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Chapter 2 • Foundations and Technologies for Decision Making 79

normative Models
normative models are models in which the chosen alternative is demonstrably the best
of all possible alternatives. To find it, the decision maker should examine all the alterna-
tives and prove that the one selected is indeed the best, which is what the person would
normally want. This process is basically optimization. This is typically the goal of what
we call prescriptive analytics (Part IV). In operational terms, optimization can be achieved
in one of three ways:
1. Get the highest level of goal attainment from a given set of resources. For example,
which alternative will yield the maximum profit from an investment of $10 million?
2. Find the alternative with the highest ratio of goal attainment to cost (e.g., profit per
dollar invested) or maximize productivity.
3. Find the alternative with the lowest cost (or smallest amount of other resources) that
will meet an acceptable level of goals. For example, if your task is to select hardware
for an intranet with a minimum bandwidth, which alternative will accomplish this
goal at the least cost?

Normative decision theory is based on the following assumptions of rational
decision makers:
• Humans are economic beings whose objective is to maximize the attainment of
goals; that is, the decision maker is rational. (More of a good thing [revenue, fun] is
better than less; less of a bad thing [cost, pain] is better than more.)
• For a decision-making situation, all viable alternative courses of action and their
consequences, or at least the probability and the values of the consequences, are
known.
• Decision makers have an order or preference that enables them to rank the desir-
ability of all consequences of the analysis (best to worst).
Are decision makers really rational? Though there may be major anomalies in the pre-
sumed rationality of financial and economic behavior, we take the view that they could be
caused by incompetence, lack of knowledge, multiple goals being framed inadequately, mis-
understanding of a decision maker’s true expected utility, and time-pressure impacts. There
are other anomalies, often caused by time pressure. For example, Stewart (2002) described
a number of researchers working with intuitive decision making. The idea of “thinking with
your gut” is obviously a heuristic approach to decision making. It works well for firefighters
and military personnel on the battlefield. One critical aspect of decision making in this mode
is that many scenarios have been thought through in advance. Even when a situation is new,
it can quickly be matched to an existing one on-the-fly, and a reasonable solution can be
obtained (through pattern recognition). Luce et al. (2004) described how emotions affect
decision making, and Pauly (2004) discussed inconsistencies in decision making.
We believe that irrationality is caused by the factors listed previously. For exam-
ple, Tversky et al. (1990) investigated the phenomenon of preference reversal, which is
a known problem in applying the AHP to problems. Also, some criterion or preference
may be omitted from the analysis. Ratner et al. (1999) investigated how variety can cause
individuals to choose less-preferred options, even though they will enjoy them less. But
we maintain that variety clearly has value, is part of a decision maker’s utility, and is a
criterion and/or constraint that should be considered in decision making.

suboptimization
By definition, optimization requires a decision maker to consider the impact of each alter-
native course of action on the entire organization because a decision made in one area
may have significant effects (positive or negative) on other areas. Consider, for example, a

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