decision making Flashcards
what does “value” refer to
Value= ‘utility’ in decision-making literature
how do we calculate value
weigh-up (‘weight’) benefits against costs to maximise value (1-10)
Base decision on highest absolute (+ or -) value
combine weighting of value and probability
Base decision on highest (absolute) combination of estimated probability (0-1) and value (1-10) weighting
what is Subjective expected utility theory
Normative theory:
How decisions should (ought to) be made
Subjective: assign different values to things
Expected: try to imagine decision outcomes and their consequences in advance
Utility: usefulness (value) of things
what’s the SEU calculation
SEU calculation: P(attribute 1) x U(attribute 1) + P(outcome 2) x U(attribute 2)…
P = probability; U = utility
SEU theory normative process =
Normative (rational/logical), mathematically-orientated theory of decision-making
Weighing-up attributes (‘pros’ and ‘cons’)
e.g., number of rooms in house vs. its location
Trade-offs: choose option based on attributes best suited to needs, given constraints
e.g., couple with 4 children need large house but have limited money, so must sacrifice some attribute of house other than size to stay within budget
e.g., settle for large enough house in worse area or in worse state of repair
SEU theory, how does it work
Options weighted according to probability
Goal of decision-making: to maximise utility
Ideal decision-making outcome
Utility: what’s best for decision-maker
Outcome that ‘ticks enough boxes’
SEU: goodness of decision outcome
e.g., how good person feels about it
e.g., what person expects to gain from it
Not seen as psychologically-plausible
what is descriptive invariance
Key principle of rational decision-making:
Description of decision task options should not influence option chosen
Utility (not description) of options determines choice
Is ‘descriptive invariance’ psychologically-plausible?
Tversky & Kahneman, 1981
invariance study on framing
Presented Ps with two versions of same scenario
One version emphasised loss, the other version emphasised gain
Both versions had a more risky option or a safer option
results Tversky & Kahneman, 1981
invariance study on framing
Results (% of Ps choosing each option):
‘Gain’ version:
Treatment 1 (200 saved) = 72%
Treatment 2 (1/3 chance of 600 saved; 2/3 chance of nobody being saved) = 28%
‘Loss’ version:
Treatment 1 (400 die) = 22%
Treatment 2 (1/3 chance of nobody dying; 2/3 chance of 600 dying) = 78%
BOTH OPTIONS HAVE SAME RESULT
what’s the framing effect
Choices affected by presentation (‘framing’) of options
So, violate ‘descriptive invariance’ principle of Utility theory
‘Framing effect’:
Decisions more risky (risk-seeking) for tasks ‘framed’ in terms of loss (negative ‘frame’)
Decisions less risky (risk-averse) for tasks ‘framed’ in terms of gain (positive ‘frame’)
framing effect evidence
E.g
(Thomas et al., 2011)
Negative ‘framing’ (dangers emphasised) more effective
O’Keefe and Jensen (2007): review of health psychology message ‘framing’ studies
Positive ‘framing’ generally more effective, but type of health issue can affect which ‘frame’ works best
what is prospect theory
Descriptive theory of decision-making
Explains how decisions made, and how decisions deviate from normative standards
Combines probability and utility (value)
Basis:
‘Prospects’ of decisions (attributes of tasks) not evaluated by expected monetary value (utility) of outcomes but by expected subjective value (utility) of those outcomes (Bernoulli, 1738)
evidence for prospect theory
Typical paradigm: choose 1 of 2 monetary options, both identical in terms of utility
For example (gain ‘frame’ version):
i) turn £300 into £400 guaranteed, or
ii) have 50% chance (toss of fair coin) of turning £300 into £500 or keeping £300
First option chosen more often than second option
Risk-averse when gains emphasised
Risk-seeking when losses emphasised
