Lecture 9 - decision making Flashcards
what is decision making
reasoning about choices
- cost benefit analysis
What is value
aka utlity
- Value: ‘utility’ in decision-making literature
Value can’t be measured solely in money
Value: too subjective (varies for each individual)
Because everything has personal value to us
e.g., money: higher for some people; lower for others
Logically/rationally, what we should do for each decision task is to weigh-up (‘weight’) benefits against costs to maximise value
But, how can this be done?
how do we measure cost benefits of tasks
using value
Logically/rationally, what we should do for each decision task is to weigh-up (‘weight’) benefits against costs to maximise value
But, how can this be done?
Base decision on highest absolute (+ or -) value
e.g., go away to university if ‘for’ higher than ‘against’
Base decision on highest (absolute) combination of estimated probability (0-1) and value weighting
e.g., go away to university if ‘for’ greater than ‘against’
what is SEU theory
subjective expected utility theory -
a normative theory : of how decisions should be made
subjective : assign different values to things
Expected: try to imagine decision outcomes and their consequences in advance
what does normative mean
how decisions should be made
what does subjective mean
assigning different values to things
what is utility
usefulness (value) of things
what i Expected in the SEU
Expected: try to imagine decision outcomes and their consequences in advance
how do you calculate seu
SEU calculation: P(attribute 1) x U(attribute 1) + P(outcome 2) x U(attribute 2)…
P = probability; U = utility
why do we use SEU
Normative (rational/logical), mathematically-orientated theory of decision-making
Weighing-up attributes (‘pros’ and ‘cons’)
e.g., number of rooms in house vs. its location
Trade-offs: choose option based on attributes best suited to needs, given constraints
e.g., couple with 4 children need large house but have limited money, so must sacrifice some attribute of house other than size to stay within budget
e.g., settle for large enough house in worse area or in worse state of repair
How are options weighted in seu theory
Options weighted according to probability
Goal of decision-making: to maximise utility
Ideal decision-making outcome
Utility: what’s best for decision-maker
Outcome that ‘ticks enough boxes’
SEU: goodness of decision outcome
e.g., how good person feels about it
e.g., what person expects to gain from it
Not seen as psychologically-plausible
describe the key principles of rational decsion making tasks
Description of decision task options should not influence option chosen
Utility (not description) of options determines choice
Is ‘descriptive invariance’ psychologically-plausible?
explain Tversky & Kahneman, 1981) method
Presented Ps with two versions of same scenario
One version emphasised loss, the other version emphasised gain
Both versions had a more risky option or a safer option
what were the results of tversky and kahnemans task
Results (% of Ps choosing each option):
‘Gain’ version:
Treatment 1 (200 saved) = 72%
Treatment 2 (1/3 chance of 600 saved; 2/3 chance of nobody being saved) = 28%
‘Loss’ version:
Treatment 1 (400 die) = 22%
Treatment 2 (1/3 chance of nobody dying; 2/3 chance of 600 dying) = 78%
what do the results from tversky suggest
Results indicative of logical decision-making?
Despite two scenarios being identical in terms of ‘expected utility’ (value), percentage of participants choosing more or less risky options differed between ‘gain’ and ‘loss’ versions
Why?
how did Tversky and Kahneman (1981) explain their results
Tversky and Kahneman (1981) suggest:
Choices affected by presentation (‘framing’) of options
So, violate ‘descriptive invariance’ principle of UT
‘Framing effect’:
Decisions more risky (risk-seeking) for tasks ‘framed’ in terms of loss (negative ‘frame’)
Decisions less risky (risk-averse) for tasks ‘framed’ in terms of gain (positive ‘frame’)
base decisions on the way the problems are framed - as use extra info
what are the 2 formats of task in Tversky and Kahneman (1981)
loss= risky gain = safe
what is the framing effect
Decisions more risky (risk-seeking) for tasks ‘framed’ in terms of loss (negative ‘frame’)
Decisions less risky (risk-averse) for tasks ‘framed’ in terms of gain (positive ‘frame’)
Options described in different ways:
Negative (loss) frame and risk-seeking
Positive (gain) frame and risk-aversion
Framing effect:
Violation of ‘invariance principle’ of utility decision-making theory
‘Invariance principle’: task description irrelevant
Manipulate task wording to study ‘framing
what can the framing effect also be applied to
- forced risk decision making tasks
- eg choose risky or safer option in the asian disease problem
- pop in health psych
- applied to judgement tasks
- as dont involve forced-choice decision-making
give evidence for the framing effect
Intentions to perform behaviours that reduce risk of contracting skin cancer greater when skin cancer info leaflet emphasised dangers of not protecting skin from sun (Thomas et al., 2011)
Negative ‘framing’ (dangers emphasised) more effective
O’Keefe and Jensen (2007): review of health psychology message ‘framing’ studies
Positive ‘framing’ generally more effective, but type of health issue can affect which ‘frame’ works best
what is the prospect theory
- descriptive theory of decsion making
- describes how humans make decsisions not what they should decide
- Explains how decisions made, and how decisions deviate from normative standards
Combines probability and utility (value)
what is the basis for the prospect theory
- prospects of decisions ( characteristics of tasks) not evaluated by expectd monetrary value of outcomes but by subjective value of those outcomes - Bernoulli
what is a Typical paradigm: of the prospect theory
Typical paradigm: choose 1 of 2 monetary options, both identical in terms of utility
For example (gain ‘frame’ version):
i) turn £300 into £400 guaranteed, or
ii) have 50% chance (toss of fair coin) of turning £300 into £500 or keeping £300
First option chosen more often than second option
Risk-averse when gains emphasised
Risk-seeking when losses emphasised
