Week 6.2 Judgments That Involve Decision Making

Week 6.2 Judgments That Involve Decision Making

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Week 6.2 Judgments That Involve Decision Making

DECISION MAKING

• Thinking often involves choosing among different

alternatives

• Making decisions
• What kind of coffee do I want?
• What major should I choose?
• How do people make judgments that involve choices

between different courses of action?

• Expected vs Subjective Utility

THE UTILITY APPROACH

• Traditional rational Economics-based approach
• Assumes people are rational and make decisions that

maximize benefit

• Utility = outcomes that achieve a person’s goal
• Often framed in terms of monetary value
• But just because it is possible to predict the optimum

strategy doesn’t mean that people will follow that strategy.

• People regularly behave in ways that ignore the

optimum way of responding based on probabilities.

WE DON’T ALWAYS CHOOSING OPTIMALLY

Denes-Raj & Epstien (1994) 7 out of 100 (7%) 1 out of 10 (10%)

WE DON’T DECIDE BASED ON

EXPECTED UTILITY THEORY

Gigerenzer (2004)

• Probability of dying in a car crash is much greater than

an airplane

• After 9/11, more people choose to drive rather than fly

Consequence: More Americans lost their lives avoiding

flying than the total number of passengers killed on the 4

hijacked planes

DEAL OR NO DEAL

• 26 suitcases filled with varying $ amounts
• At the beginning choose one suitcase, set

aside

• Open up 6 suitcases each round, eliminate

the possible $ values in chosen suitcase

• After each round, “bank” makes an offer

based on what $ values are still in play

• Decide whether to take the bank’s offer or

keep playing

• Take player X:
• At this stage, bank offers 80K
• Should they take the deal or keep

playing?

INFLUENCES ON DECISION MAKING

• There are many situations in which people’s decisions do not maximize the probability of a good

outcome.

• Why?
• Post et al. 2008: Contestants who are doing poorly want to avoid the negative feeling of being a loser, take

more risks

The contribution of psychology is to explain how we often deviate from economic models because

subjective value can differ from objective value

DECISION MAKING DEPENDS ON MANY

FACTORS

• Emotions
• Context
• How the Choices are Presented

PEOPLE INACCURATELY PREDICT THEIR

EMOTIONS

• Expected emotions: emotions that people predict they will feel for a

particular outcome

• Outcomes often framed as “gains” vs. “losses” (Tversky & Kahneman)
• Strongly influences risk aversion: the tendency to avoid taking risks
• We often predict that a particular loss will have a greater impact than a gain

of the same size

• We want to hang on to what we “own”
• Sunk costs – once you’ve invested time or money you are reluctant to let go
• Incidental emotions also influence decision making

EMOTION

• Expected Emotions
• Emotions people predict they will feel for an outcome

affects DM

• Risk aversion
• Tendency to avoid taking risks
• Believe that a poor outcome would make them more unhappy,

then a good outcome would make them happy

EMOTION

• Incidental emotions: emotions not caused by

having to make a decision

• Can still affect DM
• Emotions affect economic decisions (Lerner et

al., 2004)

buy

CONTEXT MATTERS

Adding alternatives to be considered as possible choices can influence decisions

• Being faced with a more difficult decision can lead to making no decision at all
• The more options, the more dissatisfied we are with our choice
• Examples:
• Number of options
• More likely to pick more expensive option between two options in the presence of a third more expensive option
• Judges & parole boards
• Probability of a favorable response (parole granted) was 65% when judges heard a case just after taking a meal

break, but dropped to near 0% when heard just before taking a break

CONTEXT MATTERS

Shen et al., 2010: Doctors recommending

caesarian sections

HOW CHOICES ARE PRESENTED

Imagine that the United States is preparing for the outbreak of an unusual disease that is

expected to kill 600 people. Two alternative programs to combat the disease have been

proposed. Assume that the exact scientific estimates of the consequences of the programs

are as follows:

• If Program A is adopted, 200 people will be saved.
• If Program B is adopted, there is a one-third probability that 600 people will be saved and a

two-thirds probability that no people will be saved.

Which of the two programs would you favor?

WAIT….MORE OPTIONS!

• If Program C is adopted, 400 people will certainly die.
• If Program D is adopted, there is a one-third probability that no one will die and a two-thirds

probability that 600 people will die.

Which of these two programs would you favor?

Tversky & Kahneman (1981)

• Positive vs negative framing
• People were more risk

averse when decisions are

framed in terms of positives,

and more risk-taking when

framed in terms of losses

FRAMING

FRAMING EFFECTS

People’s judgments are affected by the actions that choices require

Opt-in vs. Opt-out

• Organ donors
• Status quo bias—the tendency to do nothing when faced with making a

decision

DUAL SYSTEMS

APPROACH

• Why we sometimes succeed but

often fail badly at a wide variety of

rational thinking?

• Dual/Two-systems approaches are

one way to explain a lot of the

empirical findings

• Intuitive vs. Deliberate Systems
• Our performance depends on which

system is in control

SYSTEM 1 CAN ACCOUNT FOR ERRORS IN

DECISION MAKING / PROBLEM SOLVING

Errors can be often be attributed to the intuitive system (system 1)

• Belief bias effects + errors in the “Linda problem” increase under time pressure
• Availability / representative heuristics allow us to arrive at conclusions quickly
• Abstract versions of Wason Card Task hard because we can’t use our intuitive system, but

contextual one we can

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Average Score 50-85%	40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.		83-76  points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.			52-49  points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality 0-45%	37-1 points The background and/or significance are missing. No search history information is provided.		75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.			48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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