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Title: A Framework for Military Decision Making Under Risks

Author: James Schultz, Lieutenant Colonel, USAF

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This is a study of the applicability of prospect theory to military decision making. Prospect theory posits that the decision maker’s reference point determines the domain in which he makes a decision. If the domain is one of losses, the decision maker will tend to be risk seeking, if gains, then he will be risk averse. The author proposes that if prospect theory’s propositions are correct, then it may be possible for the decision maker, by assessing his own domain, to make better informed decisions. One implication of this study is that if the decision maker can do the same for a subordinate or for an enemy, he may be better able to predict their responses in a given situation. The project’s goal is to develop a framework for assessing risk propensity. It does this by first describing the military decision-making process and concluding that it is a rational decision-making process. Second, this study describes prospect theory and matches the key aspects of the theory with the military decision-making process. Third, it proposes a framework for assessing risk propensity. The theory is tested in a case study of Gen Dwight D. Eisenhower’s 1944 decision to launch Operation Market Garden. This decision is analyzed in terms of Graham T. Allison’s three models for decision making and prospect theory to determine which model or theory seems to provide the best explanations for Eisenhower’s decision. The last chapter applies the risk propensity framework to the case study to test if it can predict risk propensity and its impact on decision making. The author concludes that prospect theory’s propositions are valid and that this theory provides a prescriptive way to consider decision making under risk. Although prospect theory does not predict the choice a decision maker will select, it should reveal his bias toward a risky or overcautious solution. This tendency may limit the types of alternatives developed or considered. The framework developed for determining risk propensity provides insights but its use may be limited by the time and information available. The author found that assessing the true reference point from which a problem is considered is problematic. Also, that knowing one’s risk propensity does not necessarily enable the decision maker to change his frame of reference or to consider the choice problem from different perspectives. Finally, additional study should be conducted in this area to further validate prospect theory’s propositions and refine techniques for improving decision making under risks. v Abstract This is a study of the applicability of prospect theory to military decision making. Prospect theory posits that the decision maker’s reference point determines the domain in which he makes a decision. If the domain is one of losses, the decision maker will tend to be risk seeking, if gains, then he will be risk averse. The author proposes that if prospect theory’s propositions are correct, then it may be possible for the decision maker, by assessing his own domain, to make better informed decisions. One implication of this study is that if the decision maker can do the same for a subordinate or for an enemy, he may be better able to predict their responses in a given situation.