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# Chapter 12: Decision Making

Chapter 12: Decision Making. Joel Cooper University of Utah. Try It!. Write your name on a piece of paper and indicate the truth of the following statements 1 means you are sure it is true, 10 means you are sure it is false. Collect the sheets. . Try It Answers.

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## Chapter 12: Decision Making

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1. Chapter 12: Decision Making Joel Cooper University of Utah

2. Try It! • Write your name on a piece of paper and indicate the truth of the following statements • 1 means you are sure it is true, 10 means you are sure it is false Collect the sheets.

3. Try It Answers • Martin Luther King was 39 when he died • The gestation period of an Asian elephant is not 225 days--It is 645 days • The earth is the only planet in the solar system that has one moon. False, Pluto also has one moon • The number of lightning strikes in US is approximately 25 million • The Rhöne is not the longest river in Europe

4. Decision Making • 2 DM models • Prescriptive models • Descriptive models • Cognitive psychologists are interested in how people actually make decisions

5. Classical Decision Theory • Assumptions • All options known • Pros/Cons understood • Rationally chose • Goal: maximize value

6. Howard’s Dilemma • Thagard & Milgram (1995) “An eminent philosopher of science once encountered a noted decision theorist in a hallway at their university. The decision theorist was pacing up and down, muttering, ‘What shall I do? What shall I do?’ ‘What's the matter, Howard?’ asked the philosopher. Replied the decision theorist, ‘It's horrible, Ernest I've got an offer from Harvard and I don't know whether to accept it.’ ‘Why Howard,’ reacted the philosopher, ‘you're one of the world's great experts on decision making. Why don't you just work out the decision tree, calculate the probabilities and expected outcomes, and determine which choice maximizes your expected utility?’ With annoyance, the other replied, ‘Come on, Ernest. This is serious.’ ”

7. Subjective Utility Theory • Goal • Seek pleasure and avoid pain • Decision utility is subjective

8. Satisficing • Just good enough • Term introduced by Herbert A. Simon in his Models of Man 1957 • Bounded rationality

9. Elimination by Aspects • Tversky (1972) • Start w/ many options • Determine the most important attribute • select a cutoff value for that attribute • All alternatives below cutoff are eliminated • Repeat until one remains

10. Heuristics Influencing Decision Making • Representativeness • Availability • Anchoring & adjustment • Overconfidence • Illusory correlation • Hindsight bias • As if • Confirmation Bias • Framing • Mental Representation

11. Representativeness Heuristic • Judgments strategy in which we make estimates on how similar (or representative) an event is to its population. • Coin toss: Which is more representative? • HHHHHTTTTT • HTHTHTTHHT

12. Representativeness Heuristic • Frank is a meek and quiet person whose only hobby is playing chess. He was near the top of his college class and majored in philosophy. Is Frank a librarian or a businessman? • Consistent with librarian stereotype, but there are many more businessmen, so base rates make it much more likely that Frank is a businessman.

13. Base-rate Information • The actual probability of an event • Librarians, business men? • Much research in the 1970’s &1980’s seemed to indicate that base rate information in these type of problems were ignored • Current research focuses on when participants do attend to base rates

14. Representativeness Heuristic • Judge probability of an event based on how it matches a prototype • Can be accurate • Can also lead to errors • Most will overuse representativeness • i.e. Frank’s description fits our vision of a librarian.

15. Gamblers Fallacy • Suppose you are at a roulette wheel and the last 8 spins have come up red. • Do you bet on red or on black for the next spin? • Red and black equally likely -- no statistical reason to select red over black (or visa versa).

16. Availability Heuristic • The ease of bringing an example to mind is a means of estimating the probability of occurrence (likelihood) • Frequent events will be easy to recall • Rare events will be difficult to recall • Bias -- tendency to overestimate rare events- Lightening Strikes, JAWS, Gambling I won 5 bigagillion-zinllion-million! You could be next!

17. Availability Heuristic • In the English language, are there more words beginning with the letter K or more words with K in the third position? • People often report 2 x as many words beginning with K • But there are many more words with K in the third position than in the first.

18. Making Decisions • Which are you more afraid of? • Flying in an airplane • Driving in a car • Meyers (2001) • 37 times safer per passenger mile in planes than motor vehicles • Air Transport Association 1995-1999

19. Schwartz (1991) • Manipulated how many instances participants had to give of previously being assertive • Group 1: Recall 6 examples of personal assertiveness • Group 2: Recall 12 • How assertive are you on a scale of 1 X • Group 1 more assertive than group 2 • attributed (by researcher) to the availability heuristic

20. Anchoring Heuristic • Early and late evidence given more weight • U shaped function

21. Anchoring-and-Adjustment • People are influenced by an initial anchor value • Anchor value may be unreliable, irrelevant, and adjustment is often insufficient • Auntie L’s rent

22. Anchoring-and-Adjustment • Calculate the following problems: • 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8= • 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1= • The order of presentation for these two groups had a significant impact on their estimates • The correct answer, in both cases, is 40,320! • 512 • 2,250

23. Clean Fuel efficient Dependable Slight rust High mileage High mileage Slight rust Dependable Fuel efficient Clean Car for Sale

24. Overconfidence • People tend to have unrealistic optimism about their abilities, judgments and skills • Examine your confidence judgments about future events asked on a previous slide—are you confident your judgments are accurate?

25. Try it again…Predict your past answer 1 means you were sure it was true 10 means you were sure it was false

26. Illusory Correlations • An illusory correlation is a perceived relationship that does not in fact exist • Two events, bound together • Redelmeier and Tversky (1996) • 18 arthritis patients observed over 15 months • The weather was also recorded • Most of the patients were certain that their condition was correlated with the weather • The actual correlation was close to zero  • What illusory correlations may affect your decisions? • Wash the car… Bam!

27. Demonstration- Future events • Predict whether you will experience these events this semester • Obtain an A in your favorite course. • Have an out-of-town friend visit you. • Lose more than ten pounds. • Drop a course after the 5th week. • Be the victim of a crime. • Get a parking or speeding ticket. • How confident are you of your judgment for each item? (100%, 80%, 60%.....)

28. Dunn & Story (1991) • Examined overconfidence of students • At beginning of the semester students were given 37 items like the ones on the previous slide • At end of the semester, students were asked to indicate which events had actually occurred

29. Dunn & Story (1991) • Students tend toward overconfidence • Confidence influences decisions, yet our confidence may be unrealistic • Why is this a problem?

30. Hindsight Bias • The memory of how we acted previously changes when we learn the outcome of an event • Dating

31. “As If” Heuristic • When several sources of evidence with different reliability are presented, people tend to treat all cues “as if” they had the same reliability • Jurors, Nurses, Military • Manifestation of cognitive simplification

32. Confirmation Bias +Evidence • Subjects focus on positive evidence • Hypothesis-driven behavior • Cognitive tunnel vision • Tend to ignore negative evidence (even though equally diagnostic)

33. Decision Making • Which cards do you need to turn over to obtain conclusive evidence of the following rule: A card with a vowel on it will have an even number on the other sideE K 4 7 X X

34. If under 21 then beerless • 19,22,nothing,beer

35. Decision Making • Answer: • E -- search for positive evidence • 7 -- search for negative evidence • 4% search for positive & negative evidence33% say E only (missing negative evidence)46% say E & 4

36. Framing • Rönnlund, Karlsson, Laggnäs, Larsson, & Lindström (2005) • Examined the impact of framing on risky decisions • Manipulated age (young/older) and type of framing (positive/negative) • Participants read one of 3 scenarios • Participants selected either a risky or certain outcome

37. Sample Scenario • Suppose you have invested in stock equivalent to the sum of \$60,000 in a company that just filed a claim for bankruptcy. They offer two alternatives in order to save some of the invested money: • Positive Framing • If Program A is adopted, \$20,000 will be saved (certain outcome) • If Program B is adopted, there is a 1/3 probability that \$60,000 will be saved and a 2/3 probability that no money will be saved (risky outcome) • Negative Framing • If program A is adopted \$40,000 will be lost (certain outcome) • If program B is adopted, there is a 1/3 probability that no money will be lost, and 2/3 probability that \$60,000 will be saved (risky outcome)

38. Rönnlund, et.al. Results Percent selecting the certain option Type of Framing

39. Symbolic Comparison • Which is bigger: • An elephant or a whale? • An ant or a termite? • A bee or a goat? • A whale or a goat? • A rabbit or a cat?

40. Symbolic Distance Effect • 1 vs 2? • 1 vs 5? • 1 vs 9? • As the difference increases, time to make decision decreases

41. Congruity Effect • Which is smaller: 1 vs 2? (faster) • Which is larger: 1 vs 2? (slower) • Which is smaller: 8 vs 9? (slower) • Which is larger: 8 vs 9? (faster) • When there is a congruity between the instructions and the symbols, decisions are faster and more accurate

42. Mental Representations • Mental representations are not linear- large differences are compressed so that 1 vs 2 is a “bigger difference” than 8 vs 9 • Car \$5,000 vs \$7,000 • House \$155,000 vs \$157,000 • Which deal are you most likely to accept?

43. Chapter 13: Human Intelligence

44. What Do You Consider Intelligence?

45. Intelligence Is… • Capacity to learn from experience • Ability to adapt to different contexts • The use of metacognition to enhance learning

46. Emotional Intelligence • Mayer & Salovey (1997) “The capacity to reason about emotions, and of emotions to enhance thinking. It includes the abilities to accurately perceive emotions, to access and generate emotions so as to assist thought, to understand emotions and emotional knowledge, and to reflectively regulate emotions so as to promote emotional and intellectual growth”

47. Social Intelligence • Ability to get along with others • Knowledge of social matters • Insight into moods or underlying personality traits of others

48. Historical Trends • Emphasize psychophysical abilities • Galton • Examine relationships of sensory abilities (psychometrics) • Weight/Light discrimination • Emphasize on judgment • Binet (1904) • Identify children needing special instruction • Compared child’s abilities to what the average child at that age could do

49. Historical Trends • Terman (1900s) • Created an English version of Binet’s test (called it the Stanford-Binet) • Created the intelligence quotient • IQ = MA/CA * 100 • 6/4 * 100 = 150! • 20/40 * 100 = 50! • Became the first modern “intelligence” test

50. Types of items on the Stanford-Binet

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