Modeling Decision Making

Decisions Rule
The decisions rule in models must be formulated
so that they are appropriate for the purpose of
the model.
Must be consistent with all available knowledge
about the system, including numerical and
qualitative data.
Must be available to the actual decisions makers,
all formulations must be robust so that no matter
how extreme the inputs, the output behaves
appropriately.
Principles for Modeling Decision
Making
The structure of all models consists of two parts:
1. Assumptions about the physical and institutional
environment: The physical and institutional structure of a
model includes the model boundary and stock and flow
structures of people, material, money, information, and so
forth that characterize the system.
2. Assumptions about the decision processes of the agents
who operates in those structures: The decision processes
of the agents refer to the decision rules that determine
the behavior of the actors in the system. The behavioral
assumptions of a simulation model describe the way in
which people respond to different situations.
Accurately portraying the physical and institutional
structure of a system is relatively straightforward.
While discovering and representing the decision rules
of the actors is subtle and challenging.
Simulation models must mimic the behavior of the real
decision makers so that they respond appropriately,
not only for conditions observed in the past but also
for circumstances never yet encounter.
Specify a robust, realistic decision rule at every
decision point in the model.
Decisions and decision rules
Modeler need to differentiate between decision
rules and decisions.
Decision rules are the principles and protocols
specifying how the decision maker processes
available information.
Decisions are the outcomes of this process.
It is not sufficient to model a particular
decision. Modelers must detect and represent
the guiding policy that yields the stream of
decisions.
Every rate of flow in the stock and flow structure constitutes a decision point, and
the modeler must specify precisely the decision rule determining the rate.
Every decision rule can be thought of as an information processing procedure. The
inputs to the decision process are various types of information, or cues. The cues
are then interpreted by the decision maker to yield the decision.
Decision rules do not necessarily utilize all available or potentially relevant
information. The mental models of the decision makers, along with organizational,
political, personal, and other factors, influence the selection of cues from a set of
available information. Those cues actually used in decision making are also not
necessarily processed optimally.
The decision rules in a model embody, explicitly or implicitly, assumptions about
the degree of rationality of the decision makers and decision-making process. The
spectrum of possibilities is broad. At one extreme, some models represent
repertoire of choices, without any possibility of learning or adaptation. At the
other extreme lies the theory of rational expectations which holds that decision
makers understand the structure of the system perfectly, never make systematic
errors in their inferences about its future behavior, and therefore always make
optimal decisions.
Five Formulation Fundamentals
The nature of a decision process and its
rationality are empirical questions that must
be addressed by primary field study,
experimental tests, and other means. For all
models, modeler conform certain basic
principles:
1. The Baker Criteria
The inputs to all decision rules in models must be restricted to
information actually available to the real decision makers.
This have three important corollaries:
I. The future is not known to anyone. All expectations and beliefs
about the future are based on historical information. Expectations
and beliefs may therefore be incorrect.
II. Actual conditions and perceived conditions differ due to
measurement and reporting delays, and beliefs are not updated
immediately on receipt of new information. Perceptions often
differ from the actual situation.
III. The outcomes of untried contingencies are not known.
Expectations about what if situations that have never been
experienced are based on situations that are known and may be
wrong.
2. The decision rules of a model should conform to
managerial practice.
All variables and relationships should have real
world counterparts and meaning.
The units of measure in all equations must
balance without the use of arbitrary scaling
factors.
Decision making should not be assumed to
conform to any prior the theory but should be
investigated firsthand.
3. Desired and actual conditions should be
distinguished. Physical constraints to the
realization of desired outcomes must be
represented.
Desired and actual states must be
distinguished.
Desired and actual rates of change should
be distinguished.
4. Decision rules should be robust under
extreme conditions.
5. Equilibrium should not be assumed.
Equilibrium and stability may (or may not)
emerge from the interaction of the elements
of the system.