chapter 13 - decision making

General Hospital delivers 45 births per day, while the Infant Clinic delivers 15 births per day. Is a day with 60% male births more likely to occur at General Hospital, the Infant Clinic, or is it equally likely at the two?

-infant clinic -smaller sample size = less likely to resemble population

Reasons for Overconfidence 1-3

1. People are often unaware that their knowledge is based on very tenuous and uncertain assumptions and on information from unreliable or inappropriate sources. 2. Examples confirming our hypotheses are readily available, whereas we resist searching for counterexamples 3. People have difficulty recalling the other possible hypotheses, and decision making depends on memory.

Reasons for Overconfidence 4&5

4. Even if people manage to recall the other possible hypotheses, they do not treat them seriously. 5. When people make decisions as a group, they sometimes engage in groupthink. Groupthink can occur when a cohesive group is so concerned about reaching a unanimous decision that they ignore potential problems, and they are overconfident that their decision will have a favorable outcome.

Extra credit writing assignment options Iyengar, S. & Lepper, M. (2000) When choice is demotivating: Can one desire too much of a good thing. Students were given the option of completing an extra credit writing assignment. Some sections of the class had 6 topic options and other sections had 30 topic options. Results: Which sections were most likely to complete the extra credit assignment?

6 topics available: 74% completed *grades were also better!* 30 topics available: 60% completed

"A student is neat and tidy, dull and mechanical, and a poor writer." Is he a computer science student, or a humanities student? what were the %'s and what happened?

95% say computer science Then this info was added: 80% of students at his school are computer scientists (base rate) - NO EFFECT then: 80% of students at school are humanities students --- everyone still says computer science in the end.

The Anchoring and Adjustment Heuristic example

A used car salesman (or any salesman) will often offer a very high price to start negotiations that is agreeably well above the fair value. Because the high price is an anchor, the final price will tend to be higher than if the car salesman had offered a fair or low price to start.

Hindsight bias:

An after-the-fact judgment that some event was very likely to happen or was very predictable, even though it was not predicted to happen beforehand

prospect theory ex:

Assume yourself richer by $300 than you are today. Which of the following options do you choose? A sure gain of $100 50% chance to gain $200, 50% chance to gain $0 Result? people are risk-averse in the domain of gains. 72% chose sure gain of $100 or $400 in total

prospect theory ex: cont.

Assume yourself richer by $500 than you are today. Which of the following options do you choose? A sure loss of $100 50% chance of losing $0, 50% chance to lose $200 Result? people are risk-seeking in face of loss. 36% chose the loss of $100/sure $400. 64% chose chance of losing 50/50 - $200

Do more choices lead to more maximizing?

Herbert Simon argued that people and organizations lack the time, knowledge, and inclination to seek out "the best" and are content to be satisficers because maximizing is too time consuming and difficult. Barry Schwartz suggests that technological, economic, and cultural changes have changed the choice making context. we have more opportunities to be maximizers than ever before!

Unusual Disease problem: Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. The exact scientific estimates of the consequences of the programs are as follows:

If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 33% chance that 600 people will be saved, and a 67% chance that no people will be saved. Result? 72% chose program A

Unusual Disease problems (continued)

If Program A is adopted, 400 people will die. If Program B is adopted, there is a 33% chance that no people will die, and a 67% chance that 600 people will die. Result? 78% chose B (But saving 200/600 is identical to 400 people dying)

70% of people who take drug X recover from their ailment. How likely are YOU to recover, given that you've taken drug X? base rate-neglect

In many cases, people believe themselves to be "better than average," and so feel justified in ignoring base rates.

More examples: Household responsibilities of married couples -- Ross & Sicoly (1979):

Interviewed 37 married couples about the extent of their responsibility for various household activities. *Both spouses tended to claim greater responsibility for a majority of the activities Overestimation of plane crashes, violent crimes, and tornadoes

Paradox of Choice: Why More is Less (2004) - Barry Schwartz

More options = Harder time making choices and less satisfaction with choices made.

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 more likely to be a librarian, or a businessman?

Most people would say librarian, but it's very unlikely that a given person is a librarian, because there are more businessmen out there *base-rate neglect*

The framing effect: custody case - which one would you grant?

Parent A: -average income -average health -average working hours -reasonable rapport with child -relatively stable social life Parent B: -above-average income -close realtionship w/ child -extremely active social life -lots of work-related travel -minor health problems To which parent would you award custody? 64% chose B To which parent would you deny custody? 55% chose B

Empirical Examples of this Paradox of Choice: 1. The Jam Experiment Iyengar, S. & Lepper, M. (2000) When choice is demotivating: Can one desire too much of a good thing. Tasting booth for unusual jams in an upscale grocery store. Participants were offered either: 24 jams OR 6 jams results?

Results: How many stopped by the booth to sample the jam? 6 jams: 40% 24 jams: 60% BUT when it came to purchasing jam... 6 jams: 30% 24 jams: 3% more shoppers purchased when variety was less

Confirmation bias:

Selectively looking for information that conforms to a hypothesis or point of view and overlooking information that argues against it.

Myside bias:

Tendency to generate and evaluate evidence in a way that is biased toward their own opinions and attitudes.

Prospect Theory

The evaluation of outcomes is defined on gains and losses rather than expected utility. people are risk-seeking in the domain of losses, but are risk-averse in the domain of gains

Base-rate neglect:

The tendency to ignore the overall likelihood that an event will occur, or that a case will belong in a given category. Emphasize representativeness and underemphasizes important information about base rates

Algorithm:

a procedure or rule that is guaranteed to yield the correct answer.

Heuristic:

a procedure that often yields the correct answer, but is not guaranteed to.

Bias:

a tendency to perform in a certain way regardless of the information provided.

Lydia is 48 years old, single, outspoken, and very bright. She majored in philosophy as an undergraduate. As a student, she was deeply concerned with issues of discrimination and social justice, and she participated in anti-nuclear demonstrations. Which of the following alternatives is most probable? a. Lydia is a U.S. Congresswoman. b. Lydia is a U.S. Senator. c. Lydia is a U.S. Congresswoman and active in the feminist movement. d. Lydia is a U.S. Senator and active in the feminist movement.

a. Lydia is a U.S. Congresswoman.

Wally and Sharon are out on a date. When Sharon asks Wally where they should go for dinner, Wally says "My coworkers keep telling me about that new Japanese place downtown, so it must be a great place to eat." Wally's response illustrates the use of a(n): a. availability heuristic. b. permission schema. c. conjunction rule. d. confirmation bias.

a. availability heuristic.

If you are given the information that in order to vote in a presidential election, you must be at least 18 years of age, and that Will voted in the last presidential election, you can logically conclude that Will is at least 18 years old. This is an example of using ________ reasoning. a. deductive b. conjunctive c. inductive d. descriptive

a. deductive

Decision-making:

assessing and choosing among several alternatives

Of the following real-world phenomena, the confirmation bias best explains the observation that people: a. do not always make decisions that maximize their monetary outcome. b. can cite several reasons for their position on a controversial issue but none for the opposing side. c. are more likely to purchase meat advertised as 80% fat free than 20% fat. d. misjudge homicide as more prevalent in the U.S. than suicide.

b. can cite several reasons for their position on a controversial issue but none for the opposing side.

The permission schema is an example of a(n): a. illusory correlation. b. pragmatic reasoning schema. c. opt-in procedure. d. subjective utility.

b. pragmatic reasoning schema.

People tend to overestimate: a. subjective utility values following a decision. b. what negative feelings will occur following a decision more so than positive feelings. c. what positive feelings will occur following a decision more so than negative feelings. d. what positive and negative feelings will occur following a decision to the same degre

b. what negative feelings will occur following a decision more so than positive feelings.

Consider the following conditional syllogism: Premise 1: If I study, then I'll get a good grade. Premise 2: I didn't study. Conclusion: Therefore, I didn't get a good grade. This syllogism is an example of: a. affirming the antecedent. b. denying the consequent. c. affirming the consequent. d. denying the antecedent.

d. denying the antecedent.

PFC-damaged patients have trouble with reading comprehension tasks. They are unable to: a. understand individual words. b. all of these c. identify events that were described in the story. d. follow the order of events in the story.

d. follow the order of events in the story.

Juanita is in a convenience store considering which soda to buy. She recalls a commercial for BigFizz she saw on TV last night. BigFizz is running a promotion where you look under the bottle cap, and one in five bottles has a voucher for a free soda. If Juanita decides to purchase a BigFizz based on this promotion, which is framed in terms of ________, she will use a ________ strategy. a. losses; risk-taking b. gains; risk-taking c. losses; risk-aversion d. gains; risk-aversion

d. gains; risk-aversion

The validity of a syllogism depends on: a. both the truth of its premises and the truth of its conclusion. b. the truth of its conclusion. c. the truth of its premises. d. its form.

d. its form.

availability heuristic:

estimate frequency or probability in terms of how easy it is to think of relevant examples true frequency is "contaminated" by recency & familiarity. Estimates are influenced by the ease with which relevant examples can be remembered.

illusory correlation example: I have a hypothesis that stressed out people nervously twist their hair more often than non-stressed people. Here are my data:

hair twister: stressed- 20 non-stressed- 10 non-hair twister: stressed- 80 non-stressed- 40 Is there a relationship between being stressed and twisting one's hair? NOPE!!

base rate:

how often an item occurs in the population likelihood ratio: whether the description is more likely to apply to Population A or Population B ex: the flu is more common in the winter

Bayes' theorem:

judgments should be influenced by two factors: the base rate & likelihood ratio

• small-sample/Gambler's fallacy Suppose an unbiased coin has been flipped 3 times, and all 3 times the coin has landed on "heads." If you had to bet $100 on the next toss, what side would you choose?

law of small #'s *

Half of Ps were endowed with a mug, while the other half were endowed with an equally priced pen. All Ps were asked if they'd like to trade one for the other. Result?

less than 1/2 wanted to trade for the other object. people happy w/ what they got!

The Hot Hand effect:

mis perceiving random streaks as increased probabilities. *players or teams go thru streaks

Utility:

outcomes that are desirable because they are in the person's best interest Maximum monetary payoff

Which probability is greater? the p(heart attack) or the p(heart attack over age 55)?

p(heart attack)

illusory correlation:

people believe that two variables are statistically related, even though there is no real evidence for this relationship

law of small numbers

people expect small samples to resemble the population from which they are drawn. This is a fallacy

conjunction fallacy:

people judge the probability of the conjunction of two events to be greater than the probability of a constituent event; representativeness > statistical probability

1. When dealing with possible gains (for example, lives saved),

people tend to avoid risks

2. When dealing with possible losses (for example, lives lost),

people tend to seek risks

Endowment effect: Ps were shown a coffee mug. • SELLERS: were given the mug, and asked how much they'd be willing to sell it for. • BUYERS: were not given the mug, but were asked how much they'd be willing to buy it for. Result?

sellers: $7.12 buyers: $2.97 simply owning the mug increased its perceived value

At the end of the first 2 weeks of the baseball season, the batting leader normally has a batting average of .450 or higher. Yet, no batter in major league history has ever finished the season with an average of .450 or better. What do you think is the most likely explanation for the fact that many batting averages are higher early in the season?

smaller sample, because they haven't played that many games There is variance in any given sample. Sometimes, by random chance, you may sample only the "peaks" or "valleys" of performance, yielding sample means that are substantially higher or lower than the true mean.

Maximizers:

tend to examine as many options as possible

Satisficers:

tend to settle for something that is satisfactory

People determine the expected utilities (or values) of various alternatives and choose.... Expected utility =

the one that has the greatest expected utility. e.u= p(outcome) x utility of outcome A lottery ticket has .01 chance of winning $200 EU = .01 x 200 = $2

framing effect:

the outcome of a decision can be influenced by: (1) the background context of the choice 67% rate vs. 33% failure rate (2) the way in which a question is worded people prefer "75% lean" ground beef to "25% fat" ground beef

conjunction rule:

the probability of the conjunction of two events cannot be larger than the probability of either of its constituent events

Is the letter "r" more likely to appear in the first position of a word, or the third position of a word?

third position. If recall is easy, then the event must be frequent

Students' Overconfidence About Completing Projects on Time planning fallacy:

underestimate amount of time (or money) required to complete a project; also estimate the task will be relatively easy to complete

representativeness heuristic:

we judge that a sample is likely if it is similar to the population from which it was selected We believe that random-looking outcomes are more likely than orderly outcomes. This heuristic is so persuasive that we often ignore important statistical information that we should consider. ex: coin flipping

The Anchoring and Adjustment Heuristic

• When making an estimate, we begin with a first approximation (anchor) and then we make adjustments to that number on the basis of additional information. • People rely too heavily on the anchor and their adjustments are too small.

Sample Size and Representativeness states that:

• a large sample is statistically more likely to reflect the true proportions in a population than a small sample

Maximizers tended to experience...

• more regret following a choice • more depressive symptoms more choices don't necessarily make a person happier