Decision making - RD4

Question 1

What is a decision?

Answer 1

Choosing a specific option from multiple options

Question 2

What do judgements and decisions each emphasise?

Answer 2

judgements = accuracy
decisions = consequences

Question 3

What are normative theories?

Answer 3

concerned with how people should make decisions rationally

Question 4

What are descriptive theories?

Answer 4

concerned with how people actually make decisions

Question 5

What the main assumption of utility theory?

Answer 5

people act (rationally) to maximise expected utility
we calculate expected utility for each outcome and choose the highest one (starting point irrelevant)

Question 6

What is expected utility?

Answer 6

p(given outcome) x utility of outcome
so how likely an outcome is x a subjective value of how good it is

Question 7

What do people do in a toin coss situation with a chance of losing some money or gaining even more money?

Answer 7

less likely to go for it, even though they have a chance of getting more money (not rational)

Question 8

What are the 3 main assumptions of prospect theory?

Answer 8

• individual identify a reference point representing their current state
• more sensitive to potential loss than gains (loss aversion)
• overweight rare events

Question 9

What is a value function?

Answer 9

the relationship between utility (subjective value) and actual gains/losses

Question 10

How does prospect theory explain the toin coss examples better than utility theory?

Answer 10

• the subjective value of a loss is greater than a gain
• people overweight the chances of a loss

Question 11

What is the framing effect?

Answer 11

decisions are influenced by irrelevant aspects of the situation and the way a decision is framed can alter how people choose

Question 12

What was found in the Asian disease problem when participants were told the probabilities of people being saved (gain-frame condition)?

Answer 12

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)

Question 13

What was found in the Asian disease problem when participants were told the probabilities of people not being saved (loss-frame condition)?

Answer 13

78% chose 1/3 chance of 600 dying over 200 definitely dying, even though the probabilities are the same (opposite of gain-frame)

Question 14

Why might the Asian disease problem results have happened?

Answer 14

• loss aversion to the high probability that 400 will die
• overweighting rare events (1/3 probability that no one will die)

Question 15

What did Mandel and Vartanian (2011) find when they gave all information about the Asian disease problem?

Answer 15

Framing effect disappeared and it was 50/50 for the options - so it gets rid of any ambiguity

Question 16

What did Almashat et al (2008) find when participants listed advantages/disadvantages of options of cancer treatments?

Answer 16

the framing effect disappeared

Question 17

what is the sunk-cost effect?

Answer 17

pursuing an action after it has proved suboptimal because resources have been invested already

Question 18

What happens in the ill on the way to a hotel you paid a deposit for scenario?

Answer 18

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

Question 19

What did Baliga and Ely (2011) find when giving business students information about investments? How did they explain it?

Answer 19

There was no sunk-cost fallacy - chose to switch investments
- could be because of their expertise on the topic

Question 20

What did Hertwig (2004) suggest about rare events when decisions are based on descriptions or experience?

Answer 20

• descriptions = overweighted
• experience = underweighted

Question 21

Why might we underweight rare events based on experience? (2)

Answer 21

• low sampling (never experienced it before yourself)
• availability heuristic (an example doesn’t come to mind)

Question 22

What is loss neutrality and when is it found and not found?

Answer 22

• 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?)

Question 23

What are some problems with prospect theory? (3)

Answer 23

• 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)

Question 24

What is impact bias?

Answer 24

overestimation of the intensity/duration of negative emotions to loss

Question 25

What might explain loss aversion?

Answer 25

Anticipated and actual loss can lead to negative emotions

Question 26

What did Kermer et al (2006) suggest about loss aversion when choosing between a £3 loss and £5 gain?

Answer 26

the loss is anticipated to have a greater (negative) impact on happiness than the gain, even though its real value is lower

Question 27

how did Giorgetta et al (2013) find that we perceive loss when decisions are made by the self or a computer?

Answer 27

self = regret computer = disappointment so agency affects emotional response to loss

Question 28

What is omission bias?

Answer 28

the preference for inaction when engaged in risky decision making

Question 29

what are 3 results that support omission bias?

Answer 29

- 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

Question 30

How does accountability affect sunk-cost and why?

Answer 30

increased sunk-cost with increased accountability a greater need to justify your initial decision

Question 31

What steps should people go through for optimal complex decision making? (5)

Answer 31

- 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

Question 32

What is decision making bounded by (bounded rationality)? (2)

Answer 32

- environmental constraints - cognitive constraints

Question 33

What is satisficing?

Answer 33

picking the first option that satisfies the minimum requirements

Question 34

What does Tversky et al (1972) suggest about what elimination by aspects theory is and what matters for it to work/not work?

Answer 34

- 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)

Question 35

What does Kaplan et al (2011) suggest about elimination by aspects theory?

Answer 35

It is a 2 stage process: - elimination (as in aspects theory) - detailed comparison of a small remaining about (as in utility theory)

Question 36

What's good about Kaplan at al's (2011) updated version of elimination by aspects/utility theory?

Answer 36

useful for filtering large amounts of options but still allows for detailed comparison for an optimal decision from a small subset

Question 37

What did galotti et al (2007) find was the process when students were choosing their major? (5)

Answer 37

- 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

Question 38

What is the somatic marker hypothesis?

Answer 38

suggests that we use emotion/simulation of consequences to make quick judgements about multiple options

Question 39

What is the Recognition-primed decision model?

Answer 39

- 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

Question 40

What is the Dunning-Kruger effect?

Answer 40

people with poor reasoning ability have less insight into their competence