Decision Making Flashcards
Decision
a choice one makes after considering different alternatives
Expected Value (Rational Choice)
● Average outcome if a scenario is repeated many times
● Calculated using probabilities and values of possible
outcomes
● Example: a gamble
● 75% chance of winning $200,
● 25% chance of winning $0.
● EV = (.75 × $200) + (.25 × $0) = $150
In order to maximize average outcome _______
Choose option with greatest expected value
● Option A: You win $125. ● EV = 1.0 × $125 = $125 ● Option B: 25% chance you win $400, 75% chance you win $0. ● EV = (.25 × $400) + (.75 × $0) = $100 ● Therefore, you should choose Option A.
Advantages to using Expected Value
● Clear prescription for “correct” choices
● Leads people, on average, to maximize monetary
gains given what they know about the world
● Keeps people’s decisions internally consistent
Problems to using Expected Value
● Difficult to apply for non-monetary decisions
● Doesn’t explain actual choices by actual people
Kahneman & Tversky Developed ______ Theory
Prospect
What is Prospect Theory?
A descriptive approach to decision making in which we focus on HOW we decide
What is Rational Choice Theory?
A Prespective approach to decision making in which we focus on how we SHOULD decide using expected values
Behavioural Economics
People do not make decisions based on expected
values, probabilities, and absolute outcomes.
People make decisions based on subjective utility,
decision weights, and relative outcomes.
Ultility
Usefulness or desirability of an outcome
Loss Aversion
Refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5.
=Losses loom larger than gains
Losing $20 feels worse than winning $20 feels good
Subjective Utility - prospect
Individual differences in sensitivity to loss
Utility Function (see notes Decision 1 for graph)
- Diminishing marginal utility: Utility function curves
- Loss aversion: Utility function is steeper for
losses than gains
Decision Weight - prospect
People transform objective probability into subjective decision weights
Small probabilities (but greater than 0%) are overweighted
● 1% feels like much more than 0%
● 51% feels about the same as 50%
Large probabilities (but less than 100%) are
underweighted
● 99% feels like a lot less than 100%
● 50% feels about the same as 51%
Decision weight Graph see notes Decision part 1)
- Underweighting of large probabilities
2. Overweighting of small probabilities
Influences of ‘gain’ Framing on decision making
In terms of gains, safe net option selected
= A. You gain $200. Net: $200
instead of
B. 33% chance you gain $600, Net: $600
66% chance you gain $0. Net: $0
Influences of ‘loss’ framing on decision making
A. You lose $400. Net: $200
is a 50/50 split
B. 33% chance you lose $0, Net: $600
66% chance you lose $600. Net: $0
Frame Effect - prospect
People make decisions based on gains and losses
relative to a point of reference, not based on
absolute outcomes.
● Changing the way a question is asked to create a
different point of reference leads to different
valuations and thus different choices.
People make decisions based on individual: (3)
Subjective utilities
● Diminishing marginal utility & loss aversion
Decision weights
● Underweight large probabilities & overweight small
probabilities
Relative outcomes
● Reference dependence, gain & loss framing
Reinforcement Learning
We perform actions in the world and experience
the resulting outcomes as good (reward) or bad
(lack of reward or punishment).
How do we make predictions and compare the real outcome with the predicted outcome.?
“actual” outcome vs. “expected” outcome
- “violation of expectations” - > “adjustment of behavior”
- > meeting expectations -> maintenance of behavior
Which part of the brain measures reward/pleasure?
mid brain; but mid brain does not just do reward stuff
● Activity of midbrain dopamine neurons is related to reward
● But dopamine neurons do more than simply report occurrence of reward
● They code deviations from predictions about time and magnitude of reward
Reward Prediction Error (RPE)
Actual Reward – Expected Reward
RPE > 0, Better than expected
RPE = 0, As expected
RPE < 0, Worse than expected
What happens to dopamine rewards after repeated good experiences?
rewards go from GOOD to good to just ok, fire less and less
our favorite menu item. The waiter tells you they are out. What happens to your dopamine?
decrease in activity
We take actions to _______
maximize our future reward
We are continuously predicting ________
expected future reward
What happens when we receive information that violates our expectations?
it generates a reward prediction error
What results from a reward prediction error
we update our predictions, which may alter our actions
Dopamine pathways in the brain
Midbrain dopamine neurons project to:
basal ganglia,
prefrontal cortex,
and many other areas!
How does reinforcement learning relate to addiction?
over time dopamine neuron activity begins to fire at the cue of a reward instead of the reward itself; it is intensified for drugs as it fires heavily at sight of drug paraphanalia AND drug consumption
Functions of the prefrontal cortex (5)
● Maintenance and updating of goals ● Inhibition of prepotent actions ● Shifting between rules, sets, and tasks ● Monitoring and adjusting performance ● Integrating multiple sources of value All central to decision making and the selection of actions
Rostral Prefrontal Cortex
● Complex
● Abstract
● Long timeframe
= long term goals, complex actions, cognition, rule guided behaviour
Basketball example:
-What sport am I playing? Basketball -What position am I playing? ● Forward -What play are we running? ● Alley-oop
Caudal Prefrontal Cortex
● Simple
● Concrete
● Short time-frame
= simple movements,
= basketball example:
What do I need to do next?
● Jump!
Ventral Prefrontal Cortex
● What
● Why
● Meaning oriented
Basketball shot example
=What am I doing and why?
● On offense
● Need to put ball through hoop to score
Dorsal Prefrontal Cortex
● Where
● How
● Action oriented
Basketball shot example =How do I do it, and where should I be? ● Approaching basket ● Catch ball at apex ● Slam it through the hoop!
Medial Prefrontal Cortex
● Hot/affective/motivation
● Value-based
● Internal/body-oriented
Basketball shot example: Why do I care? ● Need to score to win! ● Don’t want to make a mistake ● Completing an alley-oop feels good!
Lateral Prefrontal Cortex
● Cold/cognitive/rules
● Feature-based
● External/environment oriented
Basketball example: Why is this right play? ● Positions of players allows it ● High-percentage shot ● Quick play needed due to shot clock
Insula (anterior insula)
Key player in risk aversion
Right insula
involved when selling
ventral striatum and medial prefrontal cortex
Involved when buying
Subjective value
medial prefrontal cortex valuing the overall deal and desirability of doing it in the first place
Highest Rationality
those with strongest activation in the ventromedial cortex and orbitofrontal cortex during decision making
Axiom of revealed preferences
idea that we can learn how people assign subjective value to different options by offering them a choice between two options and seeing which one they select
Intertemporal Choice
subjects can assign different values to a reward that occurs soon versus reward that occurs in the more distant future
Corticostriatial loops
reward circuits through the ventral striatum receive outputs from the orbitofrontal cortex
Dopaminergic loop circuits
connect common subjective “common currency” to ventral striatum region
Endowment effect
People value what they own or their material as more than it is worth and judge others stuff or material as less than it is worth
Intuition system (system 1)
operates unconsciously and implicitly: people can use it to identify a preference, but cannot say precisely why they took to arrive at their choice
Rational system (system 2)
operates consciously and explicitly: people deliberate their way to a logical conclusion and understand their choice and the route they took to get there
Which brain region is heavily involved in decision making when there is a threat and a quick decision must be made?
amygdala
When an individual makes a moral decision based on the strategy “do no harm”, this region of the brain is active:
medial prefrontal
The “goal-tracking” region of the brain during decision making is the:
frontopolar cortex
The “plan-selecting” region of the brain during decision making is the:
dorsomedial prefrontal cortex
Which brain region is associated with assigning subjective value to punishments and rewards?
Orbitofrontal cortex
“Into Thin Air” deaths
Lack of oxygen - impaired decision making - death dt bad decision making
