Lecture 12: Psychology of choice

Question 1

What is choice, and why do people make decisions?

Answer 1

• Choice involves selecting between alternatives to reduce uncertainty.
• Decisions can be rational or irrational and often involve hypothesis testing and prediction.

Question 2

What did Nisbett & Wilson (1977) find about choice, and how was it studied?

Answer 2

People often cannot accurately explain their decision-making processes.
* Methodology: Self-report analysis where participants verbalized their reasoning.

Question 3

What is Expected Value Theory?

Answer 3

Rational decision-making maximizes objective outcomes.
* Formula: Objective value × probability.

Question 4

What is Expected Utility Theory?

Answer 4

Rational decision-making maximizes subjective value (psychological utility).
* Formula: Subjective utility × probability.

Question 5

What are common violations of Expected Utility Theory?

Answer 5

• Certainty Effect: Preference for certain outcomes over probabilistic ones with higher utility.
• Framing Effect: Decisions vary based on presentation (e.g., gains vs. losses).

Question 6

How did Tversky & Kahneman (1981) demonstrate framing effects?

Answer 6

Participants chose between treatment plans for an epidemic framed as lives saved vs. lives lost.
* Methodology: Controlled experiment manipulating decision framing.

Question 7

What is probability weighting?

Answer 7

• People overestimate low-probability events (e.g., fear of shark attacks).
• People underestimate high-probability events (e.g., car accidents).

Question 7

Who developed Prospect Theory, and what are its main processes?

Answer 7

Developed by Kahneman & Tversky (1979).
Processes:
* Editing: Simplify decisions using heuristics like availability, anchoring, and representativeness.
* Evaluation: Combine anticipated utilities and probabilities.

Question 8

What is loss aversion in Prospect Theory?

Answer 8

People are risk-averse for gains but risk-seeking for losses.
* Example: Losing £10 feels worse than winning £10 feels good.

Question 9

What is the representativeness heuristic?

Answer 9

Judging probability based on similarity to stereotypes.
* Example: Tversky & Kahneman (1983) showed that people incorrectly judged “Linda is a feminist bank teller” as more probable than “Linda is a bank teller.”
* Methodology: Survey-based tasks presenting probabilistic scenarios.

Question 10

What is anchoring?

Answer 10

Reliance on initial values when making decisions.
* Example: Stewart (2009) found participants repaid more without seeing a credit card minimum payment.
* Methodology: Experimental manipulation using mock credit card statements.

Question 11

What is hypothesis testing, and what issue arises?

Answer 11

People seek evidence confirming their hypotheses.
* Example: Mynatt & Doherty (1977) found participants preferred information about their current hypothesis rather than alternatives.
* Methodology: Controlled decision-making tasks.

Question 12

What is preference reversal, and how was it tested?

Answer 12

People make inconsistent choices depending on framing.
* Example: Lichtenstein & Slovic (1971) showed participants preferred safer bets when choosing but assigned higher value to riskier bets when selling.
* Methodology: Experimental choice tasks manipulating framing.

Question 13

How did Ball et al. (2012) study preference reversal?

Answer 13

Investigated the roles of anchoring and loss aversion in lottery tasks.
* Methodology: Lab-based decision-making tasks with selling and gift treatments.

Question 14

Dual-System Processes

What are the characteristics of System 1 and System 2 in decision-making?

Answer 14

• System 1: Fast, heuristic, effortless, pragmatic.
• System 2: Slow, analytical, effortful, logical.

Question 15

How does dual-system theory explain preference reversal?

Answer 15

Ball et al. (2012) found that preference reversals likely involve switching between System 1 (intuitive) and System 2 (analytical).

Question 16

How did Kahneman & Klein (2009) study dual-system processes?

Answer 16

Combined naturalistic decision-making with experimental tasks to explore heuristic vs. analytical reasoning.
* Methodology: Mixed-methods approach using real-world cases and lab experiments.

Question 17

What is the disjunction effect, and how was it studied?

Answer 17

People make inconsistent choices under uncertainty.
* Example: Tversky & Shafir (1992) found that participants deferred decisions when uncertain.
* Methodology: Behavioral tasks presenting uncertain scenarios.

Question 18

What is delay discounting, and how was it tested?

Answer 18

People devalue rewards that are delayed.
* Example: Matta et al. (2012) examined how participants discounted rewards over time.
* Methodology: Behavioral experiments using delayed reward scenarios.

Question 19

How did Stewart (2009) test the effects of anchoring on credit card repayments?

Answer 19

Manipulated the presence of minimum payments on mock credit card statements.
* Methodology: Lab-based experimental manipulation.

Question 20

What did Mynatt & Doherty (1977) find about hypothesis testing?

Answer 20

People seek confirmatory evidence rather than diagnostic alternatives.
* Methodology: Controlled decision-making experiments.

Question 21

How did Ball et al. (2012) manipulate and measure preference reversal?

Answer 21

Compared participants’ valuation of lottery tickets in selling vs. gift contexts.
* Methodology: Lab experiments with economic decision-making tasks.

Question 22

How did the Chernobyl disaster illustrate inference failure?

Answer 22

Logical rule: If the reactor isn’t cool, the experiment must stop. The rule was ignored, leading to disaster.
* Methodology: Case study analysis.

Question 23

Why do firefighters often fail to drop tools during evacuations?

Answer 23

System 1 overrides logical System 2 instructions in high-stress situations.

Question 24

What do normative models focus on?

Answer 24

Rational decision-making based on maximizing objective or subjective value.

Question 25

What do descriptive models explain?

Answer 25

Real-world decision-making, including biases like loss aversion and probability weighting.

Question 26

How do dual-system processes explain decision-making?

Answer 26

System 1 handles heuristics, while System 2 engages in analytical reasoning. Preference reversals occur when switching between systems.

Question 27

What is loss aversion?

Answer 27

The pain of losing something feels worse than the pleasure of gaining it.

Question 28

What is the framing effect?

Answer 28

Choices vary depending on whether outcomes are framed as gains or losses.

Question 29

What is probability weighting?

Answer 29

Overestimating low-probability events (e.g., shark attacks) and underestimating high-probability events (e.g., car accidents).