L6 - Decision Making

Question 1

In Milkman et al (2010) they mention a couple of ways to avoid decision biases. What do they mention?

Answer 1

Encourage people to “consider the opposite”
Use of linear models
Weigh choices jointly rather than separately
Changing the environment for type 1 thinking

Question 2

What do Milkman et al (2010) mean with “changing the environment for type 1 thinking” ?

Answer 2

Bias towards inaction and the status quo creates a preference for the default option. By making the “best” option (for decision makers and society) the default option, decision making is improved even though system 1 is used.

E.G. A change in the race of the interviewer (Milkman et al)

Question 3

Hammond et al (2006) mentions 3 different types of flaws in the way we think when making decisions. What are the 3 types?

Answer 3

Heuristics for clarity (sensory misconception)
Biases
Irrational anomalies (in ones’ thinking)

Question 4

Hammond et al (2006) What is a heuristic?

Answer 4

A mental shortcut commonly used to simplify problems and avoid cognitive overload. Our minds rely on heuristics for example when estimating a distance.

Question 5

What 6 cognitive traps/biases are mentioned in Hammond et al (2006)?

Answer 5

1. The anchoring trap
2. The status-quo trap
3. The sunk-cost trap
4. The confirming-evidence trap
5. The framing trap
6. The estimating and forecasting traps
   including:
   - the over confidence trap
   - the prudence trap
   - the recallability trap

Question 6

What does Hammond et al (2006) mean with The status-quo trap?

Answer 6

The tendency to maintain things as they are, even when that may be significantly less than optimal. Sticking with the status quo also puts us at less psychological risk as it feels safer.

Question 7

What does Hammond et al (2006) mean with the framing trap?

Answer 7

The framing trap refers to the tendency of decision makers to be influenced by the way that a situation or problem is presented.

Question 8

What does the Estimating and forecasting traps mean? (Hammond et al, 2006)

Answer 8

The group gets too locked into their original estimations and forecasts and are unwilling to change when new information becomes available.

Question 9

What are the hidden traps when it comes to decision making?

Answer 9

Framing
* The way a problem is framed influence choices made
* E.g. more risk seeking if problem framed as ”avoiding losses”

Endowment effect and status quo
* People value things they have more; effort minimisation