Complex strategic decisions involving multiple stages of actions and events can be represented graphically as decision trees. The generally prescribed procedure for choosing a decision strategy from a decision tree employs a backward induction analysis that entails two fundamental consistency principles: dynamic and consequential. The former requires the decision maker to follow through on plans to the end, and the latter requires the decision maker to focus solely on future consequences given the current state. A third principle, called the independence principle, provides the foundation for expected utility theory. This article reports one of the first direct experimental tests of dynamic and consequential consistency principles, and it also provides one of the first tests of independence within the context of multi-stage decision trees. Four experiments were reported using decision tress with real consequences following each choice. The main findings were that independence and dynamic consistency principles were violated at rates that exceeded choice inconsistency; in contrast, no evidence for violations of consequential consistency over and above choice inconsistency were found. These findings are important for theorists interested in planning and decision making because violations of dynamic consistency imply that behavioral preferences cannot be properly represented by a backward induction analysis. The results are interpreted in terms of a psychological framework called decision field theory.
Download this paper in PDF format:
Download this paper in PostScript format:
To view PDF files, download Adobe Acrobat Reader (it's free) from http://www.adobe.com/prodindex/acrobat/readstep.html.
