College 4

Question 1

What are the two routes to persuasion?

Answer 1

The central route and the peripheral route.

Question 2

What are the processing strategies for the two routes to persuasion?

Answer 2

High ability and motivation –> central route.

Low ability or motivation –> peripheral route.

Question 3

Source vs. Message: the role of audience involvement

Answer 3

If you are highly involved, you care about how strong the argument is but not so much who it is from.

If you are not so involved, you don’t care about how strong the argument is, but you do care who it is from.

Question 4

The sleeper effect

Answer 4

The interaction that after a few weeks a high-credibly source is less trusted and a low-credibility source is trusted more, is sometimes called the sleeper effect. This effect is very dangerous for conspiracy theories.

Question 5

What happens to the sleeper effect if you are reminded by the source?

Answer 5

If you are reminded by the source, the effect of the low-credibility source goes down the same amount as the high-credibility source. So your attitude change over time is the same for both sources.

Question 6

What makes a persuasive source?

Answer 6

Trust + credibility

Question 7

What characteristics does a source have to have to be seen as credible?

Answer 7

Competence or expertise.

Trustworthiness (warmth is the most important part).

Confidence; a reliable source seems very trustworthy if they say it with confidence.

Question 8

Which factors influence a source’s likability?

Answer 8

How likeable the communicator is relates to warmth.

The similarity between the source and the audience

• Mimicry? –> It makes you trust someone more

The physical attractiveness of the source (see Halo effect).

Question 9

Halo effect

Answer 9

The halo effect is the tendency for positive impressions of a person in one area to positively influence one’s opinion about this person or feelings in other areas.

• Also happens for brands, products, companies

Often about good first impressions and beauty, but can be based on previous performance too.

• Luck or other factors underestimated

Question 10

Horn effect

Answer 10

The opposite of the halo effect.

E.g., because we see Hitler as pure evil, it is almost impossible to imagine he likes dogs.

Question 11

Do interviews promote sound hiring?

Answer 11

Research suggests interviewing has mixed effects.

• Live interviews may actually diminish the tendency to make simple stereotyped judgements.
• But one source of bias may be physical attractiveness.
  o In male applicants, if you are more attractive you are rated higher than if you are not attractive.
  o In female applicants there is a similar effect.

Interviews sometimes lack predictive validity.

Question 12

Halo effect in marketing

Answer 12

Other products by same company (line extensions)

• Less known brands can piggyback on the back of well-known brands.
• This can also have a reverse effect, if you are buying products from a brand and you find out that brand is related to a brand you hate, you may stop buying the brand.

Celebrity endorsements

• If a celebrity is handsome, the product he promotes must be good as well.

Product placement

• If a movie is good and a product is shown in the movie, the product must be good as well.

Flagships

• The makers of the fastest car of formula 1 must make good normal cars as well –> Halo Cars
  o Bias, it is completely different

Question 13

A self-fulfilling prophecy in job interviews and in the classroom.

Answer 13

Interviewer’s expectations –> interviewer’s conduct of the interview –> applicant’s interview performance –> hiring decision.

Teacher thinks a student is smart –> teacher might challenge the student more –> student has a better understanding of the subject –> student gets higher grades.

Question 14

Golem effect

Answer 14

Opposite effect of the self-fulfilling prophecy.

E.g., if a teacher has low expectations of a student, he/she might not challenge the student at all, which leads to lower grades.

Question 15

Hindsight bias

Answer 15

Also known as the “knew-it-all-along” effect is the tendency to perceive past events as more predictable than they really were.

People often believe that after an event has occurred, they would have predicted or perhaps even would have known with a high degree of certainty what the outcome of the event would have been before the event occurred.

False sense of control.

They forget their initial opinion!

Question 16

Outcome bias

Answer 16

How confident are you that you made the right decision? => Too confident in decision making.

Often you don’t have all the information, but even then, it is all about the decision making process.

Question 17

Baron and Hershey (1988) on surgery

Answer 17

Study on outcome bias.

People had to read papers about a surgeon who either did the surgery or didn’t. In one condition the patient died and in the other one he/she didn’t.

Bad outcome = bad decision

Good outcome = good decision

Question 18

Hindsight vs. Outcome bias

Answer 18

Feeling like you knew it beforehand.

Basing the quality of the decision on the outcome (even if the process was bad/good)

Question 19

Illusion of validity

Answer 19

A bias in which people tend to overestimate their ability to interpret and predict the outcome when analyzing a set of data.

• Especially data with a consistent pattern.
• We seek patterns.
  o This seemingly ‘tells a story’ (WYSIATI), which feels valid.
   The better the story feels, the more representative the input feels.
• Little to no regard to factors that limit the prediction.

Conspiracy theories and believing in patterns are related.

Too much confidence!

Question 20

Dunning-Kruger effect

Answer 20

The Dunning-Kruger effect has been defined as a cognitive bias in which incompetent or unaware subjects overestimate their knowledge or expertise, considering themselves as more adept than they really are.

On the other hand: high-ability individuals underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others (Kruger & Dunning, 1999).

You got to know something to be able to know you don’t know much!

Question 21

In which domains does the Dunning-Kruger effect happen the most?

Answer 21

In domains where knowledge implies competence.

Question 22

In which domains does the Dunning-Kruger effect happen less often?

Answer 22

If confidence depends on other factors, such as physical skill.

E.g., if you can’t dunk, it is quickly obvious you may not be a competent basketball player.

E.g., football coaches can’t perform well (anymore) yet have lots of knowledge.

Question 23

Relation between objective and subjective knowledge

Answer 23

Dunning-Kruger effect.

An experiment was done:

The more knowledge they had, the more they underestimated their knowledge. They might think there is much more to know.

The less you know, the more you don’t know what you don’t know.

Question 24

Are experts good at predicting?

Answer 24

Experts also make many mistakes based on trusting their intuition.

Especially in low validity environments.

• Turbulent, low certainty, etc.
• When there is no (direct) feedback.
  o You can’t learn that well from the environment.
• In each case a simple algorithm works better at predicting.

Experts try to be clever; they have the ability to be clever.

• Think outside the box.
• Good at making stories that feel valid.

Question 25

True or false: Experts are better at distinguishing truth than students or other people.

Answer 25

False.
Experts are not better at distinguishing truth than students or other people, they are all around 55%.

Question 26

Why do we have difficulty detecting deception?

Answer 26

Mismatch between the behavioral cues that actually signal deception and the ones used to detect deception.

Four channels of communication provide relevant information:

• Words: cannot be trusted
• Face: controllable
• Body: somewhat more revealing than face
• Voice: most revealing cue
• Perceivers tune in to the wrong channels

IE it’s a low-validity setting!

Question 27

Algorithm vs. experts

Answer 27

Even when presented with an algorithm (and the way it performs)

• Experts try to overcomplicate it
• True in extreme cases (broken leg rule)
  o Extreme cases are just that (think of regression to the mean).
   Availability heuristic?
• Experts are overconfident because they have additional information
  o Worked hard to obtain this? Now I’ll use it!

Question 28

What is the broken leg rule?

Answer 28

A statistical formula may be highly successful in predicting whether or not a person will go to a movie in the next week. But someone who knows that this person is laid up with a broken leg will beat the formula.

Question 29

KISS

Answer 29

If you try to make a model: Keep It Super Simple.

An algorithm constructed on a napkin is often good enough to compete with an optimally weighted formula, and certainly good enough to outdo expert judgement.

Better than hour long interviews and observational studies.

Question 30

How should you hire someone?

Answer 30

Select some traits that are required for success

• Need to be independent dimensions
• Need to be concrete and measurable
• Collect info of one trait at a time

Firmly resolve that you will hire the candidate whose final score is the highest, even if there is another whom you like better.

Do not close your eyes and let intuition decide!

Question 31

Why is there so much hostility against algorithms?

Answer 31

Rooting for humans.

Moral dimension:

• Called “Unreal, incomplete, unholistic, dead, pedantic, sterile, rigid, blind.
  o “The horror of being denied treatment due to some cold algorithm”.
• Whereas the ‘clinical method (interviews and such) “Dynamic, global, meaningful, holistic, sophisticated, genuine, sensitive, understanding.
  o “The horror of making a mistake due to intuition-based decision”.
• Perhaps also fear of losing status as expert
  o Job loss!

Question 32

What is intuition?

Answer 32

Knowing something without knowing how/why.

Expert intuition could be related to experience.

• Situation provided a cue, that gives the expert access to information in memory which provides the answer.
• Kahneman: “It is nothing more and nothing less than recognition!”.

Question 33

What is expertise?

Answer 33

Expertise in a domain is not a single skill, but a collection of mini skills.

True experts know the limits of their knowledge (see also Dunning-Kruger effect).

Question 34

When can we trust experts?

Answer 34

WYSIATI makes us and experts too prone to ignore what we do not know! And thus overconfident.

• Klein and Kahneman: “confidence is not related to validity of judgements”
  o Don’t trust anyone, not even yourself!

Question 35

How should we evaluate and know what to trust?

Answer 35

Depends on the environment.

• Sufficiently regular to be predictable.
• Has opportunity to learn these regularities through prolonged practice.
  o In these cases: intuitions are highly valid cues, that the expert’s system 1 has learned to use, but system 2 to has not learned to name them.

Question 36

The inside view

Answer 36

The idea you have about your own direct circumstances (WYSIATI).

• Fails to allow for unknown unknowns
  o Divorce, illnesses, bureaucracy.
  o “People who have information about an individual case don’t feel the need to know the statistics of the class the case belongs too” (i.e., the outside view).
   Base rate fallacy

Question 37

Planning fallacy

Answer 37

Plans and forecasts that are unrealistically close to best-case scenarios

• Could be improved by the outside view

Question 38

Competition neglect

Answer 38

WYSIATI causes entrepreneurs to take an inside view.

• Focus on their plans, actions, most immediate threats and opportunities (funding).
• Fail to focus on the competition and how they fit in the plan.
  o Sometimes floods the market so the avg. income becomes very low.
• Overestimate the influence of effort on their success (80%).

Question 39

How to overcome the inside view?

Answer 39

Identify Reference:
Identify an appropriate reference class (kitchen renovations, large railway projects, etc.).
↓
Obtain stats:
Obtain the statistics of the reference class (in terms of cost per km of railway, or of the percentage by which expenditures exceeded budget). Use the statistics to generate a baseline prediction.
↓
Use specifics:
Use specific information about the case to adjust the baseline prediction, if there are particular reasons to expect the optimistic bias (see later) to be more or less pronounced in this project than in others of the same type.

Question 40

What happens when you use the method to overcome the inside view?

Answer 40

When using this method, you will see that starting a project is highly risky.

• Standard rational model of economics:
  o “People accept probable costs of failure as the probability of success is sufficient”
   Kahneman: “WRONG!”
   Kahneman: “Most of the time they fall for the planning fallacy”
   Kahneman: “They are too optimistic”
• Overestimation of benefits, underestimation of costs.

Question 41

Dispositional optimism

Answer 41

Optimism is a generalized tendency to expect positive outcomes.

The case of optimism:

• Biological – blood samples show optimists exhibit stronger immune response to stress.
• Behavioral – explanatory style (cope different with negative outcomes).
• Happier!

Question 42

Optimists shape our world

Answer 42

Those who don’t lose track of reality.

They are the inventors, the entrepreneurs the politicians – not average people.

• Seek challenge and take risk (more than they realize).
• They are talented.
• They are LUCKY.
• They are failing.
• Self-confidence is reinforced by admiration of others.

Question 43

Optimisms and outcome bias

Answer 43

In general, the outcome bias causes risk aversion.

• If something goes wrong, people will be blamed bigly.
• Optimists do take the risk and if it works out well, they are rewarded bigly.

Question 44

What can be said about starting your own business?

Answer 44

Sad statistic (35% survive for five years).

Entrepreneurs think the outside view is double.

• Their own chance even higher!

Do they know the odds? Do they ignore the odds?

Moreover, the financial benefits of starting a business are not great. Wages are higher.

• Kahneman concludes: “Optimism is stubborn”.

Question 45

Astebro’s study on investors assistance program

Answer 45

After negative advice about half the entrepreneurs stopped.

Question 46

How has Slovic challenged the foundation of expertise?

Answer 46

“Risk is not objective” (see also next lecture)

• It is dependent on our mind, and culture.
• Risk is a concept invented by human to help cope with dangers and uncertainty.
• Moreover, public often draws finer distinctions in risk.
  o Good deaths vs. bad deaths.
   Random accidents vs. accidents in risky situations.
• People have different priorities!
• Social cognition: In real life it is not clear what is a perfect outcome.

Question 47

What is the conclusion of entrepreneurial optismism?

Answer 47

It is tempting to explain entrepreneurial optimism by wishful thinking, but emotion is only part of the story.

Cognitive biases play an import role, notably the System 1 feature WYSIATI.

We focus on our goal, anchor on our plan, and neglect relevant base rates, exposing ourselves to the planning fallacy.

We focus on what we want to do and can do, neglecting the plans and skills of others.

Both in explaining the past and in predicting the future, we focus on the causal role of skill and neglect the role of luck.

We are therefore prone to an illusion of control.

We focus on what we know, and neglect what we do not know, which makes us overly confident in our beliefs.