Lecture 10: Decision-Making

Question 1

We tend to base our decisions on a limited amount of information and so rely on what?

Answer 1

Rely on heuristics and fall prey to biases (i.e. generally bad at decision-making)

Question 2

What is maximising?

Answer 2

Looking at as many options as possible to pursue the “best” option

Question 3

What is satisficing?

Answer 3

Looking at a limited number of options and pursuing the “good enough” option

Question 4

Schwartz et al. (2002, Study 2) asked participants to recall a recent purchase and found that maximisers (compared to satisficers) were more likely to report what?

Answer 4

o	Taking longer to make decisions
o	Engaging in more:
	♣	Social comparison
		•	Both before and after making the decision
	♣	Product comparison
	♣	Counterfactual thinking
o	Greater regret
o	Less happiness with their decision

Question 5

What is social comparison?

Answer 5

Making evaluations based on the considerations of others’ words, actions and decisions

Question 6

What is product comparison?

Answer 6

Considering many more products before making purchase

Question 7

What is counterfactual thinking?

Answer 7

Creating possible alternative realities to past events
• “What if…” scenarios
• Leads to greater levels of regret and lower levels of happiness

Question 8

In a longitudinal study, Iyengar et al. (2006) followed graduating students who were on the job market and found that maximising tendencies were associated with what?

Answer 8

o Searched for and applied for more jobs
o Greater option fixation (fantasised about jobs other than the one they were applying for)
o Greater reliance on information gathering from external sources
♣ Searched for more jobs from different databases, asked for more opinions
o Improved job market performance (got more job interviews)
o Higher starting salary (20% higher than satisficers)
o Greater negative affect with the job-search process and with job they were about to take

Question 9

Iyengar et al. (2006) found that maximisers are more willing to do what to ensure they make the best possible decisions?

Answer 9

• Maximisers are more willing to sacrifice resources and energy to ensure they make the best possible decisions

Question 10

What is the WRAP process?

Answer 10

• A model that synthesises what we know about heuristics and formulates ways to try to overcome these heuristics

Question 11

What does WRAP stand for?

Answer 11

o Widen your options
o Reality-test your assumptions
o Attain distance before deciding
o Prepare to be wrong

Question 12

What are the main aspects of the ‘Widen Your Options’ part in the WRAP process?

Answer 12

• To overcome narrow framing
• Generate other options
• Adding just one more option can improve decision-making
• Ensure that the options are real (not sham options)

Question 13

Why is it important to “widen your options” as part of the WRAP process?

Answer 13

• To overcome narrow framing
  o We tend to consider a single option and become blind to other available options
  ♣ i.e. Making “whether or not” decisions
  o Instead, we should be considering multiple options, by asking the right kinds of questions
  ♣ Looking for the best solution to solving your problem

Question 14

How would you generate other options as part of the WRAP process?

Answer 14

• Generate other options by considering:
  o Opportunity cost
  ♣ What else can you do with the money you are about to spend
  ♣ Subtly changes the way we frame the question
  o The “vanishing options” test
  ♣ Visualise a situation where the option you are considering is no longer available
  • Forces you to move your focus to other available options
  o How others have solved the same problem
  o More than one option at the same time (“multitracking”)

Question 15

What is “multitracking”?

Answer 15

Simultaneously considering more than one option

• E.g. Company that named the Blackberry generated and considered several options in parallel

Question 16

Why should you “reality-test your assumptions” as part of the WRAP process?

Answer 16

To counteract the confirmation bias
o Confirmation bias blinds you to contradictory data
♣ End up justifying decisions post-hoc and remembering only good information supporting your decision

Question 17

How can you reality-test your options in the WRAP process?

Answer 17

o Consider the opposite:
♣ Devil’s advocate – get someone to give your reasons against a certain decision
♣ Ask specific disconfirming questions (elicits better data)
• E.g. Instead of asking “are you happy in this job?”, ask “how many times did you sit down and have dinner with your partner last week? And did you have to work afterwards?”
o Take the inside view and the outside view
♣ Inside view: Aspects relating to your specific situation
♣ Outside view: Averages and aspects regarding how things generally unfold
o Run small experiments
♣ Removes the need to predict possible outcomes

Question 18

Why should you “attain distance before deciding” on a purchase as part of the WRAP process?

Answer 18

Because it puts emotion in perspective and allows you to overcome short-term emotion
♣ Current, short-term emotions tend to impact our long-term decisions

Question 19

How would you attain distance before deciding on a purchase to overcome short-term emotion as part of the WRAP process?

Answer 19

♣ Can employ the 10/10/10 analysis (10 minutes, 10 months, 10 years from now)
• Projecting to potential outcomes in the future
♣ Consider an outsider’s perspective
• i.e. What would I tell my best friend to do in this situation?
o You don’t feel the same short-term emotions to the same extent when the situation doesn’t directly effect you

Question 20

What 2 things should you keep in mind when putting emotion in perspective to “attain distance before deciding” on a purchase as part of the WRAP process?

Answer 20

o Beware of the status quo bias
♣ We like things that are familiar to us, not different
♣ Loss aversion
• Fear of losing something is more powerful than anticipation of gaining something
o Be true to your core values
♣ If still have regrets or doubts about decision, may be a conflict with core values

Question 21

Why should you “prepare to be wrong” as part of the WRAP process when deciding to make a purchase?

Answer 21

Because it mitigates overconfidence in the purchase

Question 22

How would you mitigate overconfidence when “preparing to be wrong” as part of the WRAP process?

Answer 22

o Anticipate a range of outcomes, good and bad
♣ Be prepared for both adversity and success
o Set a tripwire to alert you to reconsider your decision (to re-evaluate at a later date)
♣ Particularly useful for gradual changes
♣ Deadlines and (maximum amount of available) money are good means of setting tripwires

Question 23

What biases are our decisions sometimes influenced by?

Answer 23

o Narrow framing
o Confirmation bias
o Short-term emotion
o Overconfidence