Knowledge that Transforms

Research on decision-making behavior has shown that decision strategies used by individuals are contingent upon the characteristics of the task. For example, as the task size (i.e., the number of alternatives and/or the number of dimensions describing each alternative) increases, individuals tend to quickly eliminate alternatives that do not meet a criterion level for any dimension (i.e., they adopt a noncompensatory decision strategy, in which a high value on one dimension cannot offset or compensate for a low value on another dimension). Most of this research has involved consumers making buying decisions. The purpose of the research reported here was to determine if contingent decision behavior extends to experts (experienced bank loan officers) making business decisions (loan decisions). In this study two task characteristics (task size, and similarity of loan profiles describing alternatives) were varied in a bank loan decision context. Two process tracing methods (information boards and think-aloud verbal protocol analysis) were used to obtain evidence of how eleven bank loan officers made choices among alternative loan candidates. Of particular interest was the effect that changes in task characteristics had on loan officers' decision strategies. The results indicated that when faced with tasks of increasing size, loan officers adapted their behavior in a manner consistent with an increased use of noncompensatory decision strategies. In contrast, when the loan profiles of candidate companies were similar loan officers exhibited an increased use of compensatory strategies. It was also found that when both the task size and similarity of alternatives were varied loan officers adapted their behavior as if they processed these characteristics serially. These results indicate that contingent behavior associated with the two types of task characteristics may be quite different. A priori, there was reason to believe that expert loan officers would not exhibit contingent decision behavior. The fact that their decision strategies were contingent upon task characteristics has important implications for managerial practice and research. First, the results have design implications for information and decision support systems for lending institutions. Second, future research should investigate the consequences of serial processing of task characteristics.

The purpose of this paper is to analyze personnel rotation in the Navy. Although primarily a sea-going force, the Navy must periodically rotate personnel to shore duty. The effective administration of this policy promotes morale and reduces attrition. It also enables managers to control the distribution of personnel, so that programmed changes in force manning levels can be implemented gradually without disrupting individual career development. In order to accomplish this, however, Navy planners must understand the effect alterations in individual parameters will have on the system. A simplified mathematical model is developed and analyzed to help clarify these interrelationships. The results of this analysis are applied to answer some important questions concerning the present enlisted force.

A stochastic PERT network is a directed acyclic network in which the arc lengths are independent random variables with known distributions. A fundamental problem in PERT networks is to identify the activities which are critical to the achievement of the project objectives. In an activity network if the duration of each activity is not a random variable, then it is easy to identify the criticality of each activity represented by its float time. However, when the duration of any activity is a random variable, it is not easy to identify the criticality of each activity. In this case the criticality of an activity is known as the “criticality index,” which is defined as the sum of the criticality indices of the paths containing it. The criticality index of a path is the probability that the duration of the path is greater than or equal to the duration of every other path in the network. Clearly, the criticality index of an activity can be obtained by determining the criticality indices of the paths, which requires identifying all the paths, determining their criticality indices, then identifying the paths containing the activity. In this paper we develop a theory which leads to a procedure to approximate the criticality indices of all the activities without going through the above three steps. The procedure has been applied to large size PERT networks generated at random, and the results are found to be very close to those obtained by extensive Monte Carlo sampling.

Certainty equivalence (CE) and probability equivalence (PE) methods are the two most frequently used procedures for constructing von Neumann-Morgenstern utility functions. In this paper, we compare these methods experimentally, using a two-stage within-subject design. By asking subjects first for a CE judgment and later for a related PE judgment (or vice versa), a consistency test is devised which any deterministic expectation model, including those allowing probability transformations, should meet. Using four related experiments, this consistency test is applied separately to gain and loss questions, and to the two sequences of linked equivalence judgments, namely CE-PE and PE-CE. The empirical results reveal serious inconsistencies between the CE and PE responses for each of the four experiments. The extent of discrepancy depends strongly on the subject's initial risk attitude and whether the gain or loss domain is examined. To explain the complex pattern of results, the second part of the paper explores several plausible hypotheses. The first of these concerns the role of random error, in either the responses or the utility function itself. It is shown that both can lead to bias, although not of a type that could explain our results. Thereafter shifts in reference points are examined. A particular reframing of the PE response mode is postulated in which a pure gamble is psychologically translated into a mixed one, leading to increased risk aversion. This hypothesis, which is also supported by other evidence, offers a complete and simple explanation of the results. Finally, several other behavioral hypotheses are examined, after developing a weighted average model to simulate them. They concern anchoring effects, differences in salience between the probability and outcome dimensions, strategic misrepresentation, regret or rejoice influences, and endowment effects. Although each hypothesis predicts some type of bias, none of these five could singly explain the particular pattern of bias observed. In general, the study demonstrates (1) that serious discrepancies exist between the CE and PE methods of utility measurement, (2) that the particular results are incompatible with traditional deterministic choice models, (3) how random response errors, through propagation, can induce systematic biases in the utility function, (4) that reframing of the PE mode offers a simple reference shift explanation of the complex findings, and (5) how various heuristics and biases can be operationalized and simulated to assess their effects on utility measurement. As such, this study represents a further step toward a systematic investigation of response mode biases in utility measurement.

Certain systems must be inspected in order to discover failures that would otherwise go undetected. Periodic inspection is the most commonly used inspection policy and is the optimal policy form for some inspection models. Determining the optimal periodic inspection interval, however, would involve a numerical search and require knowledge of the underlying failure distribution. This note examines the cost performance of an existing simple approximation of the optimal inspection interval and presents a new approximation. The new approximation is computationally simple, and outperforms the existing approximation. The new approximation yields expected total costs that are typically well within one percent of optimal.

Errata to Bell, Colin. 1985. On competition to join a simple queueing system before the facility opens. Management Sci. 31 (3, March) 358–367.