Preamble: Ethical theory of decision making

1. Preamble:Ethical theory of decision making Fred Wenstøp Fred Wenstøp

2. Matthew 12, 10-12 “And behold, there was a man which had his hand withered. And they asked him, saying, is it lawful to heal on the Sabbath days? that they might accuse him. And he said unto them, What man shall there be among you, that shall have one sheep, and if it fall into a pit on the Sabbath day, will he not lay hold on it, and lift it out? How much then is a man better than a sheep? Wherefore it is lawful to do good on the Sabbath days. ” Fred Wenstøp

3. Teleological ethics Teleos = goal Consequential ethics David Hume (1711-76) Utilitarianism Jeremy Bentham (1748-1832) John Stuart Mill (1806-73) Utility theory Von Neumann, Morgenstern ‘40 Keeney, Raiffa 1976 Management by objectives Deontological ethics To deon = duty Immanuel Kant (1724-1804) Rule based management Max Weber (1864-1920) Normative theories of decision making Fred Wenstøp

4. David Hume (1711-76) • Reason cannot be the basis of morality • Reason can show us the best way to achieve our ends, but it cannot determine our ultimate desires • “‘Tis not contrary to reason to choose my total ruin, to prevent the least uneasiness of an Indian” • Beliefs are formed through cause-effect analysis • Hume’s law • There is a gulf between facts and values, between “is” and “ought” • Inherited Sympathy is one basis for morality Fred Wenstøp

5. Immanuel Kant (1724-1804) • Duty based ethics • Rational action cannot be based on a single individual’s personal desires, but must be in accordance with something he can will to be a universal law • Actions posses moral worth only when we do our duty for its own sake, not because of its consequences • Kant’s categorical imperative • “Act only on that maxim through which you can at the same time will that it should become a moral law!” Fred Wenstøp

6. Kantian rules • The United Nations’ Universal Declaration of Human Rights of 1948 • The rights are considered absolute regardless of their consequences. • Kant’s deontological ethics is incompatible with the paradigm of decision making • Amartya Sen: • Kant is difficult to defend as a general ethical principle because the consequences may be so great that they just cannot be overlooked Fred Wenstøp

7. Von Neumann and Morgenstern • John von Neumann and Oscar Morgenstern 1944 • Formalisation of the theory of utility • Rationality defined as consistency through axioms • The principle of rationality as utility maximisation • One dimensional theory of utility Fred Wenstøp

8. Weber • Decisions sine ira et studio • a major social consequence of idealized bureaucratic control is a world without need for emotional decision-making: • “The dominance of a spirit of formalistic impersonality, sine ira et studio, without hatred or passion, and hence without affection or enthusiasm. The dominant norms are concepts of straightforward duty without regard to personal considerations. Everyone is subject to formal equality of treatment; that is, everyone is in the same empirical situation. This is the spirit in which the ideal official conducts his office.” Fred Wenstøp

9. Management by objectives • McGregor (1960) theory X and theory Y: • X: humans dislike work and will avoid it if possible • Y: the integration of individual and organizational goals • The assumptions of theory Y are far more consistent with existing knowledge in the social sciences than are the theory X assumptions. Fred Wenstøp

10. Keeney and Raiffa 1976 • Dichotomy between facts and values • Good decision analysis requires the separation between objective facts and subjective values • Multi-objective decision making • Formalisation of weighting • The goal hierarchy and weights should be used as a medium for communicating organizational goals Fred Wenstøp

11. The Balanced Scorecard • The strategy of an organization should be communicated and made operational by a set of well balanced performance criteria • Kaplan and Norton (1992): Four main objectives form the basis of a generic goal hierarchy • Financial • Customer • Internal • Learning and growth Fred Wenstøp

12. Cyert and March 1992A Behavior Theory of the Firm • Dichotomy between • decision-making as intentional, consequential action • decisions as rule based action • Consequential action plays an insignificant role in actual decision-making • decision-making is dominated by rule based action in the sense that people try to decide what they think is appropriate (From the Epilogue) Fred Wenstøp

13. Emotion and decision making • Case: Phineas Gage • Experiment 1: • A group of people, some normal and some suffering from prefrontal deficiency was • Exposed to a fire alarm • Shown value laden pictures • Experiment 2: • Choice of card decks Fred Wenstøp

14. Damasio’s theory Neocortex Prefrontal lobes Amygdala Stimulus Feelings Emotional response from the body Secondary emotions trigger Primary emotions trigger Fred Wenstøp

15. RationalityFøllesdal 1992 • Four dimensions of rationality • rationality as logical consistency • pertains both to values and beliefs • rationality as well-foundedness of beliefs • beliefs are well supported by available evidence • rationality of action • application of decision theory • rationality as well-foundedness of values • reflective equilibrium that gives a stable set of convictions that are relevant for the decision situation Fred Wenstøp

16. Four kinds of rationality(Dagfinn Føllesdal) • Rationality as logical consistency with regard to beliefs (non-contradictory) with regard to values (von Neumann and Morgenstern) • Rationality of action Means-end rationality • Rationality as well-foundedness of beliefs based on available evidence and efficient search • Rationality as well-foundedness of values The challenge! Fred Wenstøp

17. Applied Rationality Beliefs Values Means-end rationality Fred Wenstøp

18. Rationality applied to decision tables • Rationality as logical consistency Beliefs are formed without internal contradiction Use of von Neumann Morgenstern utility theory • Rationality of action The alternative with the highest expected utility is chosen • Rationality as well-foundedness of beliefs Scores are based on available evidence and efficient search • Rationality as well-foundedness of values Values are represented by weights which are derived through carefully chosen processes that elicit emotion Fred Wenstøp

19. Consequence analysis • Rationality of beliefs requires that consequences be carefully predicted • The language depends on the field • Cause – Effect relations (general) • Means – Ends (general decision-making) • Dose – Response functions (environmental management) • Performance drivers – Outcomes (business management) • Scientific tools • Clinical – budgeting, accounting • Epidemiological – statistical comparisons • Market analysis Fred Wenstøp