Introduction

Every day you have the opportunity to make countless decisions: should you eat dessert, cheat on a test, or attend a sports event with your friends. If you reflect on your own history of choices you will realize that they vary in quality; some are rational and some are not. This module provides an overview of decision making and includes discussion of many of the common biases involved in this process.

In his Nobel Prize–winning work, psychologist Herbert Simon (1957; March & Simon, 1958) argued that our decisions are bounded in their rationality. According to the bounded rationality framework, human beings try to make rational decisions (such as weighing the costs and benefits of a choice) but our cognitive limitations prevent us from being fully rational. Time and cost constraints limit the quantity and quality of the information that is available to us. Moreover, we only retain a relatively small amount of information in our usable memory. And limitations on intelligence and perceptions constrain the ability of even very bright decision makers to accurately make the best choice based on the information that is available.

About 15 years after the publication of Simon’s seminal work, Tversky and Kahneman (1973, 1974; Kahneman & Tversky, 1979) produced their own Nobel Prize–winning research, which provided critical information about specific systematic and predictable biases, or mistakes, that influence judgment (Kahneman received the prize after Tversky’s death). The work of Simon, Tversky, and Kahneman paved the way to our modern understanding of judgment and decision making. And their two Nobel prizes signaled the broad acceptance of the field of behavioral decision research as a mature area of intellectual study.