Week 5 (Counterfactual decision making) Flashcards
Types of decision making
Normative decision theories
-Attempt to define how people should make decisions
Descriptive decision theories
-Attempt to predict how people actually make choices, not to define ideal choices
What is a heuristic
Strategies that provide shortcuts to decisions
When do we tend to use heuristics
-The decision is low priority
-We are deciding under time-pressure
-The problem is intractable
-Because of our cognitive limitations
-Or because we have limited access to information
This limited ability is called bounded rationality
Two parallel cognitive systems
System 1: Unconscious, automatic, effortless, fast
-Often used under conditions of limited time/ information
-2 + 2
-Independent of IQ and working memory
-Heuristic
System 2: Conscious, controlled, effortful, slow
-Often used to evaluate problems frexibly, systematically, thoroughly
-23 x 31
-Associated with IQ and limited by working memory
Strengths and Weaknesses of dual systems theories
Strengths
-Seems consistent with our intuitions
-Much experimental evidence, which is very diverse
Weaknesses
-Multiple and vague definitions
-Disagreements about how the two systems interact
Can system 2 override system 1
-Override depends on available time, cognitive capacity, motivational state, instructions
-They operate in parallel - but S2 doesn’t always detect the error created by S1, or does too slowly to prevent it
-Either way, S1 seems to be our earliest opportunity to influence behavioural change
Nudges
-Behavioural interventions informed by research on human behaviour
-Nudge people towards the “better” option in terms of health, wealth, or wellbeing
-Do so by making the “better” option more convenient or salient for the decision-maker, thus often targeting heuristic Type 1 processes
-Sets out to alter behaviour in a predictable way but
*Without forbidding any options
*Without significantly changing economic incentives
Anticipated regret as a nudge
-In the experimental condition participants were asked to think about the regret they might feel after making their decision
*Those in this condition predominantly chose the safer options
*In the control conditions there was no clear preference
When there is a safe option, people can be influenced to anticipate the regret they will feel if the risky option turns out badly
What is counterfactual thought
-Thoughts about that which counter to fact
-In other words, imagining alternatives to reality
*People tend to think about how things could have gone better (upwards counterfactual) instead of how things could have been worse (downward counterfactual)
Counterfactual closeness
-Close counterfactual could mean missing a plane by minutes. If things had gone just a bit differently, he would have made it
-Distant counterfactual could mean missing the plane by. larger margin, it would of taken greater changes to make it
Counterfactually close sequences of events tend to be easier to ‘mentally undo’
Counterfactual emotions
-Counterfactual thought is linked to certain emotions
-We mentally undo not studying, and imagine the outcome if we had
-Because the counterfactual outcome would have been better (upwards counterfactual), we may feel regret
-We mentally undo looking both ways to cross the road, to imagine the outcome if we had not
-Because the counterfactual outcome would have been worse (downward counterfactual), we may feel relief
Decision Justification Theory (Regret)
Two components
-Evaluation of the outcome (compared to other possible outcomes)
-Self-blame for poor decisions
The action effect
Action is regretted more than inaction
However, in the long-run, people’s real life regrets are for the things they DIDN’T do
Why is inaction more strongly regretted than action in the long-term
-When we access episodic memories , our broad life-history is easiest to access
-We have to put more cognitive effort into good recall of events - especially specific rather than general events
-Inaction is more general in nature than action
-So regretted actions may be harder to cognitively access than regretted inaction
Mispredicting extent of future regret
-When people turn down a profitable opportunity (buying a $10 shirt for $2), they also tend to turn down a subsequent, slightly less profitable opportunity (buying the same shirt for $7)
-Believe that accepting the second opportunity will cause them regret having refused the first
-But we are not always good at predicting future regret
-So people may forgo profits in order to avoid regrets they would never experience
What may anticipation of regret cause people to do
-Overpay for consumer goods
-Negotiate ineffectively
-Overvalue the ability to change their minds
Maximiser decision making style
-Selecting the best possible option
-But requires a lot of effort to gather all necessary information to make the best decision
-Tend to make better decisions objectively
-But more likely to report regret, and to report lower happiness, optimism, and self-esteem
-More likely to delay commitment to a choice
-Resist commitment
-Settling for ‘good enough’ might help us commit and be happy- at least in the short term
Satisficers decision making style
-Selecting a ‘good enough’ option: satisfactory, not optimal
-Arguably represents the kinds of decisions we are actually capable of making
Choice overload
Having more options to choice from may make you feel less informed in your decision, and less confident in your choices.
Intertemporal choices and preferences
What difference does time make in the way we value events
-Delay gratification: whether to get a long-term reward by giving up an immediate reward
Delay discounting task
-Accepting money in a 1:2 ratio, 1 pound today, or 2 tomorrow? Keep increasing immediate reward until deal is sealed
-We value future events less (32 pound is worth less to me if I have to wait until tomorrow): discounting
-The further the event is into the future, the less we seem to value it
-Indifference point: Lowest ratio at which you would wait, and forgo the immediate reward.
Exponential Discounting
-Found that discounting rates are not constant e.g., 10% per year
Hyperbolic Discounting
People often discount rewards more heavily in the short term, but less heavily in the long term
-E.g., given choice between $50 and $100 in one year, most would pick the $50 today, but if choice was $50 in 5 years, or $100 in 6 years, most would wait the extra year for the larger reward.
Why do people discount the value of future events?
-Mood: sadness associated with more immediate rewards, to seek comfort
-Future rewards seem like losses: it feels like you have the immediate ones already
-The closer in time events are, the more concretely people think of them
