Task 5 - Decision Making Flashcards
Cognitive illusions
errors of cognition that come about for understandable reasons and that provide information relevant to understanding normal functioning –> systematic biases
Availability Heuristic
- Instances that are more easily thought of stand out more in one’s mind
- Own behaviours are more prevalent to us than that of others
- Failure to include base rate info in probability estimation
Representativeness Heuristic
- Expectation that results are representative of the process that produced them (e.g. random process random results)
- Failure to include base rate info
- Gambler’s fallacy - mistaken belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future
Framing Effect
- “Context effect” in decision making
- Changing the description of a situation can lead people to adopt different reference points –> see the same outcome as a gain in one stich and as a loss in another
- Description frames the decision (e.g. 2 gas stations)
- Treat losses more seriously than gains of the same amount (care more about losing than winning a dollar) –> loss aversion
Anchoring
- Rely too much on an initial piece of information offered (= anchor) when making decisions
Sunk Cost Effect
Greater tendency to continue something once one has invested in it (even though it doesn’t change the likelihood of future success)
Illusory Correlation
- Seeing a relationship between variables even when there isn’t any
- Typically have some prior associations in peoples’ minds
Hindsight Bias
- Tendency to exaggerate what could’ve been anticipated in foresight when looking back in hindsight
- Once you know how a decision has turned out, the events leading up to the outcome seem more inevitable than they really are
Confirmation Bias
Only gather info consistent with initial hunch
Omission Bias
- Tendency to prefer inaction to action when engaged in risky decision making
- Anticipated regret: greater when unwanted outcome caused by own actions rather than inaction
Satisficing
- Simon
- Decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution
- When confronted with a ton of choices for a specific need, will select a product or service that’s “good enough” rather than expending effort and resources on finding the best possible or optimal choice
Normative models (Utility models)
define ideal performance under ideal circumstances
Prescriptive models (Utility models)
show how we ought to make a decision (= consider that circumstances aren’t ideal and show how to best decide)
Descriptive models (Utility models)
simply detail what people actually do when they make decisions (= actual performance)
Expected Utility Theory
Normative model: there’s no better way of choosing among options that in the long run will increase overall satisfaction than using EU
Limitations
Expected Utility Theory
- Calculation of EU difficult as info about several aspects of the decision must be integrated (various factors and goals)
- Provides an account only for making the final selection from a set of alternatives, not of making decisions in which one faces the “status quo vs. make a change” option
- Doesn’t describe processes by which people structure a decision (= gather info and lay out possibilities & parameters)
Multi-Attribute Utility Theory (MAUT)
- Break a decision into independent dimensions
- Determine the relative weights of each dimension (= their value – subjective!)
- List all alternatives
- Rank the alternatives along the dimensions
- Multiply ranking by the weighting of each alternative to determine final value
- Choose alternative with highest value
- Assumes that a person would be willing to choose an alternative that was not highest on the highest ranked dimension when the relative position on other dimensions compensates for that
Limitations
Multi-Attribute Utility Theory (MAUT)
- Elimination by aspects (descriptive model) – when decision makers have too much info to deal with they don’t take all dimensions into account but rather select one factor, pick a threshold value and everything that exceeds that threshold value is tossed (–> no compensation)
- – Nonoptional heuristic to reduce cognitive strain
Bounded rationality (Thaler) Descriptive Models
people are as rational as their processing limitations permit
Image Theory
- People don’t formally structure decisions
- Most decision-making done during “pre-choice screening of options” phase
- – Boil down number of options under active consideration
- – Ask themselves whether a new goal/ plan/ alternative is compatible with 3 images
1. Value image – decision maker’s values, morals, principles
2. Trajectory image – goals & aspiration for the future
3. Strategic image – way in which decision maker plans to attain his/ her goals - Options judged incompatible with at least one of the images are dropped from further consideration non-compensatory
- More than one survivor of pre-screening go over to compensatory/ other strategy
Recognition-Primed Decision Making
- Experts most likely rely on intuition, mental simulation, making metaphors/ analogies and recalling or creating stories when deciding
- – Time-pressured, high-stakes decisions
- Compare current situation to situation they’ve encountered before
Prospect Theory – Kahneman
- Individuals identify reference point (subjective!), generally representing their current state
- -> In doing so they use heuristics (e.g. framing effects)
- Treat losses more seriously than gains of the same amount (care more about losing than winning a dollar) loss aversion
- -> Greater emotional impact
Prospect theory predicts that people go through two distinct stages when deciding between risky options like these
Constructivist Approach – Cultural Differences
- Emphasis on dynamics of schema activation & external features of social environments that play numerous roles in cultural patterns of judgements & decisions
Other factors influencing decision making
- Self-other decision making
- Effects of self-construal priming on Risk-Taking
- Endowment Effect