Chapter 11: Making Decisions

Question 1

Rationality

Answer 1

Rational decision making has to do with selecting ways of thinking and acting to serve your goals or moral imperatives, as well as the environment permits

Question 2

Cognitive Overload

Answer 2

When available info overwhelms the cognitive processing available

Question 3

Phases of Decision Making

Answer 3

Setting/revising goals
Make plans
Gather info
Structure the decision
Make a final selection

Question 4

Setting Goals

Answer 4

Decision maker takes stock of their future plans, principles and values, or priorities
Those answers influence decision making

Question 5

Gathering Info

Answer 5

Need information before making a decision
Need to understand various options
Short and long term consequences
Who is affected in each option
Do effects change over time

Question 6

Structuring the Decision

Answer 6

Decision structuring: the way a decision maker manages information and considerations for a decision
Need a way of organizing info for complex decisions
Especially when there are many options or many considerations to be used in making the decision

Question 7

Making A Choice

Answer 7

Selecting from among the final set of options
Can involve objective choice (e.g. coin flip) or more complex process
May involve other decisions (e.g. when to stop gathering info, which info is more relevant)

Question 8

Evaluating

Answer 8

Evaluation of entire decision process
Often an omitted step
Reflect on process and identify aspects to be improved, and those who should be used again

Question 9

Probability

Answer 9

Measurement of a degree of uncertainty
Probabilities are numbers between 0 and 1
0 = complete certainty that an event will not happen
1 = complete certainty that an event will happen
People’s intuitions about probability are often wrong

Question 10

Subjective Probabilities

Answer 10

Influenced by characteristics of probability estimator
If in a bad mood, probability estimates of success tend to be lower

Question 11

Objective Probabilities

Answer 11

Not influenced by the person doing the estimation
Many real life circumstances are not objective

Question 12

Biases

Answer 12

Ways of thinking that lead to systematic errors
Biases are usually understandable and often justifiable ways of thinking but can lead to error when misapplied

Question 13

Cognitive Illusions

Answer 13

Systematic biases
Analogy to perceptual illusions
Errors of cognition that come about for understandable reasons and provide info relevant to understanding normal functioning

Question 14

Heuristics

Answer 14

Shortcuts or rules of thumb used when estimating probability/frequency/numerosity

Question 15

Availability Heuristic

Answer 15

Assessing the ease with which the relevant mental operation of retrieval, construction, or association can be carried out
Instances that are more easily thought of, remembered, or computed stand out more in one’s mind

Question 16

Examples of Availability Heuristics

Answer 16

Husbands/wives are more likely to report they do more household chores because their own chores are more salient
We think words _ _ _ _ i n g are more frequent than _ _ _ _ _ n _
People judging more common cause of death is plane vs car

Question 17

When Does Availability Heuristic Work Well

Answer 17

When we are sure that ease of constructing or calling instances to mind is unbiased

Question 18

When Availability Heuristics Don’t Work

Answer 18

Trying to decide what occurs more often

Question 19

Representativeness Heuristic

Answer 19

People expect that a random process will always produce results that look random

Question 20

Examples of Representative Heuristic

Answer 20

People think its more likely to have GBBGBG than BBBGGG in birth order of siblings because it looks more random and representative

Question 21

Gambler’s Fallacy

Answer 21

A random process will not always produce results that look random
E.g. think its more likely to spin a red if black was spun the previous time, even though it’s still 50/50

Question 22

Law of Small Numbers

Answer 22

People expect small samples to resemble in every respect the population they are drawn from
But in reality smaller samples are more likely to deviate from the population and are not reliable to build conclusions on

Question 23

Man Who Arguments

Answer 23

Ignoring base rate information and paying as much attention to small sample sizes as to large ones
E.g. I know a man who smoked three packs a day and lived to 110

Question 24

Framing Effects

Answer 24

People evaluate outcomes as changes from a reference point/current state
Description ‘frames’ the decision
Depending on how current state is described, they perceive certain outcomes as gains/losses

Question 25

Example of Framing Effect

Answer 25

Gas for $1/liter at Station A and $.95/liter at Station B, but station A has 5 cent cash discount and station B has 5 cent surcharge for credit Actually are the same price, but people prefer station A We treat losses more seriously than gains

Question 26

Anchoring

Answer 26

An initial starting point has a huge effect on final estimates We begin by guessing a first approximation (anchor) and then make adjustments based on additional information

Question 27

Sunk Cost Effect

Answer 27

Greater tendency to continue an endeavor once an investment in money, effort, or time has been made But money spent or resources used are already gone regardless of continuing on or stopping something

Question 28

Illusory Correlation

Answer 28

Seeing nonexistent relationships due to expectations More likely to search for confirmatory information for your expectations Seek out evidence that is consistent with expectations

Question 29

Example of Illusory Correlation

Answer 29

Hair twisters observed, then tested on stress Data showed that there was no relationship between stress and hair twisting, but people still believed there was an effect because it sounds plausible

Question 30

Hindsight Bias

Answer 30

Tendency to consistently exaggerate what could have been anticipated in foresight when looking back on an event

Question 31

Confirmation Bias

Answer 31

Tendency to search only for information that will confirm one’s initial hypothesis, and overlook/ignore other info

Question 32

Examples of Confirmation Bias: 2-4-6 Task

Answer 32

Need to find out the rule this follows by generating other triplets to test rule People tend to try sets that follow their rule instead of testing against their rule Instead, need to generate a counter-example to disconfirm it

Question 33

Examples of Confirmation Bias: Cheater Detection

Answer 33

There’s a dedicated mechanism for detecting those who default on social contracts People perform better in real life situations than with arbitrary numbers and letters (e.g. can someone drink beer)

Question 34

Overconfidence

Answer 34

Confidence ratings are higher than actual accuracy Overconfidence is an impediment to decision making, makes you weight intuition more heavily than objective information

Question 35

Calibration Curve

Answer 35

Plotting confidence against accuracy Closer to a 45 degree line, the better the calibration/fit between confidence and accuracy Deviations from the curve below this line are said to indicate overconfidence Deviations below the line would indicate under-confidence (rare)

Question 36

Sources of Decision Difficulty

Answer 36

Conflict: Decision maker must make trade offs across different dimensions (e.g. car power vs mileage) Uncertainty: Outcome of decision often depends on uncertain variables or events (e.g. future demand for a product)

Question 37

Utility Models of Decision Making

Answer 37

Normative Prescriptive Descriptive

Question 38

Normative Models

Answer 38

Ideal performance under ideal circumstances

Question 39

Prescriptive Models

Answer 39

Tells us how we ought to make decisions Take into account that circumstances of decision making is rarely ideal Provide guidance about how to do the best we can

Question 40

Descriptive Models

Answer 40

Detail what people actually do when they make decisions Not necessarily endorsement of good ways of thinking, but just describe actual performance

Question 41

Expected Utility Theory

Answer 41

Calculate expected value/utility of each outcome in a decision EU = E(pi x ui)

Question 42

Utility

Answer 42

Ideas of happiness, pleasure, and satisfaction coming from achieving one or more personal goals

Question 43

Measuring Utility

Answer 43

Select one outcome to assign as 0, assign other values using this as a reference point Final decision depends on differences in EUs, not on absolute value of utilities

Question 44

Why EU Is Not Normative

Answer 44

EU provides account only of making the final selection from set of alternatives, not of making decisions in which one faces a status quo versus make a change option

Question 45

Image Theory

Answer 45

In making real life decisions, people rarely go through a formal structuring process Most of decision making work is done during the prechoice screening of options phase

Question 46

Screening Options

Answer 46

When decision makers winnow number of options under consideration to a small number Ask themselves whether the new goal/plan/alternative is compatible with three images; Options judged as incompatible with one or more of the images are dropped from consideration

Question 47

Three Images

Answer 47

Value image: containing the decision maker’s values, morals, and principles Trajectory image: containing the decision maker’s goals and aspirations for the future Strategic image: the way in which the decision maker plans to attain their goals

Question 48

Recognition Primed Decision Making

Answer 48

Experts are most likely to rely on intuition, mental simulation, making metaphors or analogies, and recalling or creating stories Compare current issue with previous instances Experts consider one option at a time, mentally simulating the likely effect of a particular decision

Question 49

Neuroeconomics

Answer 49

Field examining how the brain interacts with the environment to enable us to make complex decisions

Question 50

Ultimatum Game

Answer 50

If people receive one time offer to split $10 with partner, when offered only $1 people refuse and neither get the money, but accept with $5 Even though the best choice would be to take any money over none

Question 51

Ultimatum Game In The Brain (Unfair Offers)

Answer 51

Anterior cingulate cortex: Conflict between choices/responses Right dorsolateral prefrontal cortex: Effortful processing, cognitive effort Right and left insula: Implicated in disgust and discomfort, Visceral negative responses

Question 52

Improving Decision Making: Biases

Answer 52

Telling people about biases in decision making and planning results in little/no improvement Bias reduction requires extensive practice with task, individual performance feedback, and means of making the statistical or probabilistic aspects of decisions clearer Even brief 30-minute training sessions in statistical reasoning could improve people’s ability to apply statistical principles to everyday life

Question 53

Improving Decision Making: Feelings & Expectations

Answer 53

Often better, fairer, more rational, and more humane to use decision aids than to rely exclusively on human intuition People are proficient as figuring out which variables are good predictors Human shortcomings show up when trying to integrate all info relevant to a decision

Question 54

Decision Analysis

Answer 54

Emerging technology that helps people gather and integrate info by using human feelings, beliefs, and judgements of relevance, but helps ensure integration of info is carried out without bias

Question 55

Split Brain & Two Things With One Hand

Answer 55

Joe has hard time doing two different things with each hind (e.g. draw a circle and square with opposite hands) But when present instructions to each side of brain simultaneously (e.g. on each side of a screen), problem is fixed

Question 56

Split Brain & Fruit Faces

Answer 56

When present face made out of fruit to different sides, sees it differently Right hemisphere saw the face made out of vegetables (presented on left of visual field) Left hemisphere saw fruit/veggies (presented on right of visual field)

Question 57

Decision Making In Split Brain

Answer 57

Participants had to guess where a block was going to appear (top/bottom, on left hemisphere and on right hemisphere) Stimuli presented very quickly More frequent presentations on the top than on the bottom Right hemisphere presentation Maximized More rational thing to do Always chose the option that has occurred the most frequently in the past 100% of the time guessing it will appear at the most frequent location Left hemisphere Frequency matched Matched the responses to their guesses Neural processes responsible for searching for patterns in events are housed in the left hemisphere

Question 58

Causal Reasoning In Split Brain

Answer 58

Perceptual event Had to respond if the dots moving on a screen were causal or not Blicket task/Causal inference One colour or diff pattern of colour would cause a box to change colour Had to look at pattern to judge and see what caused the square colour change Which colour (green or red) caused the big box to change colour Control participants did well on both tasks presented to both hemispheres Perceptual task was better when presented to the right hemisphere Causal inference task was better when presented to left hemisphere