Decision Making Flashcards
Introduction - Decision Making
Decision making involves selecting one option from several possibilities. Often have limited time to make decisions.
Factors involved depend on importance of decision to individual.
Individuals usually assess their decisions in terms of their consequences; however a decision can provide useful information even if there are poor consequences.
One of the key components of decision making is explained through expected utility theory. Model attempts to explain how we should behave.
Another key component of decision making is prospect theory. Prospect theory has two core components and attempts to explain how we actually make decisions.
What are the key components of decision making?
Combination of these factors result in a decision.
Choices - Which and how many available
Outcomes - Consequences
Beliefs - How likely the outcome is
Values - What is associated with the result
Describe expected utility theory
Term introduced by <b>Bernoulli</b>who used it to solve St. Petersburg paradox. Coin tossed, winnings doubled each time play. Most people not willing to pay much to play game. Bernoulli then claimed that we do not base decisions on objective value, but utility. Utility refers to outcomes that achieve a person’s goals. People do not always make decisions that result in the desired outcome.
Expected utility theory proposed by von Neumann and Morgenstern (1944). Suggests we try to maximise utility which is the subjective value we attach to an outcome. Individuals will choose the act which results in the highest expected utility. How we place value on things.
Value is an internal perception and can vary based on the context.
What are the problems with expected utility theory?
Loss aversion - £100 felt more deeply than the gain of £100. Greater sensitivity to potential losses than potential gains.
Endowment Effect - Value you place on a mug depends on whether you own it. Loosing a mug you own is worse than gaining the same mug.
Framing effects - E.g. vaccine problem. Question then changed. According to this theory, the only thing that has changed is the framing of the problem. When question framed in terms of how many people to save, most people pick this. When it is framed in terms of how many people will die, most likely to pick over option to avoid killing ppl.
Suggests that people’s decisions can be swayed by how the problem is presented.
Describe Prospect Theory
Proposed by Kahneman and Tversky (1984) to describe how we actually decide.
Risk differs when we face gains vs losses.
Main assumptions 1. Indvs identify a reference point representing their current state. 2. Indvs more sensitive to potential losses than potential gains.
Gain = Happiness Loss = Sadness
Rare events receive more weight than they should do.
Framing effect - Decisions can be influenced by how the problem is presented. When a choice is framed in terms of gains, people use a risk aversion strategy, but when the choice is framed in terms of losses, people use a risk-taking strategy.
Evaluate Prospect Theory
- More adequate account of decision making than EUT
- Value function allows for the explanation of many phenomena such as loss aversion and framing effects.
- Loss aversion shown by many real world e.g’s. Theory successfully applied to real life.
- Descriptive model
Describe the Stanford marshmallow test
- Child given choice of small reward instantly or 2 small rewards if wait.
- Those who wait longer have better life outcomes.
- Economic background explains some results.
- Well-off children know that waiting pays off
- Not all about self-control. Shouldn’t train this.
- Root cause of poor life outcomes isn’t impulsiveness as problems complicated to repair.
How do you measure temporal preferences?
Delay discounting task
aka inter-temporal choice task
eg would you like £10 now or £20 in 2 weeks
What evidence is there on addiction influence on discount factors?
Impulsivity is higher in ex smokers than controls and even higher in current smokers.
The effects is greatest for discounting cigarettes but also extends to discounting of money.
What evidence is there in eating disorders influencing discount rate?
Obese women show greater delay discounting than healthy weight women.
People with anorexia are the opposite.
BMI and discount rates are correlated.
There is a main effect of age and discount rate on BMI.
BMI moderates the rate of weight over time.