Lecture 10: Decision-Making Flashcards
We tend to base our decisions on a limited amount of information and so rely on what?
Rely on heuristics and fall prey to biases (i.e. generally bad at decision-making)
What is maximising?
Looking at as many options as possible to pursue the “best” option
What is satisficing?
Looking at a limited number of options and pursuing the “good enough” option
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?
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
What is social comparison?
Making evaluations based on the considerations of others’ words, actions and decisions
What is product comparison?
Considering many more products before making purchase
What is counterfactual thinking?
Creating possible alternative realities to past events
• “What if…” scenarios
• Leads to greater levels of regret and lower levels of happiness
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?
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
Iyengar et al. (2006) found that maximisers are more willing to do what to ensure they make the best possible decisions?
- Maximisers are more willing to sacrifice resources and energy to ensure they make the best possible decisions
What is the WRAP process?
- A model that synthesises what we know about heuristics and formulates ways to try to overcome these heuristics
What does WRAP stand for?
o Widen your options
o Reality-test your assumptions
o Attain distance before deciding
o Prepare to be wrong
What are the main aspects of the ‘Widen Your Options’ part in the WRAP process?
- 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)
Why is it important to “widen your options” as part of the WRAP process?
- 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
How would you generate other options as part of the WRAP process?
- 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”)
What is “multitracking”?
Simultaneously considering more than one option
• E.g. Company that named the Blackberry generated and considered several options in parallel
Why should you “reality-test your assumptions” as part of the WRAP process?
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
How can you reality-test your options in the WRAP process?
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
Why should you “attain distance before deciding” on a purchase as part of the WRAP process?
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
How would you attain distance before deciding on a purchase to overcome short-term emotion as part of the WRAP process?
♣ 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
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?
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
Why should you “prepare to be wrong” as part of the WRAP process when deciding to make a purchase?
Because it mitigates overconfidence in the purchase
How would you mitigate overconfidence when “preparing to be wrong” as part of the WRAP process?
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
What biases are our decisions sometimes influenced by?
o Narrow framing
o Confirmation bias
o Short-term emotion
o Overconfidence
