Expected Utility Theory (EUT) Decision-Making Mindware Tutorial

Learn how to make more rational, mindful and brain-critical decisions.

Jul 21, 2024

We often make decisions when the outcomes of our actions are uncertain:

Should I take a coat when I go out?
Should I try a new recipe for dinner or stick with a favourite?
Should I take a different route to avoid traffic?

Sometimes the consequences of such decisions can be fateful, shaping our lifepaths:

Should I move to a new city for a better opportunity?
Should I invest in this new business venture?
Should I have this surgery?
Should I end a long-term relationship?

Expected Utility Theory (EUT) decision-making mindware gives you a rational method for making these kinds of decisions where outcomes for each option of your choice are uncertain.

Something’s utility is the degree of satisfaction or pleasure we get from it as a benefit, or the degree of dissatisfaction or pain we get from it as a cost.. The slogan of EUT is: choose the option with the highest expected utility. The general form of EUT mindware is shown in the diagram below, which shows a choice between 3 actions, where one action has just one outcome that is guaranteed (100% probability), and the other two actions have two possible outcomes each with different probabilities assigned to them. Each possible outcome has an associated utility which depends on our individual preferences and values.

This is an example of a more general form of an EUT decision tree diagram involving actions/options at decision-points, and possible outcomes with associated likelihoods and utilities (benefits/costs). The possible outcomes need to be mutually exclusive so all probabilities add to 1. There may be 2, 3 or 4 actions that could be taken. Each action could result in just one certain outcome, or 2, 3, 4…possible outcomes each with an estimated likelihood. You can play around with this diagram for your own purposes.

EUT Decision Space

This is an EUT decision space shown in a decision-tree:

So for this decision: Should I take a coat when I go out? Here we have two actions - take the coat or leave it. For each action we have ‘it rains’ or ‘it doesn’t rain’ as possible outcomes, and the likelihood of it raining (based on the day) is estimated at 50/50. So what about utilities (benefits/costs). We put these on a single scale from -10 (awful) to +10 (amazing). If it rains and we have our coat, that’s given a +2 (nice to feel dry in the rain). If it rains and we don’t have a coat, that’s given a -10 (awful). If it doesn’t rain and we have our coat that’s given a -2 (inconvenient), and if it doesn’t rain and we don’t have a coat that’s given a +2 (nice to know we’re not encumbered).

Mindware Practises 1: EUT Decision Spaces

To practise constructing EUT decision spaces, first familiarise yourself with the components of the diagram above, and work through some of your own examples on paper.

After doing it on paper, try working through some decisions in your mind’s eye - internally, using your working memory’s workspace.

Looking back: Reflect on a past decision that had consequences. Mentally reconstruct the decision-making process, considering the alternatives you had at the time, building a complete decision space for the options available to you.
Daily practice: Identify a choice you need to make today, and mentally map out the different actions you can take, and their possible outcomes with associated likelihoods and utilities (costs/benefits).

This practice of generating and evaluating options exercises your:

Ability to sustain focus on a train of thought.
Ability to generate possible futures in your mind's eye.
Working memory capacity - to hold all the information in mind without losing track
Ability to judge likelihoods of outcomes.
Ability to evaluate the value of the outcomes to you. This requires emotional intelligence (EQ) - the ability to emotionally stimulate your experience of benefits or costs even though they are not in the present.

EUT Decision Execution

To extend the decision space mindware above, we can now apply the ‘net expected utility’ rule for each action we can take in a decision. We multiply the utilities of each possible outcome for an action by their likelihoods to get expected utilities for each outcome. We then add these up for each action to get the net expected utility for each action. We select the action that scores highest. In the case of taking a coat or not, we choose to take the coat.

Mindware Practises 2: EUT Decision Execution

To practise making rational decisions using EUT mindware, first ensure you can create complete decision spaces in your working memory’s workspace. Practise this first!

Now you’ll need some basic mental arithmetic. You need to multiply the likelihoods for each possible outcome by their utilities and then add them for the overall net expected utility for each action. Work through some of your own examples on paper first, but as soon as you can, transition to working this out in your own mind - your mental workspace. You could try the following:

Looking back: Reflect on a past decision that had consequences. Mentally reconstruct the decision space as in the previous practice, but now also compute the net expected utilities for each action you could have taken, and identify the best action you should have taken. Did you decide on this action at the time?
Daily practice: Identify a choice that needs making today, and mentally construct the decision space and then the net expected utilities for each action to arrive at a rational decision. Act accordingly!
Research and experiment with your likelihood estimates: Sometimes we don’t have a clear idea about likelihoods or risks of outcomes, and doing some online research can help with our estimates. Also, try running through the EUT decision-making process over a range of likelihood estimates. It can be helpful to consider a range of probabilities and see if you reach the same overall decision. In the raincoat example, you could try 25% chance of rain as well as the 50% chance we considered.

This practice of making decisions based on expected utility theory exercises your:

Ability to make rational decisions that in the long term will help you track reality better and attain your goals more effectively.
Working memory capacity - your ability to hold the relevant information in mind without losing track while you work through the decision process.
Ability to suppress your automatic decision-making process that almost certainly doesn’t weave all the critical variables of EUT, potentially leading to irrational decisions that may be systematic in your life.

How EUT Mindware Helps Us Counter Poor Decision Making

This mindware helps us make rational decisions by systematically considering probabilities, risks, and potential outcomes. This structured approach can counter a number of common cognitive biases and tendencies:

Considering Alternatives: EUT mindware encourages us to explore different possible actions and their outcomes, rather than just running with a single choice. This helps avoid narrow framing, where we fixate on a single choice, potentially overlooking better alternatives.
Optimism and Pessimism Biases: By assessing the probabilities and utilities of various outcomes, EUT helps balance overly optimistic or pessimistic views. Optimism bias leads to underestimating risks, while pessimism bias results in overestimating them. EUT provides a more balanced and realistic assessment.
Factoring in Probabilities: While thinking of our options, there’s a tendency to not give enough attention to estimating likelihoods of different outcomes. EUT mindware builds in mindful probability estimates into the decision-making process. It counters the availability heuristic, where recent or vivid events you recall in memory over-influence your perception of risk. An example would be recalling images from a shark attack movie when you have a swim in the ocean, distorting your perception of the objective risk of a shark attack.
Confirmation Bias: EUT requires an objective analysis of all possible outcomes and their likelihoods, helping to offset confirmation bias, which is the tendency to favour information that confirms our preexisting beliefs.
Anchoring Bias: By focusing on the entire decision space and expected utilities, EUT reduces the impact of anchoring bias, where initial information unduly influences subsequent judgments.

Common Pitfalls When Using EUT Mindware

While EUT mindware provides a robust framework for rational decision-making, there are still biases and limitations to be aware of:

Lack of Emotional Intelligence (EQ): Assigning appropriate utilities to potential outcomes requires a good understanding of one's values and emotional responses. A lack of emotional intelligence can lead to misjudging the true utility of outcomes. For instance, affective forecasting errors occur when people mispredict their future emotional states, leading to incorrect utility assessments.
Complexity and Cognitive Load: Constructing and analysing detailed decision trees mentally can be cognitively demanding. Cognitive overload of working memory may result in oversimplifying the decision space or neglecting important variables, leading to suboptimal decisions. The larger our working memory capacity, the better we can work through a more complex decision space.
Status Quo Bias and Loss Aversion: People often prefer maintaining the current state of affairs (status quo bias) and strongly prefer avoiding losses over acquiring equivalent gains (loss aversion bias). These biases can interfere with the rational assessment of expected utilities.
Hindsight Bias: This bias can affect how we evaluate past decisions made using EUT. Hindsight bias is the tendency to see events as having been predictable after they have already occurred, which can distort our learning process and future decision-making. Remember - many rational decisions we make will not work out as well as taking another action would have done, but it may nonetheless be the best decision to make.
Stress and Performance Pressure: High levels of stress or time pressure can impair our cognitive functions, leading to rushed or biased decisions. Under stress, we are more likely to rely on heuristics or make impulsive decisions, which can undermine the systematic approach required for EUT. Stress can also exacerbate biases like loss aversion, making us overly cautious or risk-averse, and potentially leading to suboptimal choices.

By being aware of these biases and pitfalls and countering them through the strategies below, we can better use the EUT mindware to strengthen their decision-making processes, leading to more rational and effective outcomes.

Situational Awareness & Mindfulness

Recognising when to apply mindware - the cognitive tools, strategies, and rules that enhance problem-solving and decision-making such as the EUT decision-making mindware - is crucial for its effective use. Also important is the capacity to override the reactivity of our default responses in decision making contexts. This requires situational awareness and mindfulness respectively.

Situational awareness involves recognising when relevant mindware can be applied effectively in different environments and contexts in day to day life. Mindfulness involves an awareness of, and detachment from, initial automatic trigger-response reactions, opening cognitive distance for a rational decision-making process to ensure a decision is evaluated clearly and with less bias. Cognitive distance gives us a clearer, more objective space to assess situations and make well-considered decisions. This free, mindful space can be crucial for applying EUT effectively, particularly in emotionally charged situations.

Mindfulness training also helps us pay attention to our internal states and emotions in a non-judgmental way. This increased self-awareness helps us recognise our subjective preferences and emotional responses more clearly which is crucial for effective decision-making.

Working Memory Capacity

Working memory capacity is critical for applying EUT mindware effectively because it allows us to hold and manipulate all relevant pieces of information simultaneously. Constructing decision spaces and performing the necessary computations for expected utility require the ability to manage multiple variables at once. When working memory is overloaded, there is a risk of oversimplifying the decision space or neglecting important details, leading to suboptimal choices.

Capacity Training A: Situational Awareness & Mindfulness

There are two interventions for training situational awareness and mindfulness:

Practising Mindfulness

Mindfulness is a special way of paying attention that is conscious, non-judgmental, and oriented to the present moment.

Mindfulness training improves our ability to pay attention to our internal states and emotions in a non-judgmental way. This increased self-awareness helps us recognize our cognitive processes and emotional responses more clearly.
Mindfulness helps us recognise patterns in our emotional responses and preferences and can amplify our emotional experience. This recognition enables better decision-making aligned with our true feelings, preferences and values.
Mindfulness practices help us regulate reactive emotions by allowing us to observe our feelings without immediate reaction. This ability to manage and modulate emotions is crucial for effective decision making, particularly under stressful conditions.

Recommended apps for training mindfulness include:

1. Waking Up by Sam Harris

Waking Up offers a comprehensive approach to mindfulness and meditation, incorporating teachings from various traditions and scientific insights. The app provides guided meditations, lessons on mindfulness, and talks by Sam Harris and other experts in the field. [Link]

3. Healthy Minds Program (free)

The Healthy Minds Program app, developed by the Center for Healthy Minds at the University of Wisconsin-Madison, offers guided meditations and exercises designed to improve well-being through mindfulness and emotional regulation. The app focuses on cultivating awareness, connection, insight, and purpose to enhance overall mental health. [Link & Review]

Cultivating Brain Criticality

Brain criticality refers to the brain's ability to maintain a balance between order and chaos, which is essential for optimal cognitive function and adaptability. A brain in a state of criticality can efficiently process information, respond to new stimuli, and switch between different cognitive tasks. Mindfulness practice itself can help cultivate this sensitive, self-calibrating brain state.

IQ Mindware’s Trident program also provides brain state assessment and neural entrainment techniques for promoting brain criticality. [Link]

There is a connection between brain criticality and heart rate variability (HRV), a measure of the variation in time between heartbeats. High HRV is associated with a well-functioning autonomic nervous system (ANS) and reflects the body's ability to adapt to stress and environmental demands effectively. Deep, slow breathing techniques stimulate the vagus nerve, which can increase HRV. Practising diaphragmatic breathing or using guided breathing exercises available in various apps can be beneficial. Regular aerobic exercise is known to improve HRV by enhancing cardiovascular fitness and reducing stress. Quality sleep is crucial for maintaining high HRV, as it allows the body to recover and the ANS to balance.

By cultivating a balanced and critical brain network, we can improve our cognitive flexibility and responsiveness, which are crucial for applying EUT mindware effectively.

Capacity Training B: Working Memory Capacity

IQ Mindware Dual N-Back Training: The IQ Mindware DNB app is designed to expand your working memory capacity. Dual N-Back tasks involve simultaneously tracking visual and auditory stimuli over multiple trials, which trains the brain to hold and manipulate information more effectively. This training has been shown to augment working memory and focus, making it easier to manage complex decision spaces and perform EUT calculations accurately. Variations of the Dual N-Back task can be used to strengthen this ability even in the face of emotionally charged distractors, improving focus and decision-making under stress. Explore this app here.

Practising EUT Decision-Making: Consistent practice with EUT mindware helps reinforce the cognitive processes involved in rational decision-making. This practice involves constructing decision spaces, estimating probabilities, and calculating expected utilities for various scenarios. By regularly engaging in this discursive practice, we can improve our ability to perform these tasks in our mental workspace, enhancing our working memory and decision-making skills by placing capacity demands on them. Over time, this can lead to more efficient and effective application of EUT principles in real-life situations, ensuring better outcomes.

By integrating these training methods into daily routines, we can significantly enhance our situational awareness, mindfulness, and working memory capacity. This holistic approach not only improves the ability to apply EUT mindware but also strengthens overall cognitive resilience and flexibility.

References

Arch, J. J., & Craske, M. G. (2006). Mechanisms of mindfulness: Emotion regulation following a focused breathing induction. Behaviour Research and Therapy, 44(12), 1849-1858.

Baer, R. A., Smith, G. T., & Allen, K. B. (2006). Assessment of mindfulness by self-report: The Kentucky Inventory of Mindfulness Skills. Assessment, 13(1), 27-45.

Chmielewski, J., Łoś, K., Waszkiewicz, N., & Łuczyński, W. (2021). Mindfulness Is Related to the Situational Awareness of Medical Students Confronted with Life-Threatening Emergency Situations. Journal of Clinical Medicine. 2021; 10(9):1955.

Hesse, J., & Gross, T. (2014). Self-organized criticality as a fundamental property of neural systems. Frontiers in Systems Neuroscience, 8, 166.

Shapiro, S. L., Carlson, L. E., Astin, J. A., & Freedman, B. (2006). Mechanisms of mindfulness. Journal of Clinical Psychology, 62(3), 373-386.

von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behavior. Princeton University Press.