Decision making

Question 1

In decision-making, we’re not finding a ___ __ _ ______, like in problem-solving, but choosing between ______ ______.

Answer 1

In decision-making, we’re not finding a path to a solution, like in problem-solving, but choosing between existing options.

Question 2

What is decision-making?

Answer 2

Choosing between options on the basis of available information.

Question 3

In a coin flip with $100 for tails, what is the expected value?

Answer 3

Expected value is $50.

Question 4

Expected value is….

Answer 4

Value of outcome multiplied by probability.

Question 5

Green et al (1999) found people would take ____ expected value when uncertain.

Answer 5

Green et al (1999) found people would take below expected value when uncertain.

Question 6

We tend to discount outcomes for uncertainty. But how do lotteries contradict this?

Answer 6

At very low odds, there seems to be a bonus for uncertainty! This is how lotteries work: we play for large amounts even though we know the probability is low.

Question 7

In future discounting, older adults discount _____; poor people discount ____.

Answer 7

In future discounting, older adults discount less; poor people discount more.

Question 8

Expected utility theory ignores the fact that…

Answer 8

People act irrationally – e.g. house money vs my money; sunk cost (Concord fallacy); “Losers” and “winners” take more risks – nothing to lose or invincible.

Question 9

What is ‘Satisficing’?

Answer 9

Behaviour is not ideal but we satisfy constraints we are under –of time, information, memory…

Question 10

For a number of years CFOs of large corporations were asked to predict the S&P index over the next year. No correlation between estimate and actual S&P (Kahneman, 2011). What does this show?

Answer 10

The overconfidence bias.

Question 11

Why is overconfidence bias useful? Use ICU doctors example.

Answer 11

Action is better than no action, on average. Doctors need the overconfidence, otherwise no action. If we’re underconfident about our actions –if we embrace fundamental uncertainty –we risk not acting at all, which may be worse.

Question 12

Confidence in decisions climbs as more information is obtained, even if information is _______

Answer 12

Confidence in decisions climbs as more information is obtained, even if information is dubious.

Question 13

What is Kahneman’s productivity bias?

Answer 13

Kahneman asked academics how long to write book. On average book took three times longer to write than estimated. But if academics knew how long would take in advance, they wouldn’t have started. Overconfidence may be adaptive –encourages us to take on tasks that we wouldn’t otherwise do.

Question 14

What is the availability heuristic?

Answer 14

Judgments based on ease with which relevant instances can be retrieved from memory. e.g. If asked which German city larger, Frankfurt or Gelsenkirchen –you would say Frankfurt, because you’ve heard about it more. (Could be recognition heuristic).

Question 15

When asked, is the letter ‘r’ more commonly the first or the third letter in words? People say first. But it’s actually the third. What heuristic is this?

Answer 15

Availability

Question 16

How does Schwarz demonstrate that ease of retrieval may be more important than amount retrieved in availability heuristic?

Answer 16

Participants first asked “list 6/12 instances in which you behaved assertively”

Then “Evaluate how assertive you are”

Those asked to retrieve 12 retrieved more than those asked for 6 but found it harder.

BUT participant in 6 condition rated themselves as more
assertive. Had to struggle to come up with extra reasons, which reduces confidence.

Question 17

Generally we are ____ confident of decisions when asked to produce more arguments in support.

Answer 17

Generally we are less confident of decisions when asked to produce more arguments in support.

Question 18

If I was flipping a coin which sequence would you bet on as more likely?
1. THTTT
2. HTHTTT 
3. HTTTTT
Most people say 2.
Which heuristic?

Answer 18

Representativeness heuristic.

Question 19

What is the representativeness heuristic?

Answer 19

If something or someone appears to fit a category, you will use what you know about that that category to make judgments.

Question 20

Example of Steve the librarian/salesman. We tend to ignore _____-_____, just apply representativeness.

Answer 20

We tend to ignore base-rate just apply representativeness.

Question 21

Example of Steve the librarian/salesman. We tend to ignore _____-_____, just apply representativeness.

Answer 21

We tend to ignore base-rate just apply representativeness.

Question 22

What is the central tenet of Kahneman’s prospect theory?

Answer 22

Relationship between subjective value and monetary value is not the same for gains and losses.

Curve steeper for losses than gain.

Weigh losses much greater than for an equivalent gain.

Question 23

What is the central tenet of Kahneman’s prospect theory?

Answer 23

Relationship between subjective value and monetary value is not the same for gains and losses.

Curve steeper for losses than gain.

Weigh losses much greater than for an equivalent gain.

Question 24

How did Samuelson and Zeckhauser demonstrate the status quo bias?

Answer 24

If you have inherited a large amount money as:
– blue-chip shares, risky shares, T-bills or bonds. Strong tendency to stay with original form, regardless of risk level.

Question 25

How did Samuelson and Zeckhauser demonstrate the status quo bias?

Answer 25

If you have inherited a large amount money as:
– blue-chip shares, risky shares, T-bills or bonds. Strong tendency to stay with original form, regardless of risk level.

Question 26

How can framing effects change risk aversiveness?

Answer 26

If something framed as a loss, people are more likely to take a risk to avoid it.

Question 27

How does anchoring work?

Answer 27

If you give someone a number, they tend not to adjust by a large amount AWAY from the anchor.

E.g. German judges asked to roll a dice. Then asked if sentence should be more or less than what was on the dice. Found that the sentence was lower if the judge had rolled a 3 than if they had rolled a 9.

Question 28

How does anchoring work?

Answer 28

If you give someone a number, they tend not to adjust by a large amount AWAY from the anchor.

E.g. German judges asked to roll a dice. Then asked if sentence should be more or less than what was on the dice. Found that the sentence was lower if the judge had rolled a 3 than if they had rolled a 9.

Question 29

_________ –e.g. survival % –is harder to understand than _________.

Answer 29

Probability –e.g. survival % –is harder to understand than frequencies.