Modeling certainty equivalents for imprecise gambles

Specialized late cingulo-opercular network activation elucidates the mechanisms underlying decisions about ambiguity

Cortical task control networks, including the cingulo-opercular (CO) network play a key role in decision-making across a variety of functional domains. In particular, the CO network functions in a performance reporting capacity that supports successful task performance, especially in response to errors and ambiguity. In two studies testing the contribution of the CO network to ambiguity processing, we presented a valence bias task in which masked clearly and ambiguously valenced emotional expressions were slowly revealed over several seconds. This slow reveal task design provides a window into the decision-making mechanisms as they unfold over the course of a trial. In the main study, the slow reveal task was administered to 32 young adults in the fMRI environment and BOLD time courses were extracted from regions of interest in three control networks. In a follow-up study, the task was administered to a larger, online sample (n = 81) using a more extended slow reveal design with additional unmasking frames. Positive judgments of surprised faces were uniquely accompanied by slower response times and strong, late activation in the CO network. These results support the initial negativity hypothesis, which posits that the default response to ambiguity is negative and positive judgments are associated with a more effortful controlled process, and additionally suggest that this controlled process is mediated by the CO network. Moreover, ambiguous trials were characterized by a second CO response at the end of the trial, firmly placing CO function late in the decision-making process.

Strategy under Ambiguity, and a New Type of Decision Dilemma

In this exploratory study, we challenge real decision makers to make choices in strategic games involving ambiguity, and to rationalize those choices. Such games are unique because they are not optimizable; however, the challenge such decisions represent—making choices over irreversible resource commitments in a competitive context and without complete information—is only growing in frequency in our modern business context. As such, our goal is to improve our understanding of real strategic decision making facing irreducible uncertainty, and then to identify ways to improve the outcomes. The challenge is that there are no theoretical solutions for these problems. (While such work has offered solutions, those have always involved watered-down problems—in terms of a lack of true uncertainty or a lack of true optimization). Thus, we approach the challenge from an experimental methodology as one alternative path toward improving outcomes. We do so by considering the influence of decision and decision-maker characteristics on the behaviors displayed while confronting these problems, with an eye on identifying vulnerabilities. We find that such characteristics correlate with expected behaviors, and that there exists potential room for improvements in the observed strategizing. The results of our study on the behaviors witnessed across three variants of our prototypical game—that represent increasing levels of complexity in the underlying ambiguity—have implications for theory and for practice, where one such conceptual implication involves the discovery of an entirely new form of the decision dilemma.

Ambiguity and its coping mechanisms in supply chains lessons from the Covid-19 pandemic and natural disasters

Purpose

The first purpose of this paper is to situate and conceptualise ambiguity in the operations management (OM) literature, as connected to supply chain decision-making (SCDM). The second purpose is to study the role of ambiguity-coping mechanisms in that context.

Design/methodology/approach

This research uses the behavioural decision theory (BDT) to better embed ambiguity in a generic SCDM framework. The framework explicates both behavioural and non-behavioural antecedents of ambiguity and enables us to also ground the “coping” mechanisms as individual and organisational level strategies. Properties of the framework are illustrated through two “ambiguous” events – the 2011 Thai flood and Covid-19 pandemic.

Findings

Three key findings are documented. First, ambiguity is shown to distinctively affect supply chain decisions and having correspondence with specific coping mechanisms. Second, the conceptual framework shows how individual coping mechanisms can undermine rational-based organisational coping mechanisms, leading to “sub-optimal” (poor) supply chain decisions. Third, this study highlights the positive role of visibility but surprisingly organisational “experiential” learning is imperfect, due to the focus on “similar” past experience and what is known.

Originality/value

The paper is novel in two ways. First, it introduces ambiguity – an often neglected concept in operations management – into the supply chain lexicon, by developing a typology of ambiguity. Second, ambiguity-coping mechanisms are also introduced as both individual and organisational strategies. This enables the study to draw distinctive theoretical and practical implications.

The Role of Type and Source of Uncertainty on the Processing of Climate Models Projections

Scientists agree that the climate is changing due to human activities, but there is less agreement about the specific consequences and their timeline. Disagreement among climate projections is attributable to the complexity of climate models that differ in their structure, parameters, initial conditions, etc. We examine how different sources of uncertainty affect people's interpretation of, and reaction to, information about climate change by presenting participants forecasts from multiple experts. Participants viewed three types of sets of sea-level rise projections: (1) precise, but conflicting; (2) imprecise, but agreeing, and (3) hybrid that were both conflicting and imprecise. They estimated the most likely sea-level rise, provided a range of possible values and rated the sets on several features - ambiguity, credibility, completeness, etc. In Study 1, everyone saw the same hybrid set. We found that participants were sensitive to uncertainty between sources, but not to uncertainty about which model was used. The impacts of conflict and imprecision were combined for estimation tasks and compromised for feature ratings. Estimates were closer to the experts' original projections, and sets were rated more favorably under imprecision. Estimates were least consistent with (narrower than) the experts in the hybrid condition, but participants rated the conflicting set least favorably. In Study 2, we investigated the hybrid case in more detail by creating several distinct interval sets that combine conflict and imprecision. Two factors drive perceptual differences: overlap - the structure of the forecast set (whether intersecting, nested, tangent, or disjoint) - and asymmetry - the balance of the set. Estimates were primarily driven by asymmetry, and preferences were primarily driven by overlap. Asymmetric sets were least consistent with the experts: estimated ranges were narrower, and estimates of the most likely value were shifted further below the set mean. Intersecting and nested sets were rated similarly to imprecision, and ratings of disjoint and tangent sets were rated like conflict. Our goal was to determine which underlying factors of information sets drive perceptions of uncertainty in consistent, predictable ways. The two studies lead us to conclude that perceptions of agreement require intersection and balance, and overly precise forecasts lead to greater perceptions of disagreement and a greater likelihood of the public discrediting and misinterpreting information.

The effect of perceived advantage and disadvantage on the variability and stability of efficacy beliefs

We examined the effect of perceptions of advantage and disadvantage on the variability and stability of efficacy beliefs in a competition. Perceptions of advantageous or disadvantageous opening position were experimentally manipulated (keeping the actual positions equal) and pre- and post-competition efficacy beliefs were observed. Perceiving an advantage resulted in more variability and less stability in efficacy beliefs. These results are explained by the higher sensitivity of the advantaged to the experiences of the competition.

Directional Verbal Probabilities

Verbal probability expressions (e.g., it is possible or doubtful) convey not only vague numerical meanings (i.e., probability) but also semantic functions, called directionality. We performed two experiments to examine whether preferential judgments are consistent with numerical meanings of verbal probabilities regardless of directionality. The results showed that because of the effects of directionality, perceived degrees of certainty for verbal probabilities differed between a binary choice and a numerical translation (Experiment 1), and decisions based on a verbal probability do not correspond to those based on a numerical translation for verbal probabilities (Experiment 2). These findings suggest that directionality of verbal probabilities is an independent feature from numerical meanings; hence numerical meanings of verbal probability alone remain insufficient to explain the effects of directionality on preferential judgments.

Patient Preferences in Prostate Cancer: A Clinician's Guide to Understanding Health Utilities

Prostate cancer treatments have positive and negative outcomes that must be taken into account when deciding how to proceed with a patient's care. One way to quickly determine a patient's preferences in this situation is to ascertain their health utilities for various health states. Health utilities are underutilized but powerful tools in aiding shared decision making between patients and physicians. This review is intended to inform physicians about the different techniques available, help the physician choose among them, and aid initial development of utilities for use in the clinic by way of the tables' references. A brief history, summary of applications and current directions of health utilities, and collection of references are provided to increase the reader's overall knowledge of health utilities and encourage their use in the clinic. Ultimately, the use and choice of one of these direct preference-based measures depends on the needs of the physician.

Using utility theory to optimize a salary incentive plan for grant-funded faculty

PURPOSE

Few salary incentive plans for academic health center faculty funded primarily by research grants exist, and hence the optimal structure for such plans is uncertain. The author examined the impact of incentives and the optimal structure for a salary incentive plan for a group of research faculty at the Yale University School of Medicine (Yale).

METHOD

A three-part instrument was delivered to a convenience sample of 40 faculty to determine the impact of their risk aversion on two salary plans. Utility theory was used to quantify their preferences for the Expense Model (salary bonuses are paid from direct costs of the research award) and the No Expense Model (salary increases are funded from another source). Outcomes were projected for both models over a range of funding probabilities.

RESULTS

In all, 27 faculty responded. On average, Yale faculty had risk-averse (and therefore unfavorable) attitudes towards the Expense Model, with substantial variability in response depending on rank. In contrast, Yale faculty had more homogeneous risk seeking (and therefore favorable) responses to the No Expense Model. Cost recoveries were greatest for the No Expense Model.

CONCLUSIONS

Utility modeling demonstrated that the optimal incentive payment for the Expense Model is substantially greater than for the No Expense Model, and increases as the probability of obtaining funding with diligent effort declines. For purposes of both equity and efficacy, the No Expense Model appears preferable to the Expense Model. Modeling can be used to determine optimal incentive-plans and bonus-payment magnitudes for research faculty.