Problem 6 - Judgement And Decision Making Flashcards
Judgement
- involves decising on the likelihood of various events using incomplete information.
- accuracy matters
Decision making
- involves selecting one option from several possibilities.
- important matters
Problem solving
- generate own solutions rather than choose
Decision quality
Consequences:
- a decision can be good given the information available at the time even if its consequences are poor
Bayesian inference
- two possible subjective beliefs and new data changes the subjective probability of each hypothesis being correct.
- probability of observing the data, D, if hypothesis A is correct: p(D/HA)
Neglecting base rates
- individuals should take into account the base-rat information (relative frequency of an event for a population) but its usually ignored.
Heeding base rates
- causal knowledge allows us to make accurate judgements using base rate information sometimes.
- people use base rate when motivated to do so.
Heuristics
- strategies that ignore part of the information, with the goal of making decision quickly, frugally and/or accurately.
- reduces effort associated with cognitive tasks
Availability heuristic
- the frequencies of events can be estimated by how easy/hard it is to retrieve the event from memory
- based on own experiences (media, affect heuristics (emotions) etc).
- typically accurate as long as its correlated with true, objective frequency.
Availability heuristic: factors that can bias availability
- Recency and vailability: recent events more available.
- Familiarity and availability: familiar events distorts the frequency estimation.
Availability heuristic: overcoming the biases
- using system 2 processing/thinking
Availability heuristic: consequences
Illusory correlations:
- deceptive/unreal correlation of two variables that doesn’t exist.
Representativeness heuristic
- deciding an object or person belongs to a category because its typical of that category.
- we judge according to similarity and generation of salient features
- its used because it easy, works, relies on anecdotal evidence and doesn’t understand the concept of base rates.
Availability heuristic VS representativeness heuristic
- Availability: we are given a category => we must recall the specific example
- Representativeness: we are given an example => we must decide if its similar to the general category it represents.
Anchoring-and-adjustment heuristic
- initial estimate (anchor) is used and adjusted to produce final estimate (the adjustment is usually insufficient).
- leads to reasonable answers
- people rely too heavily on the anchor and make small adjustments.
- top-down processing
- powerful
- anchor restricts relevant information in memory.
Satisficing heuristic
- consider options one by one, then select the one we find satisfactory.
- when limited working-memory sources, satisficing heuristic is increased.
Framing heuristic
- the way information is presented influences the selection of an option
- strong effect
Outcome based on
1. Background context of the choice
2. Framing: risk aversion (saving or losing), certainty
Elimination by aspects
- eliminating alternative by focusing on each aspects of each alternatives at a time
Evaluation of heuristics
Limitations
- vaguely defined
- limited approach
- inaccurate judgements are not necessarily due to biased processing (small, biased sample, exposure)
- emotional and motivational factors influence judgements and rarely studied
- artificial setting of lab research
Biases
- mental shortcuts
- limit and distort our ability to make rational decisions
- centered around estimations of probabilities
Biases: illusory correlations
- predisposed to see events going together when they do not.
Overconfidence
- over evaluation of own skills, knowledge and judgement
- leads to poor decisions
Reasons:
- unawareness
- we look for examples that confirm our hypotheses
- we cannot recall the other possible hypotheses
- we do not treat the other hypotheses seriously
- education to the public is limited about overconfidence.
Hindsight bias
- looking at a situation retrospectively
- we believe we see all the signs leading up to a particular outcome
- hinders learning (cant compare the expectations with the outcome)
Belief-bias effect
- rely too heavily on our own beliefs
Confirmation bias
- confirm our current hyptheses rather than finding a way to reject it.
- congruency
Fallacies: gamble’s fallacy
- mistaken belief that a probability of a random event is influenced by previous random events
Fallacies: hot hand effect
- the belief that a certain course of events will continue.
Fallacies: conjunction fallacy
- the availability heuristic leads to this
- higher estimate is given for a subset of events than for the larger set of events containing the subset.
Fallacies: sunk-cost fallacy
- the decision to continue to invest in something simply because one has invested in it before and one hopes to recover one’s investment
Expected utility (normative approach)
We make decisions based on:
- unexpecte utility of the outcomes
- their respective probability
Violations of the expected utility theory
- normative description
- assumes humans are rational decision makers
- prediction: choices should show invariance (choice should not depend on how its presented).
Limitations:
- preference rehearsal phenomenon demonstrate inadequacy of the model
- doesnt explain how
- it suggests we make decision through weighting pros and cons but there no way to know all cons with certainty.
Prospect theory (descriptive approach)
- kahneman and tversky
- descriptive model - how we make decision and why
- decisions are not based on the absolute value of the end result but on the amount of gain/loss from what we have right now.
- gains and losses are on different scales of value
- more value to gains (increases slowly as a function of the size of gain)
- losses are felt more acutely
- prediction: averse to loss and more individual differences depending on how alternatives are framed.
Prospect theory: risky decision making in the brain
- frontal and pareital regions involved (immediate memory and mental imagery)
- framed as gain => prone to risk taking
- framed as losses => look for certainty
Prospect theory: psychological accounting
- decisions made depending on how the outcome is felt or perceived
- the difference that harms your mental wellbeing.
- emotions lead to system 1 thinking (often leads to errors)
