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Goals and plans in decision making

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  • David H. Krantz
  • Howard C. Kunreuther

Abstract

We propose a constructed-choice model for general decision making. The model departs from utility theory and prospect theory in its treatment of multiple goals and it suggests several different ways in which context can affect choice. It is particularly instructive to apply this model to protective decisions, which are often puzzling. Among other anomalies, people insure against non-catastrophic events, underinsure against catastrophic risks, and allow extraneous factors to influence insurance purchases and other protective decisions. Neither expected-utility theory nor prospect theory can explain these anomalies satisfactorily. To apply this model to the above anomalies, we consider many different insurance-related goals, organized in a taxonomy, and we consider the effects of context on goals, resources, plans and decision rules. The paper concludes by suggesting some prescriptions for improving individual decision making with respect to protective measures.

Suggested Citation

  • David H. Krantz & Howard C. Kunreuther, 2007. "Goals and plans in decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 137-168, June.
  • Handle: RePEc:jdm:journl:v:2:y:2007:i::p:137-168
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    References listed on IDEAS

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    10. Michael Braun & Peter S. Fader & Eric T. Bradlow & Howard Kunreuther, 2006. "Modeling the "Pseudodeductible" in Insurance Claims Decisions," Management Science, INFORMS, vol. 52(8), pages 1258-1272, August.
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    Cited by:

    1. Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Demand for fixed-price multi-year contracts: Experimental evidence from insurance decisions," Journal of Risk and Uncertainty, Springer, vol. 51(2), pages 171-194, October.
    2. Eisenbach, Thomas M. & Schmalz, Martin C., 2016. "Anxiety in the face of risk," Journal of Financial Economics, Elsevier, vol. 121(2), pages 414-426.
    3. Thiene, Mara & Swait, Joffre & Scarpa, Riccardo, 2017. "Choice set formation for outdoor destinations: The role of motivations and preference discrimination in site selection for the management of public expenditures on protected areas," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 152-173.
    4. Daniela Di Cagno & Arianna Galliera & Werner Güth & Francesca Marzo & Noemi Pace, 2017. "(Sub) Optimality and (non) optimal satisficing in risky decision experiments," Theory and Decision, Springer, vol. 83(2), pages 195-243, August.
    5. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
    6. Todd McElroy & John J. Seta, 2007. "Framing the frame: How task goals determine the likelihood and direction of framing effects," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 251-256, August.
    7. Ganna Pogrebna & David Krantz & Christian Schade & Claudia Keser, 2011. "Words versus actions as a means to influence cooperation in social dilemma situations," Theory and Decision, Springer, vol. 71(4), pages 473-502, October.
    8. de Meza, David & Fessner, Liza C. & Reyniers, Diane J., 2014. "Evidence that waste aversion begets insurance aversion," LSE Research Online Documents on Economics 65272, London School of Economics and Political Science, LSE Library.
    9. Susan Laury & Melayne McInnes & J. Swarthout, 2009. "Insurance decisions for low-probability losses," Journal of Risk and Uncertainty, Springer, vol. 39(1), pages 17-44, August.
    10. Daniel Sutter & Marc Poitras, 2010. "Do people respond to low probability risks? Evidence from tornado risk and manufactured homes," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 181-196, April.
    11. Kurt Carlson & Chris Janiszewski & Ralph Keeney & David Krantz & Howard Kunreuther & Mary Luce & J. Russo & Stijn Osselaer & Detlof Winterfeldt, 2008. "A theoretical framework for goal-based choice and for prescriptive analysis," Marketing Letters, Springer, vol. 19(3), pages 241-254, December.
    12. Carlo Perroni & Ganna Pogrebna & Sarah Sandford & Kimberley Ann Scharf, 2014. "Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-profit Provision and Charity Selection," CESifo Working Paper Series 5024, CESifo Group Munich.
    13. Milch, Kerry F. & Weber, Elke U. & Appelt, Kirstin C. & Handgraaf, Michel J.J. & Krantz, David H., 2009. "From individual preference construction to group decisions: Framing effects and group processes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 108(2), pages 242-255, March.
    14. Perroni, Carlo & Pogrebna, Ganna & Sandford, Sarah & Scharf, Kimberley, 2014. "Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-profit Provision," CEPR Discussion Papers 10179, C.E.P.R. Discussion Papers.
    15. Vancouver, Jeffrey B. & Weinhardt, Justin M. & Vigo, Ronaldo, 2014. "Change one can believe in: Adding learning to computational models of self-regulation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 124(1), pages 56-74.
    16. Arora, Poonam & Peterson, Nicole D. & Krantz, David H. & Hardisty, David J. & Reddy, Kavita S., 2012. "To cooperate or not to cooperate: Using new methodologies and frameworks to understand how affiliation influences cooperation in the present and future," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 842-853.
    17. Lichand, Guilherme & Mani, Anandi, 2016. "Cognitive Droughts," CAGE Online Working Paper Series 298, Competitive Advantage in the Global Economy (CAGE).
    18. S. Wolfe, 2012. "Water Cognition and Cognitive Affective Mapping: Identifying Priority Clusters Within a Canadian Water Efficiency Community," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(10), pages 2991-3004, August.
    19. Weber, Elke U. & Johnson, Eric J., 2012. "Psychology and behavioral economics lessons for the design of a green growth strategy," Policy Research Working Paper Series 6240, The World Bank.
    20. Botzen, W.J. Wouter & de Boer, Joop & Terpstra, Teun, 2013. "Framing of risk and preferences for annual and multi-year flood insurance," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 357-375.
    21. Savannah Wei Shi & Michel Wedel & F. G. M. (Rik) Pieters, 2013. "Information Acquisition During Online Decision Making: A Model-Based Exploration Using Eye-Tracking Data," Management Science, INFORMS, vol. 59(5), pages 1009-1026, May.
    22. Torres-Guevara, Luz Elba & Schlüter, Achim, 2016. "External validity of artefactual field experiments: A study on cooperation, impatience and sustainability in an artisanal fishery in Colombia," Ecological Economics, Elsevier, vol. 128(C), pages 187-201.
    23. de Meza, David & Diane Reyniers, Liza C. Fessner, 2015. "Evidence that waste aversion begets insurance aversion," Economics Letters, Elsevier, vol. 126(C), pages 75-77.

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