Chapter 12

DECISION MAKING AND REASONING

Updated: 2006-04-28

• Rationality
  • Economic man and woman
  • Identify all reasonable alternatives
  • Choices are transitive
  • Maxixe utility
    • Utility = is related to value, but modified by psychological variables
  • Consider relevant information
• Estimating Likelihoods of Occurrence
  • Objective and Subjective Probabilities
    • Objective are like dice and cards
    • Subjective may not always be equal to objective (and lower, usually)
      • hot hand in basketball is subjectively higher than real probability
  • Heuristics (Kahneman & Tversky)
    • Availability
      • basing judgment of the frequency of events on the ease by which then can be brought to mind. For example: doctors and nurses, police officers, shark attacks
    • Illusory correlation: people overestimate the likelihood of simultaneous events (e.g., stereotypes
    • Representativeness
      • basing judgment of likelihood on the degree to which the particular instance resembles a general class. For example: librarian, college professor, painter, minister
      • Base rate
      • Gambler's Fallacy
        • T T T T T T T T T ? (each toss is independent)
    • Anchoring-Adjustment
      • The "anchor" is like a first impression. Later, the anchor is adjusted up or down as necessary. However, anchor often exerts undue influence
    • Hindsight Bias
      • After the fact, people overestimate the predictability of an event. For example: the 9/11 attacks
    • Framing Effects
      • We prefer risk aversion when faced with potential gains
        • In other words, small but sure gain is better than large but risky gain
      • True even when probabilities are identical (see page 452)
    • Overconfidence
      • Causes errors
    • Sunk-cost Fallacy
      • Previous investment justifies future investment (the lemon car)
    • Opportunity Costs
      • Costs involved with opportunities are often underestimated
        • That new job back East with the high salary also means a smaller house, a longer commute, and more expensive green fees
    • Critiques
      • Heuristics are descriptive and atheoretical approach
      • Heuristics tend to be task specific
• Public Policy Decision Making: psychologists often inform policymakers
  • Cost/Benefit Analysis
    • 100% safety is impossibility
      • How safe is safe enough?
    • Known vs. statistical lives?
      • Terrorism: How do you balance actual lives lost vs. potential lives lost?
    • Economic vs. Non-economic costs?
      • Jobs vs. environment
  • Facts vs. Values
    • Policymakers are the ones who make ultimate decisions
    • Scientists make scientific recommendations to policymakers
      • accuracy vs. criterion measures
        • i.e., teacher tests
  • Foreign Policy
    • Groupthink
      • Groupthink occurs when a cohesive in-group makes decisions without considering other, suitable actions. Janis (1972) cited the following conditions as conducive to groupthink:
        • an isolated, powerful, decision making group
        • lack of impartial leadership
        • high levels of stress on the group.
      • Bay of Pigs
      • Fix groupthink by
        • encouraging criticism
        • being impartial
        • look outside itself for answers
        • break up into smaller sub-groups, each meeting separately to consider other alternative solutions.
  • Economic Decision Making
    • Economic theory (Bentham, 1789)
      • Utility theory and Subjective Utility theory
        • People make decisions strictly by economic factors
        • Homo economicus
      • Bounded Rationality (Herbert Simon, Nobel Prize in Economics, 1978)
      • Prospect Theory (Daniel Kahneman, Nobel Prize in Economics, 2002)
        • "Satisficing" or responding to constraints like: time, money, and resources
        • Risk aversion: when dealing when gains, people are risk averse
        • Risk seeking: when dealing with losses, people are risk seekers
        • Cost traps: people who spend money already, tend to keep spending even when they should not
          • Concorde
          • Tickets on hand

REASONING

• Deductive Reasoning
  • Drawing conclusions from premises:
    • All men are mortal. Aristotle is a man. Therefore, Aristotle is mortal.
  • Conditional Reasoning uses if...then statements
    • Wason Selection Problem illustrates an if...then rule
• Inductive Reasoning
  • Coming to a conclusion from a series of observations
    • Will the Sun rise tomorrow? Can you prove that?
  • Confirmation Bias occurs when people attempt to verify their beliefs instead of trying to falsify them
  • Learning from experience, but in a very selective fashion
• Scientific Reasoning
  •  Scientists and Wason Selection task:
    • Physicists (21-25% correct), Biologists (8-13% correct), Psychologists (13-17% correct)
    • Disconfirmation may be better strategy in science too

AN ALTERNATIVE VIEW OF REASONING

• Two complementary Systems of reasoning
  • Associative System (of mental operations)
    • Similarities
    • Temporal Contiguities
    • Is quick to make decisions based on salient features
    • Uses loose constraints
  • Rule-based System
    • Rules stored in memory
    • Uses rigid constraints
    • Makes categorizations
    • Rules out impossibilities
    • Recognizes improbabilities
  • Both parts fit nicely into connectionist models

COMMON THEMES

• Rationality is not enough in decision making. Empirical data are also required. Results can be logical but wrong.
• Domain matters. Although logic applies in all domains, we make better decisions when inside a concrete domain.