Decision Making Flashcards
What Is judgement?
deciding on the likelihood of various events using incomplete information
What is decision making?
selecting one option from several possibilities
What is Bayesian inference?
tells us how our initial beliefs should be updated by evidence or experience to produce posterior probabilities
uses baye’s theorem to calculate a probability of a hypothesis
What is Bayes’ theorem?
“degree of belief” is quantified by probability
observed data is used to update prior beliefs to become posterior beliefs
Kahneman and Tversky (1972) taxicab problem
cab involved in an accident
85% of cabs are green, 15% are blue
women identifies can as blue
but when tested, she was wrong 20% of the time
What was the probability that cab was blue?
41%
How did bayesians get to that result?
12% chance that witness correctly identifies blue cab (15% x 80%)
17% chance of witness incorrectly identifying green cab as blue (85% x 20%)
29% chance the witness identifies cab as blue (12% + 17%)
41% chance cab identified as blue is blue (12% divided by 29%)
According to Bayes’ theorem, people making judgements should take into account the base rate info, what is base rate information?
the relative frequency of an event within a given population
base rate info is often ignored
Kahneman and Tvertsky: heuristics
most people given judgement tasks use rules of thumb or heuristics
What are heuristics?
strategies that ignore part of the information with the goal of making decisions more quickly
they often reduce the effort associated with cognitive tasks
What is representativeness heuristic?
assumption that an object belongs to a specific category because it is representative of that category
What is conjunction fallacy?
mistaken assumption that the probability of a conjunction of two events (occurring at same point) is greater that the probability of one of them
Krynski and Tenenbaum (2007): heeding base rates
we possess valuable causal knowledge allowing us to make accurate judgements using base rate info in everyday lives
What is availability heuristic?
frequencies of events can be estimated accurately by the subjective ease with which they can retrieved
relies on immediate info at the time
What is affective heuristic?
using ones emotional responses to influence rapid judgements or decisions
What is anchoring and adjustment heuristic?
judgements are influenced by a reference point (anchor) which can be completely irrelevant
Gigerenzer: heuristics
argued heuristics are often very reliable when judging probabilities or making decisions
Gigerenzer: 3 examples of reliable heuristics
fast and frugal (rapid processing of limited info)
Take-the-best (sequence of search rule, stopping rule and decision rule)
recognition heuristic
Kahneman: probability judgments depend on processing within 2 systems
system 1 = fast, automatic, effortless
system 2 = slower, effortful
Von Neumann and Morgenstern
treated decisions as if they were gambles
outcome of a decisions is unknown
What are the key assumptions of Kahneman and Tvertsky’s prospect theory?
- people identity a reference point representing their present state
- people are more sensitive to potential losses than potential gains
What is loss aversion?
where people are more sensitive to potential losses than potential gains
What is risk aversion?
where people prefer a sure gain to a risky (but potentially greater) gain
What is framing effect?
the finding that decisions can be influenced by situational aspects which are irrelevant to optimal decision making
e.g choosing yogurt that says 80% fat free over one that says 20% fat
