Chapter 3: Decision Making Flashcards
Why do people not always make optimal decisions?
On most occasions, the brain sensory system fires neutrons to brain in the most efficient way. While this works out in favour most of time
- Can lead to decision biases
So what are some decision biases? CUCT
- Complex Decisions
- Uncertainty
- Changing Information
- Time Pressure
DIfferences between Rational DEcision Making Model and Bounded Rationality Model
Rational Decision Making Model:
How should individuals behave to maximise utility
- Relies on strict assumptions
Bounded Rationality Model
- People simplify the world to make good enough decisions
What is the bounded rationality model?
When you input information preferences goals into your brain and make decisions (judgement choice action)
Limitations of input:
- Incomplete info
- vague goals
Limitations of Brain
- iNtelligence level
- Time pressure
Why do some groups still decide to race in blown engine example
- Default bias: default response
- Selection Bias
Faults in biases led to 1996 Challenger space shuttle disaster
What is selection bias
A bias was caused by choosing non-random data for analysis. The bias exists due to a flaw in the selection process,
where some data is systematically excluded.
Eg. British Air Force During WW2, look at impact of returning planes
- Instead should look at those planes that was shot down
Factors affecting Decsion making at the individual level
OSI
- Overconfidence Bias
- Sunk Cost Fallacy
- Illusion of Control
- What is overconfidence Bias
Bias where you overestimate own qualities can also be in relation to qualities of other persons too
eg. Driving ability 93% of students thought that they were above average drivers
eg. think that you are smarter than other ppl in class
What is sunk cost fallacy
Sunk cost fallacy: a tendency to invest more future resources in a
situation in which a prior investment has been made, as compared with
a similar situation in which a prior investment has not been made.
eg. stocks: People continue to throw good money after bad money even if they know other options are better
What is illusion of control
the tendency for people to overestimate their ability
to control events or outcomes that they demonstrably do not influence.
eg, illusory control over lightbulb
- poeple feel that they have some control over the light when they were explictly told there was no connection
How to overcome decision bias (INT)
- Incentives
- people act in self-interest and are generally lazy
- incentive cause you to make more deliberate decisions - Nudging
- Change information presentation to get a desired response
(framing changing defaults commitment devices) - Training
Provide people with feedback on biases
can improve decision making in the long term
How does incentive example help to overcome bias
- Manager overconfidence in feedback accuracy
- under control, show that what manager and employee perceived to be very different, with incentives provided this can help to reduce amount
Accountability example: Selfish decisions
How does nudging example help to overcome
Framing example:
- Food Traffic light system, simplifies the choice for consumer
- REduce unhealthy eating
Commitment Devices: Complete goal or pay price
eg. automatic saving programs, block you from being distracted, forest
How does training example help to overcome
- Video games are able to help people make better decisions
eg. Game players make decisions and judgments throughout the game as they search for Terry Hughes – their missing neighbor. At the end of each level of the game, participants received personalized feedback about how biased they were during game play. They were given a chance to practice and they were taught strategies to reduce their propensity to commit each of the biases.
What are some of the factors affecting decision making at a group level? (PLL)
- Power distance
- Leadership Style
- Lack of familiarity among team members
