Lecture 12 - Judgment and Decision Making

Question 1

Current thinking on decision making understand to many of our decisions are based on HEURISTICS.
T or F?

Answer 1

True.

Question 2

Why do we have heuristic thinking over critical thinking?

Answer 2

It requires less time and mental energy.

Question 3

Who are Amos Tversky and Daniel Kahneman?

Answer 3

Daniel Kahneman wrote Slow and Fast Thinking, and together with Amos Tversky is considered one of the fathers of behavioural economics and cognitive theories of decision making.

Question 4

Who came up with the idea of BOUNDED RATIONALITY?

Answer 4

Herbert Simon (1916 - 2001).
Bounded rationality states that humans are mostly rational, but our rationality has limits based on our cognitive abilities.

Question 5

What is SATISFYCING?

Answer 5

A decision-making strategy based on finding an adequate solution, as opposed to an ideal solution (proposed by Herbert Simon.

Question 6

What were the two main findings from Paul Meehl (1954)?

Answer 6

1) Clinical predictions tend to perform more poorly than statistical predictions
2) Clinical predicitons overweight case characterisitcs and underweighs base rates.

Question 7

What is the AVAILABILITY HEURISTIC?

Answer 7

Events that come to mind more easily are considered more probable than events that are not so easily recalled.
This is one explanation for why the lay person might say that homicide is more probable than dying from appendicitis.

Question 8

In an experiment by Kahneman and Tversky (1973) subjects studied a list of male and female names and were then asked to recall whether there were more male or female names.
What were the findings of this experiment and how are these explained by the availability heuristic?

Answer 8

The study list had both ordinary and celebrity names for both male and females.
Whilst the proportion of male and female names was 50/50, the proportion of celebrity names for each gender was altered.
When asked whether female or male names were the most frequent on the study list, participants chose whichever gender had the most celebrity names.
This was interpreted as an example of the availability heuristic. Because the celebrity names were more accessible and memorable than the ordinary names participants overestimated the proportion of these names.

Question 9

What are some real-world examples of how the availability heuristic can lead to misleading consequences?

Answer 9

The few deaths caused by covid vaccinations, which were highly publicised, lead to a fear of getting the vaccination despite the risk/benefit ratio.
Plane crashes compared to car crashes is another example.

Question 10

Do Kahneman and Tversky argue that the availability heuristic can lead to ILLUSORY CORRELATIONS?

Answer 10

Yes.
Illusory correlations are correlations that do not exist, but which are thought to exist.
In a reflection on Chapman and Chapmans work on illusory correlations, Kahneman and Tversky use the availbility heuristic to explain how pariticpants assumed that the pictures of people with clinical mental health disorders had facial features that reflected the diagnosis because of the stereotypes like mentally unwell people have “crazy eyes” for example.

Question 11

Why do we use the AVAILBILITY HEURISTIC?

Answer 11

Because we do not know the exact proportions of or likelihoods of certain things, when we go to make decisions or judgements about probabilities we draw on our memory and use that as a source of guestimating an event.
An example of this would be that we can recall more plane crashes than car crashes and therefore we think that plane crashes are more likely than car crashes. As a result, we are happier to drive than to fly in a plane.

Question 12

Is the availability heuristic affected by memory limitations?

Answer 12

Yes.

Question 13

What is the REPRESENTATIVENESS HEURISTIC?

Answer 13

Proposed by Kahneman and Tverky (1974), the represenativeness heuristic states that we make judgements on the basis of resemblance over probability.
E.g. if we see a really “nerdy” person on campus we might think they math, but it is much more likely they do psychology based on frequency.

Question 14

What is base rate?

Answer 14

Relative frequency of something in the population.

Question 15

Do we tend to ignore base rates when making decisions?

Answer 15

Yes.
The RELATIVENESS HEURISTIC is an example of this.

Question 16

What is a real-world example of the relativeness heuristic at play and the ignoring of base rates?

Answer 16

Not so much now, but in the past doctors would over diagnose or misinform clients about their symptoms based on what they were presenting with, but not taking into account the base rates of the condition in the population.
Some might say that what we see now is the opposite, with some people, especially women and POC, not being taking seriously because the symptoms they are presenting with a representative of a condition that is rare.

Question 17

Does the representativeness heuristic tend to lead to us making decisions that violate the conjunction rule of probability?

Answer 17

Yes.

Question 18

According to Kahneman and Tversky, why do we use the representativeness heuristic?

Answer 18

We are bad at estimating probability correctly and so we turn to other measures to help us, like resemblance.

Question 19

In the example given in the lecture about the large and small hospital and which one is likely to record 60% of births on one day, why is it that it is more likely to be the smaller hospital ?

Answer 19

The Law of Large Numbers.
The larger a sample size the closer it comes to representing the population.
The population frequency of male:female births is about 50:50, so the larger hospital would be more likely to record proportions of boy births that resemble this than the smaller hospital, which could more easily have a day when 10 babies out of 15 are boys on one day.

Question 20

Did probability math take a long time for the human race to figure out?

Answer 20

Yes.

Question 21

What is the ANCHORING HEURISTIC (Kahneman and Tversky, 1974)?

Answer 21

When we try to estimate a quantity we do it reference to something else (i.e. an anchor).

Question 22

What was a study that looked at the anchoring heuristic using participants and guessing the number of African nations in the UN?

Answer 22

Participants were asked to guesstimate the number of African nations in the UN. Before they guessed they were told that they would be given a random number from a spilling wheel. (which was rigged to give either a 10 or 65).
When participants were given a 10 the median guess was 25.
When participants were given 65 the median guess was 45.
So, even when they were given a random number and were told that it had no relevance to the actual number of UN African nations the number still acted as some kind of anchor for the participants.

Question 23

Why do we use the ANCHORING HEURISTIC?

Answer 23

Because we don’t know the thing we are tryin to guess and we are bad at probabillity and so we turn to anything that can help us and a reference is one of those things.

Question 24

Framing effects have an affect on the choices people make.
Framing in terms of GAINS makes people … …?
Framing in terms of LOSSES makes people … …?

Answer 24

Risk averse.
Risk taking.

Question 25

What is LOSS AVERSION, as proposed by Kahneman and Tversky in 1979?

Answer 25

When we weigh up decision options in our mind, potential losses weigh TWICE as much as potential gains.

Question 26

What is EXPECTED UTILITY THEORY?

Answer 26

Expected utility theory states that as part of our rational capacity, we make decisions based on the expected utility of the options.

Question 27

How does the Loss Aversion effect challenge expected utility theory?

Answer 27

Depending on how we frame options based, either emphasizing gains or losses, the decision made will change.
Expected utility theory cannot explain why we see such framing effects.

Question 28

What is a psychometric function?

Answer 28

Psychometric functions describe the psychological weight given to an objective experience.
e.g. Fechner’s law of our ability to notice sound and the volume of sound.

Question 29

What is PROSPECT THEORY (Kahneman adn Tversky, 1979)?

Answer 29

Prospect theory describes the psychometric function of value in terms of gains and losses.
In this function, losses are valued more than gains in terms of how they influence sense of value.
Psychological value is on the y-axis and gains and losses are on the x-axis.

Question 30

What is the shape of the PROSPECT FUNCTION? What is on the y- and x-axes?

Answer 30

It is an S-shaped, asymmetric curve.
Psychological value is on the y-axis and gains are on the positive or right side of the x-axis, and losses are on the negative side or left side of the x-axis.

Question 31

Did Kahneman and Tversky’s work influence and spur into popularity behavioural economics?

Answer 31

Yes.

Question 32

Prior to Kahneman and Tversky’s work was it assumed, at least in economics, that people were mainly rational thinkers and made their decisions based on rationality and utility?

Answer 32

Yes.

Question 33

What are some of the criticisms of Kahneman and Tversky’s work? (3 main criticisms discussed)

Answer 33

1. The types of heurisitcs being used are often applied post hoc, but normally it is unclear which heuristics will be used to make a decision.
2. The Prospect theory function is not mechanistic. It cannot work as an accurate predictor of data.
3. Heuristic use can be a good thing and can actually allow people to make good and “rational” decisions.

Question 34

What is the RECOGNITION HEURISTIC and who came up with this?

Answer 34

The recognition heuristic states that when we are unfamiliar with an option, we choose the option that we recognise.
This heuristic was proposed by Girgenenzer.

Question 35

Who proposed the idea of FAST and FRUGAL heuristics?

Answer 35

Girgenenzer and Todd (1999).
This idea states that most of our decisions are based on the use of fast and frugal heuristics.
Whilst doctors do not perform as well as computational models of probability, they are able to take a small amount of information and determine a patients risk much more quickly than a computational model.

Question 36

Girgenenzer and Todd argue that the use of heuristics is not always bad, it is more to do with how appropriate the heuristic is to the situation. (this seems very obvious. If we evolved to use heuristics as way to make decisions about things we do not have enough information about then they obviously have some benefit.)
T or F?

Answer 36

True.

Question 37

What is one of the formal theories of decision making we discussed, that is based on memory retrieval?

Answer 37

MINERVA-DM.
Based on the idea that the decisions we make are often based on the number and salience of memories we have related to the options we are tossing up.
An example would be that we say that aeroplane crashes are common than car crashes because we have more memories of aeroplane crashes.