STUDY FRAMEWORK
Kahneman and Tversky’s Classical Utility Theory
Kahneman and Tversky’s Classical Utility Theory state that an individual’s decisions are mostly dependent upon economic factors. This is basically because economic factors determine the most suitable choice for the individual. Classical utility theory looks at decision making as choices between prospects and says the economic reason for selecting choice “A” over choice “B” is because the decision-maker has an expectation that “A” will produce greater utility than “B”, and that selecting “A” adds to overall utility – in that it doesn’t work against the utility we currently enjoy. Indeed, the normative model of rational choice assumes most people both should and do operate as classical economists say and make decisions based on maximizing utility.
In a series of experiments done in order to testify to Kahneman and Tversky’s Classical Utility Theory, it was found out that the subjects disproportionately maintained the influence of their status quo when presented with alternatives. In these series of experiments, it was found out that the status quo had a predictable and large effect on decision-making. It was also found out that the more choices the subjects were given, the stronger the bias for maintaining the status quo.
Ellsberg’s Theory of Ambiguity Effect
Ellsberg’s Theory of Ambiguity Effect which states that there are vital factors on which an individual base his decisions. These vital factors, in turn, should be known to an individual in order to influence him the choice he makes. This is because the decision making is affected by the information gathered or the lack of information about certain matters. It is the nature of the person to lean his decision on the side by which he assumes to have favorable outcomes. He wants to make sure that his decision would benefit him and not the opposite. On the other hand, when he is also unsure of the outcome, he usually assumes that it would be unfavorable for him. Thus, he does not choose it over the latter.
Ellsberg’s Theory of Ambiguity Theory is also known as heuristic. It is termed heuristic because it also refers to experience-based techniques for problem solving, learning, and discovery. exhaustive search is impractical. Examples of this method include using a "rule of thumb", an educated guess, an Heuristic methods are used to speed up the process of finding a good enough solution, where an intuitive judgment, or common sense. In more precise terms, heuristics are strategies using readily accessible, though loosely applicable, information to control problem solving in human beings and machines.
With the knowledge on the vital factors which influence decision making, The person will be able to land a most suitable decision. An individual is then dependent on the information he gains on certain choices. In many cases, though, the information he ought to seek cannot be supplied.
THEORETICAL FRAMEWORK
Among the number of theories which claim to explain the process of decision making undergone by an individual, the Kahneman and Tversky’s Classical Utility Theory are two of the most highly renowned in the world. This is basically why the proponents have chosen these two theories to explain further the relationship between the economic status and the decision making of individuals.
Kahneman and Tversky’s Classical Utility Theory explains the impact of economic factor in the decision making of individuals. This is most evident in such a way that the decisions made by an individual are basically dependent on his capacity to sustain his decision. One cannot land a decision that is beyond his economic boundaries. An individual is always tied to his financial capacity because this is what determines the decisions he will make. This theory also states that status quo is a critical reference point in the decision making of individuals. Status quo, for this matter, is the standpoint of an individual in his society. This is thoroughly determined by his economic status.
Ellsberg’s ambiguity theory states that there are economic reasons behind certain decisions. As regards to his economic background, he therefore considers two of the outcomes: the favorable outcome and the unfavorable outcome. The effects of the given information would gear towards the decision that the person would make. He thinks of two general outcomes: the favorable and the unfavorable. Usually, the favored outcome is chosen. It is easier for anyone to choose it because they have a feeling of relief rather than choosing the one which is unfavorable.
Fig. 1 Theoretical Framework
Conceptual Framework
There may be a correlation in the decision making and the economic status of a person. There is a theory on the impact of economic status on decision-making by Kahneman & Tversky’s which is the Classical Utility Theory. This theory states the impact of Economic reasons for selecting certain choices. Behavioral economics says decisions are strongly influenced by the point
of reference against which the decision is judged, and that reference point is often the status quo.
On the other hand, a theory on the influence of factors in process of decision making or the theory of Ambiguity effect by Daniel Ellberg can show the vital factors that affect decision making. These are the economic and social factors gathered from different sources. These informations are from their parents, friends, peers, mentors and the media. After consolidating all these, they have come up with the presumed favorable or unfavorable outcomes. It is his nature to choose the former over the latter that is why he avoids making the choices which will lead him to be in unfavorable situations.
In addition, economic status is not the only factor that is deemed important for the choice of college course. There are still other factors which college entrants consider, such as the influences of their peers and families. They regard others’ opinions and use them to aid their decision as to what course to take in college.
Fig. 2 Conceptual Framework
Operational Framework
It is specified that there is a correlation in the decision making of first year UP Cebu students and their economic status. According to the classical utility theory, the economic status has an impact on the decision making of a person. First Year UP Cebu Students consider their economic status in choosing a course. Their Economic Status is determined by their STFAP bracket assignment.
In the theory of ambiguity effect, it is elaborated that there may be a correlation between the choice of course and the economic status because these factors are vital in the process of decision making. These factors include: less payments, scholarships offered and job opportunities in the chosen course. In the courses offered in the University of the Philippines-Cebu, there are quiet some differences in these opportunities offered to different courses. Scholarships like DOST (Department of Science and Technology) scholarships are offered only for the BS Computer Science, BS Math and BS Biology courses which may affect the choice of course of 1st year UP Cebu students.
In addition, some people gather information from family members, peers and friends that taking up a certain course would give him more job opportunities when he finishes college compared to other courses. Some information may be factual or not, but these informations greatly affect the decision making of 1st year UP Cebu students.
Many would also consider if taking up a certain course would require him to spend minimum amount. He would consider lab fees, expensive requirements and the like that are required in taking up a certain course. If he cannot sustain the payments, he would likely not take up that certain course.
Fig. 3 Operational Framework
CHAPTER IV
METHODOLOGY
Respondents and Locale of the Study
The respondents are 56 first year college students or 20% of the whole first year population of the University of the Philippines Cebu enrolled in all courses offered by the university. This study covers the whole population consisting of 266 enrollees for the 2nd semester of the SY 2010-2011 only. The population is divided into eight courses with these corresponding enrollees: 54 in BS Management, 35 in BS Biology, 17 in BS Math, 50 in BS Computer Science, 21 in BA Political Science, 35 in BA Psychology, 31 in Mass Communication and 23 in Fine Arts.
Sampling Procedure
A stratified random sampling technique is utilized in this study. This is a method of a sampling in which the population is divided into smaller groups. In stratified random sampling, the groups are formed based on members' common characteristics. A random sample from each stratum is taken in a number proportional to the population’s size. These subsets of the strata are then pooled to form a random sample. The respondents are randomly selected from a master list of the University of the Philippines Cebu first year students provided by the University’s College Secretary Office (CSO). The researchers select 20% of the whole first year population or 56 respondents from the university.
Research Design
This study adopts the correlational survey design. This design uses survey questionnaires that are distributed to the respondents. Its main objective is to determine the relationship between the economic status and the choice of course of first year University of the Philippines Cebu students. This study also aims to identify the other factors which have possibly influenced their choice of course.
A focus group discussion is then conducted to support the initial data gathered by the questionnaire. The discussion is also used to gather more information from the respondents that are not revealed in their answers.
Data Collection
Each of the randomly selected respondents is given a questionnaire which they are tasked to fill up and to provide with accurate information.
The respondents are then divided into groups of five for the focus group discussion. The researchers decided that it is essential to conduct a focus group discussion limited to five people in order to create a more personal and comfortable atmosphere within the group. This has also prodded the respondents to provide more information than what they have initially provided in the questionnaire. The allotment for the collection of data will be for two weeks.
Having gathered all the necessary data, the researchers classified the responses according to the relationship of their economic status to their choice of course.
Instrumentation
In order to determine the relationship of the students’ economic status with their choice of course, questionnaires are distributed for the respondents to answer. The questionnaire is divided into three parts; personal information, financial background and choice of college course accordingly.
The first part of the questionnaire determines the personal information of the respondents which comprises name, age, sex and their course and year. The second part determines their financial background basing from their STFAP bracket assignment. The third part is in Likert Scale form, wherein the respondents indicated whether they strongly agree, agree, are undecided, disagree, or strongly disagree to the given statements. The statements given in the questionnaire are factors which are broken down to further emphasize the relationship between the students’ economic status and their choice of college course and to promote consistency as regards to the respondents’ answers.
Data Analysis
In order to determine the relationship between the economic status and the choice of course of first year University of the Philippines Cebu students, the answers in the questionnaires coupled with the focus group discussion are grouped accordingly.
The respondents’ STFAP bracket assignment and their answers in the Likert Scale on the questionnaires are duly compared and analyzed with the aid of The Statistical Package for the Social Science Software (SPSS).
The respondents’ answers in the focus group discussion are also classified under these factors: economic factor, others’ influence, prestige of the college, skills and abilities related and uncertainty.
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