Decision-Making Competence

Andrew M. Parker, Virginia Polytechnic Institute and State University
Baruch Fischhoff, Carnegie Mellon University
EXTENDED ABSTRACT - In consumer choice, as well as other areas of daily life, the ability to make effective decisions is critical. These skills include extracting relevant information from the world, assessing one’s beliefs and values, and integrating these pieces with a coherent decision rule. Research has often found human decision making to be Asuboptimal@ in these areas. These limits are reflected in such anomalies as preference reversals, anchoring and (insufficient) adjustment, honoring sunk costs, poorly calibrated confidence judgments, and hindsight bias (Kahneman, Slovic, and Tversky 1982; Yates 1990). This research has been primarily experimental. Consequently, it has typically focused on understanding general cognitive processes, rather than explaining individual differences. Nonetheless, these tasks do show considerable performance variability, in the sense that some people do better than others. We ask whether these differences reflect consistent individual differences, perhaps to the extent of constituting a coherent construct of Adecision-making competence.@
[ to cite ]:
Andrew M. Parker and Baruch Fischhoff (2002) ,"Decision-Making Competence", in NA - Advances in Consumer Research Volume 29, eds. Susan M. Broniarczyk and Kent Nakamoto, Valdosta, GA : Association for Consumer Research, Pages: 434-437.

Advances in Consumer Research Volume 29, 2002     Pages 434-437

DECISION-MAKING COMPETENCE

Andrew M. Parker, Virginia Polytechnic Institute and State University

Baruch Fischhoff, Carnegie Mellon University

EXTENDED ABSTRACT -

In consumer choice, as well as other areas of daily life, the ability to make effective decisions is critical. These skills include extracting relevant information from the world, assessing one’s beliefs and values, and integrating these pieces with a coherent decision rule. Research has often found human decision making to be "suboptimal" in these areas. These limits are reflected in such anomalies as preference reversals, anchoring and (insufficient) adjustment, honoring sunk costs, poorly calibrated confidence judgments, and hindsight bias (Kahneman, Slovic, and Tversky 1982; Yates 1990). This research has been primarily experimental. Consequently, it has typically focused on understanding general cognitive processes, rather than explaining individual differences. Nonetheless, these tasks do show considerable performance variability, in the sense that some people do better than others. We ask whether these differences reflect consistent individual differences, perhaps to the extent of constituting a coherent construct of "decision-making competence."

The domain of this construct is defined according to five key decision-making skills. Decision structuring involves the extraction of key components from an unstructured decision situation, including potential options, attributes, outcomes, and decision strategies. Belief assessment is the determination of the likelihood of potential outcomes. Value assessment is the determination of the personal value of those outcomes. Integration involves the combining of beliefs and values into coherent decisions. Finally, metacognition is the understanding of the extent of one’s own decision-making competencies. Assessment of decision structuring requires the use of open-ended methods, which were beyond the scope of the current study. Hence, we adapted seven conventional experimental tasks, tapping into the remaining four skills. These tasks also covered other common decision-theoretic distinctions, including accuracy versus consistency and judgment versus choice. They were administered to 110 respondents from the Center for Education and Drug Abuse Research (CEDAR), an ongoing longitudinal study focusing on the etiology of substance abuse. All respondents were male and 18-19 years old at he time of the current assessment. The CEDAR database includes assessment of these individuals every few years, starting at age 10-12, and contains extensive physical, social, psychological, and behavioral measures. The decision-making competence (or DMC) protocol was run at the end of the 18-19 year-old assessment, and took less than an hour to complete. Retest reliability data were also collected on a subsample of these individuals.

The initial hypothesis stated that the seven DMC measures would correlate positively with each other, forming a "positive manifold" across decision-making skills. The results showed all correlations to be either positive or very close to zero. An exploratory factor analysis of the seven measures extracted three factors that did not correspond cleanly with the hypothesized distinctions of skill set, accuracy/consistency, or judgment/choice. Hence, we focused on the first (and largest) factor, most strongly represented by the tasks of framing, calibration, and multiattribute choice (and perhaps reflecting global decision-making competency). This factor accounted for approximately 25% of the variance in the original data. In support of nomological validity, this factor correlated with measures of intelligence (e.g., vocabulary and executive cognitive functioning), cognitive style (e.g., self monitoring), risk behavior (e.g., drug use), and social/family influences (e.g., a positive peer environment). Notably, while DMC correlated strongly with the two measures of intelligence, DMC showed strong links with the other CEDAR measures, independent of intelligence. Perhaps the strongest such link was between DMC and risk behaviors, including delinquency, illegal drug use, and sexual activity at a young age.

From a theoretical perspective, the correlation between the seven DMC measures suggests a real underlying basis for non-normative behavior, rather than simply being the result of random error (which would suggest zero correlation). While the strong correlation with intelligence suggests some effect of cognitive limitations, the correlations with cognitive style may reflect the use of non-normative decision strategies (which may be responsive to training) (Stanovich and West 2000). Finally, the correlation between DMC and risk behavior, as well as social environment, provides nomological validity for these experimental tasks long assumed to reflect aspects of real-world decision making (an assumption that has rarely been tested).

From a practical perspective, if DMC involves skills (rather than traits), then training people to make good decisions might reduce risk behaviors. Identification of groups with particular decision-making difficulties could lead to tailored interventions, such as educational programs or decision aids (Baron and Brown 1991; Fischhoff 1992). The present research focuses on relative competence. However, absolute competence in making consistent, accurate decisions is central to such legal and medical issues as how competent are adolescents to stand trial and manage their own heath care. Translating DMC into a measure of absolute competence will involve establishing a benchmark for acceptable real-world performance, then relating DMC to it.

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