How to decide whether a system update should be installed? An Android device shows a notification that a system update is available. I guess it is shown because the user has to decide - otherwise it would just be installed silently.

How should the user decide whether he wants to install the update?
Phone updates are an odd thing. Manufacturers decide if the phone is capable of handling the update (based on the device's hardware) and carriers decide when to push the updates to the handsets. There are exceptions, such as Wifi only devices, where it is solely up to the manufacturer.

However, system updates are generally a good thing. These updates bring bug fixes, security patches, and general improvements to the Android experience.

There have been some bad updates, that have broke existing features; but these have been fixed within a few days and are few and far between on recent devices.

But how to decide? If you are hesitant at all to install the update, do some searching for the device and update. Technology sites such as Gizmodo and Engadget post updates to many devices, especially if the update introduces problems. There are also many Android specific blogs that post information of patches and updates.

If no one is reporting problems then the update should be fine to install.