in Decision Making_LI
1. Teri Mendelsohn
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Risk and Uncertainty in Theories of Decision Making
By Teri Mendelsohn
Multidisciplinary Approaches to Human Decision Making
Prof. Elke Weber
11 May 2016
Entire paper available upon request from tm137@columbia.edu
Summary
Decision-making has long been the subject of study. Early theories about decisions, such as Bernoulli’s expected theory, were
idealistic, normative descriptions of cognitive processes. Subsequent theories, like Kahneman and Tversky’s prospect theory, were
increasingly realistic, descriptive explanations of cognition, complete with inconsistencies. Loewenstein et al.’s risk-as-feeling
hypothesis incorporated affect in decision-making. Most recently, Aston-Jones and Cohen’s adaptive gain theory offers a
mechanistic, cognitive portrayal of decision-making and its underlying brain processes. As the understanding of mind and tools for
studying brain advanced, so too did descriptions of their interactions become more refined. The role of risk, or uncertainty about the
probability of outcomes, was differentiated from uncertainty, or uncertainty related to the ambiguity of information. This paper
examines the evolution of explanations of decision-making and the roles that risk and uncertainty play in each.
2. Teri Mendelsohn
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Fig. 1. A Hypothetical Value Function for Prospect Theory.
Source: Kahneman, D., & Tversky, A. (1979) Prospect theory: An analysis of decision under risk. Econometrica: Journal of the
Econometric Society, 263-291.
