SIMPLE MATHEMATICAL MODELS TO TAKE DECISIONS IN CASE OF LIMITED RATIONALITY. THE APPLICATION OF AHP TO SIAE CASE STUDY.

Abstract

The aim of this paper is to investigate how human beings take decisions in real life and how simple mathematical models can help with the process. It will be first presented the literature about decision-making theories in the case of perfect rationality and then, in a context more similar to real life, that is in the case of limited rationality. It will be explored the reasons why people are not able to take decisions in a perfect rational way and the role of risk. The paper proceeds with the description of simple mathematical models which can be used by decision-makers in order to take good enough decisions in the case of limited rationality. First, it will be exposed the mathematical theories developed by Bersani and Peres and, second, the Analytic Hierarchic Process developed by Saaty. For both of them, some examples are shown in order to clarify the theory. Continuing, a real case study will be presented in order to show how AHP works in the particular situation when a Station Chief has to hire a new employee inside the company. Finally, the paper presents a brief overview about strengths and weaknesses of AHP model.