L2 Article Willingham 11 - decision making

Question 1

Three ways in which we can define inconsistency

Answer 1

1. Logical benchmark
2. Probabilistic benchmark:
3. Rational Decision benchmark: consistency of preference & choice

Question 2

What is logical benchmark?

Answer 2

Consistency of belief
↪ making deductively valid inferences
If you believe A, you also certainly believe B. If you believe A&B and they are related in that way, you’re being consistent
- Person who says they believe A & B but then believes A but not B is being inconsistent

E.g. flipping the cards example - people struggle with checking the logical implications of a rule
↪ because we’re humans and we use language flexibly

Question 3

What is conversational implicature?

Answer 3

Meaning that isn’t stated but which one can reasonably take to be intended given the context in which the sentence is written

• a statement only implies a given proposition only if the listener who is aware of the context would take that proposition to have been intended
• can be misleading when doing logical assessment

Question 4

What is the belief bias?

Answer 4

When logically assessing an argument, we need to check whether the conclusion must be true from the premises
Belief bias → existing convictions/beliefs influence the evaluation of the structure of an argument
E.g. P1: All dogs are animals
P2: Some animals are German Shepherd dogs
C: Some dogs are German Shepherd dogs
↪ invalid argument = conclusion doesn’t logically follow the premises but we are inclined to believe it as true since we know german shepards are dogs

Question 5

What we should do instead of what we actually do according to the logical benchmark?

Answer 5

What we actually do → what we should do

1. Confirmation bias → strive for falsification
2. Rely on conversational implicature → consider only relevant info

Question 6

What is the probability benchmark?

Answer 6

Consistency of degrees of belief
↪ Updating beliefs in accordance with the rules of probability
If that is true or I believe this to some degree, I should accept that this is true
↪ It’s a matter of degree instead of certainty

Question 7

Answer to picture 1 - why? What is the name of this error?

Don’t look at the answer yet, try figuring it out

Answer 7

The answer is B, the smaller hospital
Because if you find a result that deviates from the norm (60% instead of 50%), it’s more likely to come from the smaller sample size because if sample size increases, the sample mean will approach the population mean.
Sample size neglect

Question 8

Example:
P1) P(7Habits|Effective)=high
P2) 7Habits
C) Effective
What is P (Effective|7 habits)?
What is the name of this error?

Answer 8

All the effective people do the 7 habits.
Let’s say the probability of finding a person that does the 7 habits but is not effective is 60%.
The probability of being effective given that I have those 7 habits = ?
= P(7 habits | effective) / (P(not 7 habits|not effective) + P(7 habits | not effective)
Picture 2
Base rate neglect

Question 9

What’s the difference between frequencies and probabilities in terms of decision-making?

Answer 9

People usually perform much better on choice problems when it’s presented in terms of frequencies instead of probabilities

• some theories say that we evolved in preliterate societies where info would be remembered in terms of frequencies

Question 10

What we should do and what we are actually doing according to the probability benchmark?

Answer 10

What we are actually doing → What we should be doing?

1. Sample size neglect → use sample sizes
2. Base rate neglect → calculate conditional probabilities

Question 11

What is Rational decision benchmark?

Answer 11

Consistency of preference & choice
↪ deciding in a manner that maximizes expected utility
If you have a preference for this, then logically should also have a preference for this

Question 12

What is rationality according to the rational models?

Answer 12

Consistency across the choices made

Question 13

What does it mean when choices show transitivity?

Answer 13

Relationship between three elements such that if it holds between the first and second and it also holds between the second and third → it must necessarily hold between the first and third
↪ logical relation

Question 14

According to the rational model, how would you calculate this?
Ticket = 1eur
We have 1 chance in a million to win 1000000 eur
Should we buy the ticket?

Answer 14

1. We multiply 1 in a milion → 1/1000000 = 0.000001
2. Calculate the whether it’s worth it buying the ticket
   Preference = Probability of winning * (objective value - the cost of the ticket)
   0.000001 * (1000000 - 1) = 0

We should not buy this ticket, it’s not worth it

Question 15

What is the normative model (normative theory)?

Answer 15

Some choices are considered better than others
↪ one choice is optimal from among the possibilities
What makes choice optimal varies with the theory

Question 16

What is the optimal choice according to the expected value theory?

Answer 16

The optimal choice is the one that offers the largest financial payoff, taking into account probability of the payoff

Question 17

What is Subjective Expected Utility?

Answer 17

The personal value we attach to the outcomes rather than to their absolute monetary value

Question 18

How do we calculate the subjective expected utility?

Answer 18

E.g. Picture 3

• 4 possible consequences - it rains or it doesn’t rain and you have your umbrella or not
• We assign different values to each consequence/utility of outcome (subjective)
• It doesn’t matter what values as long as we are consistent
• Preference = prob of raining * prob of utility of the outcome

Question 19

What is the important message from the subjective expected utility?

Answer 19

The value we assign to the utility of the outcomes is up to us. The only thing that matters is whether we are consistent with our decided values.

Question 20

What is the Allais Paradox?

There will be an example which will make it clear

Answer 20

People are expected to be rational agents by having consistency of preference. However, we are sensitive to different things other than probability and we often choose contradictiory options

• Look at picture 4 as an example
• You think you value money because of choosing 2B but then you choose 1A which has lower value that you could earn = inconsistency in preference

Question 21

What are two priciples that demonstrate human irrationality?

Answer 21

1. Description invarience - making the same choice irrespective of the problem description
2. Procedure invarience - making the same choice irrespective of the procedure by which preference us measured

Neither holds for most of the people, most of the time = irrationality

Question 22

What are the examples of violations of description invarience?

Answer 22

The problem frame (the way the problem is described) changes thorugh these ways:

1. Psychic budgets
2. Sunk cost
3. Loss aversion

Question 23

Psychic budgets

Answer 23

how we mentally categorize money that we have spent or conteplating spending

• e.g. expensive coat - don’t buy but get it as a gift - all good

Question 24

Sunk cost

Answer 24

an investment that is irretrievably spent and therefore should not affect present decision, but it does

• e.g. buy a movie ticket, the movie sucks, you could leave and do something more enjoyable since you’re not getting your money back anyways, but you sit through the movie to get your ‘money’s worth’

Question 25

Loss aversion

Answer 25

unpleasantness of a loss is larger than the pleasure of a similar gain

Question 26

What should we do and what are we actually doing according to the rational decision benchmark?

Answer 26

What we are actually doing → What we should be doing?

1. Sensitivity to logically irrelevant contextual variation → Maximize expected utility

Question 27

What is the conclusion? How many benchmarks are we actually using? What are we using instead?

Answer 27

Most of the time, we are not using any of the benchmarks. Rather we rely on heuristics

Question 28

When we are asked for a judgment or decision, what two judgments can we use?

Answer 28

1. Intuitive judgment
   How easy does this come to mind
   Does the example match the category?
   Use info given as anchor & adjust
2. Normative judgment
   Deductively valid arguments
   Calculating conditional probabilities
   Maximizing expected utility

Question 29

What is an algorithm?

Answer 29

A formula that produces consistent outcomes and may, if selected correctly, produce optimal outcomes

• e.g. expected value
• Contrast to heuristics

Question 30

What are heuristics?

Answer 30

Shortcuts people use when making decisions

• Simple cognitive rules that are easy to apply because they don’t require much calculation

Question 31

Heuristics

What is the representativeness heuristics?

Answer 31

Relfects the tendency to asses the similarity between two entities as a proxy for a judgment about likelihood (matching = likelihood)

• instead of calculating the probabilities of that happening

Question 32

How does representativeness heuristics explain gamblers fallacy?

Answer 32

After getting lot of Reds (RRRRRRR) on a roulette wheel, most people would put their money on B (black)

• RRRRRRRRB is seen as more representative of a random process than BBBBBBBB
• If we calculate the actually probabilities, it’s much more likely for R to occur again then for B to fall all of a sudden

Question 33

How does the representativeness heuristic explain ‘Hot Hand’?

Answer 33

After a lot of free throws specatators tend to believe that the play has a ‘hot hand’ and is highly likely to score again

• a winning streak is seen as more representative if hot hands than ranodmness

Question 34

What is the conjunction fallacy and how does representativeness heuristics exaplain it?

Answer 34

People think that the conjunction of two events A&B is more likely to happen than A or B happening independently
E.g. (picture of an emo person) Is it more likely that this person is:
A. An accountant (I)
B. An accountant (II) and sings in a metal band (II)
People usually say B

The odds of a conjunction of probabilities (two simultaneous probabilities) that can never be higher than one of the constituent probabilities

Question 35

What is the availability heuristics?

Answer 35

We consider information that more easily comes to mind as more likely

Question 36

How is group irrationality explained by availability heuristics?

Answer 36

If a family is asked about how much each contributed to a household task and then we add the percentages up, the total will exceed 100%

• Members of dyad each attribute greater group input to themselves, even if the task was a failure
• Because one’s instances of helping out in the household are more available (accessible in memory, come easier to mind) than those instances where another person contributed something

Question 37

What is anchoring & adjustment?

Answer 37

Used to estimate probabilities
People anchor their estimates on values that are suggested to them, but are too conservative in adjusting their estimate based on other information than the anchor

• E.g. participants awarded higher compensation amounts when a larger sum was requested, showing that the requested compensation acted as an anchor influencing their judgment