A commonality of patients with major psychiatric disorders is their propensity to make poor decisions, which is intimately related to poor real-life outcomes. We reviewed the literature on decision making as applied to severe psychiatric disorders, with particular focus on advances in cognitive neuroscience. Deficits in reward sensitivity, avoidance learning, and temporal discounting are reported in depression. Besides abnormalities in hedonic capacity, other cognitive distortions required for flexible control of behavior occur in patients with bipolar disorder and schizophrenia. A conceptual framework of abnormal decision making in mental illness could generate targeted interventions to improve quality of life and clinical outcomes.