This paper studies decision making by agents who value optimism, but are unsure of their environment. As in Brunnermeier and Parker (2005), an agent’s optimism is assumed to be tempered by the decision costs it imposes. As in Hansen and Sargent (2008), an agent’s uncertainty about his environment leads him to formulate ‘robust’ decision rules. It is shown that when combined, these two considerations can lead agents to adhere to the Rational Expectations Hypothesis. Rather than being the outcome of the sophisticated statistical calculations of an impassive expected utility maximizer, Rational Expectations can instead be viewed as a useful approximation in environments where agents struggle to strike a balance between doubt and hope.

In times of trouble people often ask something along the lines of “What would Jesus do?”, but research on perspective taking is steadily demonstrating that the better question to ponder might be “What would Bob from accounting do?” The latest piece of research comes from Ilan Yaniv and Shoam Chosen-Hillen of Hebrew University. The two psychologists found that people gave more accurate estimates when they were instructed to take the perspective of another person.

"The problem of multiple hypothesis testing with observation control is considered in both fixed sample size and sequential settings. In the fixed sample size setting, for binary hypothesis testing, it is shown that the optimal exponent for the maximal error probability corresponds to the maximum Chernoff information over the choice of controls. It is also shown that a pure stationary open-loop control policy is asymptotically optimal within the larger class of all causal control policies. For multihypothesis testing in the fixed sample size setting, lower and upper bounds on the optimal error exponent are derived. It is also shown through an example with three hypotheses that the optimal causal control policy can be strictly better than the optimal open-loop control policy. In the sequential setting, a test based on earlier work by Chernoff for binary hypothesis testing, is shown to be first-order asymptotically optimal for multihypothesis testing for vanishing error probabilities. The role of past information and randomization in designing optimal control policies is discussed."

The right thing to do is adjust the course and head on. The wrong thing to do is head back to New York and start over (or to reconsider flying to Dallas at all).

"A University of Alberta researcher is questioning the notion of "group think" -- a common psychological phenomenon -- that has been used to explain some of the extreme things people do once they are within the confines of a group. Rob Wilson, a professor in the Department of Philosophy, rejects the popular idea that groups tend to have a mind of their own and says the notion of a collective mind is problematic."
Author: ScienceDaily, Mar. 25, 2010

"The process of melding individuals into effective, problem-solving groups should involve empowering individuals to realize they have important ideas to share.Dr. Bryan Bonner, an associate professor at the University of Utah's David Eccles School of Business, believes the first step to building successful organizations is deceptively simple: self-realization by each participant of his or her unique knowledge and experience."
Author: ScienceDaily, Mar. 27, 2012

"Fatigue can lead to dangerous errors by doctors, pilots and others in high-risk professions, but individuals who work together as a team display better problem-solving skills than those who face their fatigue alone, new research shows."
Author: ScienceDaily, Aug. 17, 2011

"Once we accounted for cognitive abilities like memory and processing speed, age had nothing to do with predicting whether an individual would make the best economic decisions on the tasks we assigned," [researcher Scott] Huettel said.
The study was published in the Psychology and Aging journal, published by the American Psychological Association."

"Decision scaffolding is the concept that you can give people structure for decision-making that helps them," Huettel said. "We should try to identify ways in which to present information to older adults that gives them scaffolding to make the best choices. If we can reduce the demand on memory or the need to process information very quickly that would be a great benefit to older adults and may push them toward making the same economically beneficial decisions as younger adults."
Author: Science Daily, June 1, 2010

Research "led by University of Iowa neuroscientist Natalie Denburg, Ph.D., suggests that for a significant number of older adults, measurable neuropsychological deficits do seem to lead to poor decision-making and an increased vulnerability to fraud. The findings also suggest that these individuals may experience disproportionate aging of a brain region critical for decision-making. ... [the] study, published Dec. 2007 in the Annals of the New York Academy of Sciences, shows that 35 to 40 percent of a test group of 80 healthy older adults with no apparent neurological deficits have poor decision-making abilities".
Author: Science Daily, Jan 14, 2008

Multi-armed bandit problems are the most basic examples of sequential decision problems with an exploration-exploitation trade-off. This is the balance between staying with the option that gave highest payoffs in the past and exploring new options that might give higher payoffs in the future. Although the study of bandit problems dates back to the Thirties, exploration-exploitation trade-offs arise in several modern applications, such as ad placement, website optimization, and packet routing. Mathematically, a multi-armed bandit is defined by the payoff process associated with each option. In this survey, we focus on two extreme cases in which the analysis of regret is particularly simple and elegant: i.i.d. payoffs and adversarial payoffs. Besides the basic setting of finitely many actions, we also analyze some of the most important variants and extensions, such as the contextual bandit model.

"In a study that appears in the current issue of Psychological Science, a publication of the Association for Psychological Science, researchers at the University of Chicago have found that people make more analytic decisions when they think through a problem in their non-native tongue.  These findings have implications in many arenas but especially for people doing business in a global economy."
"People are more likely to take favorable risks if they think in a foreign language, the study showed. “We know from previous research that because people are naturally loss averse, they often forgo attractive opportunities,” said University of Chicago psychologist Boaz Keysar, a leading expert on communication. 'Our new findings demonstrate that such aversion to losses is much reduced when people make decisions in their non-native language.'"

Wired

Summary from Twitter: Dr. SunWolf @TheSocialBrain {The Neuroscience of Working Memory} Even when our attention drifts, our brain's working memory is still working
Author: Brian Alexander, Vitals on msnbc.com, April 23, 2012

About decision making and how we decide.