Decision making - RD4 Flashcards
What is a decision?
Choosing a specific option from multiple options
What do judgements and decisions each emphasise?
judgements = accuracy
decisions = consequences
What are normative theories?
concerned with how people should make decisions rationally
What are descriptive theories?
concerned with how people actually make decisions
What the main assumption of utility theory?
people act (rationally) to maximise expected utility
we calculate expected utility for each outcome and choose the highest one (starting point irrelevant)
What is expected utility?
p(given outcome) x utility of outcome
so how likely an outcome is x a subjective value of how good it is
What do people do in a toin coss situation with a chance of losing some money or gaining even more money?
less likely to go for it, even though they have a chance of getting more money (not rational)
What are the 3 main assumptions of prospect theory?
- individual identify a reference point representing their current state
- more sensitive to potential loss than gains (loss aversion)
- overweight rare events
What is a value function?
the relationship between utility (subjective value) and actual gains/losses
How does prospect theory explain the toin coss examples better than utility theory?
- the subjective value of a loss is greater than a gain
- people overweight the chances of a loss
What is the framing effect?
decisions are influenced by irrelevant aspects of the situation and the way a decision is framed can alter how people choose
What was found in the Asian disease problem when participants were told the probabilities of people being saved (gain-frame condition)?
72% chose 200 definitely being saved over 1/3 chance that 600 will be saved, even though the probabilities are the same (opposite of loss-frame)
What was found in the Asian disease problem when participants were told the probabilities of people not being saved (loss-frame condition)?
78% chose 1/3 chance of 600 dying over 200 definitely dying, even though the probabilities are the same (opposite of gain-frame)
Why might the Asian disease problem results have happened?
- loss aversion to the high probability that 400 will die
- overweighting rare events (1/3 probability that no one will die)
What did Mandel and Vartanian (2011) find when they gave all information about the Asian disease problem?
Framing effect disappeared and it was 50/50 for the options - so it gets rid of any ambiguity
What did Almashat et al (2008) find when participants listed advantages/disadvantages of options of cancer treatments?
the framing effect disappeared
what is the sunk-cost effect?
pursuing an action after it has proved suboptimal because resources have been invested already
What happens in the ill on the way to a hotel you paid a deposit for scenario?
People still choose to go even though they won’t have a good time and will lose more money paying the full cost
sunk-cost fallacy
What did Baliga and Ely (2011) find when giving business students information about investments? How did they explain it?
There was no sunk-cost fallacy - chose to switch investments
- could be because of their expertise on the topic
What did Hertwig (2004) suggest about rare events when decisions are based on descriptions or experience?
- descriptions = overweighted
- experience = underweighted
Why might we underweight rare events based on experience? (2)
- low sampling (never experienced it before yourself)
- availability heuristic (an example doesn’t come to mind)
What is loss neutrality and when is it found and not found?
- understanding that the options have the same outcome
- found when people are choosing between small amounts (toss a coin for £1 loss or gain, or choose to toss another coin for £5 loss or gain - so they have the same overall outcome no matter which you choose)
- breaks down with larger amounts (more to lose - loss aversion?)
What are some problems with prospect theory? (3)
- doesn’t explain why the value function exists
- many predicted phenomena can disappear in specific situations
- doesn’t account for individual differences (e.g. self-esteem and narcissism)
What is impact bias?
overestimation of the intensity/duration of negative emotions to loss
What might explain loss aversion?
Anticipated and actual loss can lead to negative emotions
What did Kermer et al (2006) suggest about loss aversion when choosing between a £3 loss and £5 gain?
the loss is anticipated to have a greater (negative) impact on happiness than the gain, even though its real value is lower
how did Giorgetta et al (2013) find that we perceive loss when decisions are made by the self or a computer?
self = regret
computer = disappointment
so agency affects emotional response to loss
What is omission bias?
the preference for inaction when engaged in risky decision making
what are 3 results that support omission bias?
- people prefer not to give kids vaccinations, even though the risk from the disease is higher
- people predict more responsibility/regret if the child had a reaction to the injection than if they got the disease from not having the vaccination
- pulmonlologists will be less likely to choose the best treatment option if there is a choice to do nothing
How does accountability affect sunk-cost and why?
increased sunk-cost with increased accountability
a greater need to justify your initial decision
What steps should people go through for optimal complex decision making? (5)
- identify relevant attributes
- decide how to weight the attributes
- list options under consideration
- rate each option on each attribute
- obtain total utility then choose the option with the highest utility
What is decision making bounded by (bounded rationality)? (2)
- environmental constraints
- cognitive constraints
What is satisficing?
picking the first option that satisfies the minimum requirements
What does Tversky et al (1972) suggest about what elimination by aspects theory is and what matters for it to work/not work?
- serial elimination based on specific criteria until one option remains
- order can matter
- can’t handle trade-offs (something eliminated for one thing early can’t be compared to another aspect later on)
What does Kaplan et al (2011) suggest about elimination by aspects theory?
It is a 2 stage process:
- elimination (as in aspects theory)
- detailed comparison of a small remaining about (as in utility theory)
What’s good about Kaplan at al’s (2011) updated version of elimination by aspects/utility theory?
useful for filtering large amounts of options but still allows for detailed comparison for an optimal decision from a small subset
What did galotti et al (2007) find was the process when students were choosing their major? (5)
- constrained information (2-5 options at a time)
- options considered decreased over time
- constrained information (3-9 attributes at a time)
- attributes considered remained constant over time
- higher ability/more education = more attributes considered at a time
What is the somatic marker hypothesis?
suggests that we use emotion/simulation of consequences to make quick judgements about multiple options
What is the Recognition-primed decision model?
- experts needing to make rapid decisions often relate the situation to a previous similar situation and make decisions based on the outcome of decisions made in the past
- elimination by aspects is generally not used by experts as they just use their memory instead
What is the Dunning-Kruger effect?
people with poor reasoning ability have less insight into their competence
