Behavioral Decision Making in Normative and Descriptive Views: A Critical Review of Literature

Abstract

Recent studies on decision analytics frequently refer to the topic of behavioral decision making (BDM), which focuses on behavioral components of decision analytics. This paper provides a critical review of literature for re-examining the relations between BDM and classical decision theories in both normative and descriptive reviews. We attempt to capture several milestones in theoretical models, elaborate on how the normative and descriptive theories blend into each other, thus motivating the mostly prescriptive models in decision analytics and eventually promoting the theoretical progress of BDM—an emerging and interdisciplinary field. We pay particular attention to the decision under uncertainty, including ambiguity aversion and models. Finally, we discuss the research directions for future studies by underpinning the theoretical linkages of BDM with fast-evolving research areas, including loss aversion, reference dependence, inequality aversion, and models of quasi-maximization mistakes. This paper helps to understand various behavioral biases and psychological factors when making decisions, for example, investment decisions. We expect that the results of this research can inspire studies on BDM and provide proposals for mechanisms for the development of D-TEA (decision—theory, experiments, and applications).