Theories of Decision Making

Is decision-making a process or just a simple decision in which a person has to choose from various alternatives? Have different researchers reached conclusions and perspectives on decision-making, or is it the same for every person?

What is Decision Making

Decision-making is a process that involves selecting the best alternative among various options. The decision-making process depends on the environment provided, and certain features of decision-making exist. The features of decision-making are rationality, which refers to making a rational and sound decision; a process that means it goes through various cognitive stages; and selective, which refers to the fact that the decision-maker makes the best selection among various alternatives. It is purposive, meaning that the aim of the decision-making has a purpose it seeks to fulfil. It is committed and evaluative, which means that the decision-making has some commitments to the person that will bear the consequences of the decision. It is also evaluated after implementation to see how it has negative and positive impacts.

Theories of Decision Making

The thirties of decision-making can be grouped into normative and descriptive theories. Normative theories explain decision-making in terms of the best and ideal decision that can be made in a given situation. Descriptive theories explain how decisions are made, and it comprehends the logic and concept underlying any decision. The major theories of decision-making are:

Subjected Expected Utility Theory

This theory is an approach in which decisions are taken under risk, allowing for the subjective evaluation of variables under different options and the associated probabilities. Decisions are choices between different alternatives and their probabilities. When the decision maker chooses an alternative with a high certainty of the outcome, there is still a risk of letting go of another best outcome. A good decision is based on process, not on outcome. Expected utility refers to the fact that the value of any commodity is different for one person than another due to external conditions. The decision maker should take a decision only after evaluating every factor and piece of information available to them.

Prospect Theory

This theory states that decision-making depends on choosing between various alternatives, but the decision depends on biased judgments. Kahneman proposed this, who stated that heuristics and biases affect the assessment of the consequences and frequency of decision-making. Such judgments involve evaluations of the external world; decisions involve more fundamental internal choices across values.

Satisficing Theory

In this theory, the decision maker chooses the option that satisfies the problem. Simon proposed the concept of bounded rationality, in which the decision maker has limited or bounded information and resources to make a decision. The decision maker makes a compromised choice, satisfying the bare minimum of the problem, and does not improvise or try to expand the scope of decision-making. The decision maker will choose any option that satisfies the minimum without exploring all the options.

Attribution Theory

Attribution refers to explaining the reasons behind any action or motive. Heider proposed this thesis, on which other researchers expanded. There are two types of attribution: internal and external. Internal attribution will refer to the qualities of the person, personality, and attitudes, whereas external attribution will refer to environmental factors as a reason. Weiner proposed a three-stage process that underlies an attitude: a. the person must perceive or observe the behavior; b. the person has to decide if the behavior was intentional; c. the person has to decide if the action was forced. Weiner confined the theory to the most important factors affecting the attribution of achievements, such as ability, effort, task difficulty, and luck. Weiner further divided causal attribution into three categories: locus of control, stability, and controllability. The locus of control is further classified as internal or external. The stability dimension examines if there are variations in time that can be linked to causes. For example, we can have an unstable internal ability and effort. Controllability refers to the causes one can control (e.g., skill and efficacy) and those one cannot control.

Game Theory

In game theory, there is an understanding of choice between competing people. In this, the independent and competing factors are assessed while making any decision. This provides tools for analyzing situations in which people make interdependent decisions. This interdependence helps players consider other players' choices or strategies, thus helping them formulate their strategies.

Heuristic Theory

Heuristics are efficient cognitive processes that ignore part of the information, conscious or unconscious. Because using heuristics saves effort, the classical view has been that heuristic decisions imply greater errors than "rational" decisions defined by logic or statistical models. Due to heuristics, the decision maker would be able to make an effective decision in a novel and short time. Heuristics are efficient cognitive processes that ignore part of the information, conscious or unconscious. Because using heuristics saves effort, the classical view has been that heuristic decisions imply greater errors than "rational" decisions defined by logic or statistical models.

The Importance of Decision-Making

Decision-making is a very important process in management and organization. Decision-making helps better utilize resources, as one knows where the resources can be applied more effectively and how to make more of the available resources. It also helps achieve aims and goals and business growth as the decision-making aims to achieve goals and objectives.


Decision-making is an important skill that is needed in any organization. The decision-maker plays an important role. Many researchers have studied this topic and have proposed their theories. The main decision-making theories are Subjective Expected Utility, Heuristics Theory, Attribution Theory, and Prospect Theory. There is a need to research this topic because the more research done on what can influence and facilitate decision-making, the better the organization's growth will be. Organizations can take steps to control bias now that they are aware of it.