The Psychology of Judgment and Decision Making

1. The Psychology of Judgment and Decision Making

2. CH1: Selective Perception

3. What is selective perception • People selectively perceived what they expect and hope to see. • Cognitive factors: prior belief expectations • Motivational factors: hope desire emotional attachments

4. Calling a spade a spade Present people with five playing cards on a tachistoscope. One of the cards is actually a black three of hearts. (Bruner & Postman, 1949) Most reactions to incongruity: Dominance: three of hearts or spades Compromise: mixed Disruption: neither Recognition: something wrong Conclusion: expectation can strongly influence perception.

5. Potent Expectation • Alcohol research: • Believed Vodka+tonic -> higher heart rate • Believed Tonic -> lower heart rate (Wilson & Abrams, 1977) • Conclusion: heart rate were not significantly affected by whether subject had been given alcohol to drink; they were affected by whether subjects believed they had been given alcohol to drink.

6. Football team case • Dartmouth and Princeton football team got conflict in a game. • After watching the video, Dartmouth students see more infractions on Princeton team, while Princeton student see more infractions on Dartmouth team. • The “game” actually was many different games. • The “thing” different people see is different. (Hastorf & Cantril)

7. The hostile media effect • Most people believe the media coverage of candidate who they support are biased. • Similar biases in perception might arise in the context of mediation, arbitration , or other situations in which two sides are heavily committed to prior positions. • Perceptions are selective. • Decision makers should be careful of biases in perception.

8. CH2: Cognitive Dissonance

9. What is cognitive dissonance • After selective perception, Leon Festinger (1957) proposed the theory of “cognitive dissonance.” • People are usually motivated to reduce or avoid psychological inconsistencies.

10. Boredom can be fun • in the experiment, subjects were asked to do boring tasks and to tell others the task was interesting. Some got 1$ and some got 20$. • After the experiment, more subjects who got 20$ reported the task was boring than who got 1$. • 1$ subjects suffered from cognitive dissonance, so they changed their options to avoid it. • 20$ subjects got the payoff for telling a lie, no cognitive dissonance.

11. Self-perception theory • Another way to account for what Festinger found • Dissonance findings have to do with how people infer their beliefs from watching themselves behave. • Two main premises: • 1. people discover themselves by watching their behaviors. • 2. internal cues are weak, ambiguous, or uninterpretable.

12. Predicisional dissonance • People tends to behave more “liberated” (try to show they are not sexist) after noticing that they have sex-role stereotypes. (Sherman & Gorkin, 1980) • Heavy users of electricity cut their consumption significantly when they were informed of their heavy use and reminded of an earlier conservation endorsement they had made. (Kantola et al., 1984) • Customer “adaptation levels” and the need to avoid dissonance. (Doob, 1969)

13. Postdecisional dissonance • After placing a bet on horse racing, the bettors tend to believe horses they support are more likely to win. • Voting a candidate increase your confidence that the candidate will win the election.

14. conclusion • Cognitive dissonance is applicable to many situations. (political campaigns, retailing) • Both cognitive dissonance theory and self-perception theory can explain cognitive dissonance phenomena. • Change in attitude->change in behavior • But, change in behavior->change in attitude

15. Chapter 3: Memory and Hindsight Biases

16. Memory • IS NOT • What exactly happened in the past, or authentic copies of past experiences • IS • Something constructed at the time we are recalling • Something that people fill in missing details with logical inferences and associated memories

17. Interesting Example • When people viewed accident film clips, their estimates of car speed varied based on how the question was worded (How fast were the cars going when they “hit” verses “smashed” each other?) • People who were asked about the cars “smashing” each other also remembered seeing broken glass (but there was no broken glass) “Smash” =>

18. Hindsight Bias • “Is the inclination to see events that have occurred as being more predictable than they were before they took place.” • People are subject to hindsight bias (I knew it all along) • How to avoid hindsight bias • Besides the real outcome, try to find all the other outcomes as well as the factors cause this outcome

19. Lesson learned Don’t fully believe everything we remember, and using memory cautiously when we are making decision and judgment Record important details for the future reference

20. Chapter 4: Context Dependence

21. Context Dependence Effects Four types of context dependence effects: • The Contrast Effect - Comparison of objects to other similar objects influences our perception • The Primacy Effect - First impressions affect our judgments more than later impressions • The Recency Effect - Our judgments can be more affected by things we heard or saw recently • The Halo Effect - Favorable impressions of one trait result in increased impressions of other traits

22. Example • Contrast Effect : • Put your hand into water with different temperature • Height of sports announcer

23. Example • Primacy effect • When people were given a list of characteristics of someone, the items early in the list affected their judgment of the person more than the items later in the list “He is Warmhearted, Kind, introverted, selfish…” This guy most likely will be marked as “Warmhearted”

24. Example • Recency Effect : • When subjects were presented at court, their judgments reflected a recency effect when there was a delay between hearing the two sides of the case Choose a better time slot to present idea TimeSlot1 TimeSlot2 Delay Response Primacy effect TimeSlot1 Delay Response Recency effect TimeSlot2

25. Example • Halo effect: • Flight commanders showed a correlation between ratings of subordinates’ intelligence and physique

26. Lesson learned Our judgments and decisions are not context-free Take advantage of context effect (such as how to select good time to present idea)

27. Plasticity Chapter 5 and Chapter 6

28. Guideline • Plasticity • Pseudo Opinion • Inconsistency

29. Context • Wording • Order Response Plasticity

30. wording • A. A 100% chance of losing $50 • B. A 25% chance of losing $200, 75% chance of losing nothing. $50 to buy an insurance ?

31. Pseudo Opinion opinion on a topic about which peopleactually have no real opinions. Sometime it matters!

32. Inconsistency • Attitude-attitude inconsistency • Discrepancy between two related attitudes • attitude behaviour inconsistency • Discrepancybetween attitude and corresponding behaviour ?

33. Conclusion • Attitudes, opinions and choices are very plastic. • Measuring an attitude, opinion or preference is not simple. • It is worth paying attention to the structure and context of questions.

34. The effects of question wording and framing

35. Guideline • Examples of different way to ask questions. • Framing • Conclusion

36. Middle category Keep Slower Faster Slower Faster

37. Structured and closed response alternatives are never perfectly neutral. Open vs closed question

38. Social desirability • People tend to answer in the way that is more socially desirable.

39. 'Allow' vs 'Forbid' • Do you think US should allow anti-democratic speech? 62% said No • Do you think US should forbid anti-democratic speech? 46% said Yes

40. Framing • A decision frame is the decision maker's conception of the acts, outcomes and contingencies associated with a particular choice.

41. Conclusion • Question wording and framing often make a substantial difference in answers. • Thus it pays to be aware of the effects. • Safest way is to elicit answers in different ways, and then compare the results.

42. Question • Which is true about framing？ • A. A frame is the decision maker's conception of styles and alternatives associated with a choice • B. Both choices and outcomes can be framed • C. In most cases, frames are dominated by norms and habits of the decision maker. • D. All of above

43. Section 3: Models of Decision MakingChapter 7 Expected Utility Theory

44. St. Petersburg Paradox Expected Value ( ) = : How much would you pay to play the game? Nicolas Bernoulli

45. Marginal Utility Classic Utility Theory Expected Utility Theory

46. Expected Utility Theory • Principles of Rational Decision Making • Ordering of alternatives: Prefer one alternative or indifference • Dominance: Comparison of different attributes • Weak vs. Strong • Cancellation: Common factors contribute nothing • Transitivity : If (A > B) & (B > C), then (A > C) • Continuity: Given L ≤ M ≤ H, ∃ p: M ≤ pL+(1-p)H • Invariance:Toss one coin twice is the same as toss two coins once • Extensions (Expected Utility Theory is a family of theories) • Subjective expected utility theory: For unprecedented evens • Stochastic models of choice: For random evens

47. Chapter 8 Paradoxes in rationality

48. The Allais Paradox A1 = Certainty of $1 Million 10 89 1 $1M $1M $1M 1/100 Chance of $0 A2 = 89/100 Chance of $1 Million 10/100 Chance of $5 Million 10 89 1 $5M $1M $0M 89/100 Chance of $0 B1 = 11/100 Chance of $1 Million 10 89 1 $1M $0M $1M 90/100 Chance of $0 B2 = 10/100 Chance of $5 Million 10 89 1 $5M $0M $0M

49. Ellsberg’s Paradox • Let’s draw balls again!

50. Intransitivity • If (A > B) & (B > C), then (A > C) • What if: Case 1: *Decision Rule* If the difference in IQ between any two applicants is greater than 10 points, choose the more intelligent one. If the difference between applicants is equal to or less than 10 points, choose the one with more experience. Case 2: