Behavioral Aspects in Decision Analysis

1. Behavioral Aspects in Decision Analysis Raimo P. Hämäläinen Systems Analysis Laboratory Aalto University, School of Science Finland S ” A L Systems Analysis Laboratory

2. Whyshouldweconsiderbehavioralaspects? Themodels in Decision Analysis relate to thepreferences and utilities of thedecisionmaker Modelsarefree of behavioraleffects As soon as westartusingmodels in practicethebehavioralelementsarepresent What is thehumanimpact on modelbaseddecision and systemsanalysis?

3. Howard RaiffaA pioneer in decisionanalysis When teaching statistics, Raiffa learned that more is needed to support decision making in practice • This led to Decision Analysis (1968) • How to structuredecisionproblems • Use of subjectiveprobabilities • Decisiontrees +$5,000,000 Economic Expansion -$3,000,000 Expand Economic Contraction $2,000,000 Economic Expansion Donothing -$1,000,000 Economic Contraction

4. Decision Analysis: A Personal Account of How It Got Started and Evolved(Howard Raiffa, OperationsResearch 2002) Acknowledgedbehavioralaspectsalreadyearly 60s challenge: How to obtainreliablejudgmentsfromexperts? Research on improvingelicitationprocedures and framing Behavioralperspective is essential in Decision Analysis

5. Ralph Keeney and Howard Raiffa (1976) Early suggestion: Askelicitationquestions in multipleways • Checkconsistency and discusswith DM ”Thesepsychologicalinsightswillundoubtedly help analysts design betterassessmentprotocols in thefuture.”

6. Decisionbehavior Descriptive psychological research in judgment and decisionmaking • Axioms of rationalitynotfollowed • Cognitive and motivationalbiases • Anchoring, scopeinsensitivity, confirmationbias etc. • Heuristics • Systems 1 and 2 thinking Perceivedvalue Value function Gains

7. Human behaviordrivestheDecisionAnalysis process Socialinteraction: Engagement, dialogue, communication Behavioraleffectsarepresent in allthesteps Problemframing Choice of criteria Uncertaintymodelling, etc. Biasesinfluenceelicitation of subjectivevalues and parameterestimates Weighting Estimation of consequences and probabilities

8. Textbooksdiscussbiases, decisiontrapsand how to dealwiththem • Decision Analysis and BehavioralResearch • (Von Winterfeldt and Edwards 1986) • MakingHardDecisions • (Clemen and Reilly 1999, 2014) • StructuredDecisionMaking • (Gregory et al. 2012) Montibeller and von Winterfeldt (2015) review: • 175 references to papersrelated to biases in DA • 30 biases and ideas for debiasing • There is still a lot to bedone!

9. Examples of biases in the DA process Montibeller and von Winterfeldt (2015).

10. Splittingbias Higher weight if attribute is split into more detailed lower level attributes 1/6 Variation in waterlevel 1/6 Recreationalfishing 1/6 2/6 Reproduction of fish Recreation 1/6 Densebayvegetation 2/6 Nature 1/6 Shorelinevegetation 2/6 Economy 1/6 Economy Occurs e.g. when people give equal weights to all attributes

11. No splittingbias vs. systematicbias No splittingbias Systematic bias The effect of splitting the environmental attribute

12. Splittingbias is difficult to eliminate Students with debiasing guidance: no splitting bias Stakeholders: systematicbias, guidancedidnot help • Hämäläinen and • Alaja (2008)

13. Ideas to dealwithbiasesstillneed to betested in practice Guidance Didnot help to avoidthesplittingbias (Hämäläinen and Alaja 2008) Pre-exposure to attribute levels can reduce decision context related biases(Carlson and Bond 2006) Estimate bias coefficients and calibrate judgments To reduce scale compatibility bias (Anderson and Hobbs 2002) To reduceloss aversion bias (Bleichrodt et al. 2001) Design procedures so that the effects of biases cancel out (Lahtinen and Hämäläinen 2015) Doesnotrequireadditionaltrainingorcalibration

14. DecisionAnalysis for the general public: Smart Choices (1999) To ”bridge thegapbetweenhowpeopleactuallydomakedecisions… and howtheyshouldmakedecisions” • PrOACTframework Problem: Define it Objectives: Identify and clarifythem Alternatives: Developgoodalternatives Consequences: Describealternatives Trade-offs: Make toughcompromises • Even Swapsmethod • Avoidingpsychologicaltrapsdiscussed

15. 25 78 Practically dominated by Montana Dominated by Lombard Commute time removed as irrelevant The Even Swapsprocess Eliminateattributesbyirrelevance and alternativesbydominanceuntilonealternativeremains • Even Swap: Alternativereplacedby a preferentiallyequivalentonethatdiffers in twoattributes • Theprocesscanbetechnicallychallenging • Smart Swaps software helps to identifyefficientswaps (Mustajoki and Hämäläinen 2007) An even swap (Mustajoki and Hämäläinen 2007)

16. Behavioralphenomena in Even Swaps Theprocessallowsdifferentpaths: Sequences of swapstaken Accumulation of biases is possible and candepend on thepathfollowed Pathdependencewhendifferentpathslead to differentoutcomes DM chooses A? DM chooses B?

17. Themeasuringstickeffectcancreatepathdependence(Lahtinen and Hämäläinen 2015) Apartment related case: Four alternatives, pricing path and two reference paths Pricing path Make all attributes but cost irrelevant. Use money (cost) as measuring stick in all swaps. Explanation Money as measuring stick in all swaps: Alternatives with low cost are favored Debiasing Avoid using measuring stick in which alternatives differ much

18. Behavioralchallenges in groupdecisionmaking • Risk of biases is high • Strategic behavior • Stakeholders can emphasize factors that are important to them • Strategic representation of preferences • Groupthink(Janis 1972) Yes This is the right model Yes Yes Yes Yes Yes Facilitator skills important: Understand and manage behavior in the social system

19. DecisionAnalysis used to solveconflicts Established by president Martti Ahtisaari, Nobel Peace Price 2008 Policy action prioritization in Egypt(2012) DA workshop facilitatedby CMI (Finland) Overall goal: Mitigation of violent conflicts Participants: Governmentofficials DA toolsalsoused in regionalconflicts in theMiddle - East

20. Howard RaiffaApioneer in negotiation science • ”Collectivelywecouldtestwhatworked…and • …discusswhetherourheuristicinsightswouldbeapplicable in therealworld” (Raiffa 2002) • ⇒ TheArt and Science of Negotiation(1982) • Analyticalmodels and Behaviouralinsights Active in thenegotiation on IIASA in thecoldwarperiod Negotiationcourse at Harvard in 1970s Demonstratedthatstudentexperimentscanbevaluable for developingtheory

21. Negotiation in conflictresolution Begin, Carter and El Sadat Camp David negotiations (1970s) BetweenEgypt (Anwar El Sadat) and Israel (Menachem Begin) Mediatedbythe US (Jimmy Carter) A sequence of single negotiationtextswithjointgains (Roger Fischer)

22. The ART of negotiationemphasizesbehavioralaspects Reservation value • Effect of thestartingpoint • Strategic misrepresentation of preferences The idea of post-settlementsettlements: • Negotiationsafterinitialsettlement • Mediatorsuggests a post-settlementwithjointgains Egypt Reservation value Israel Joint gains process: Searching for solutions where each player gains and need not make trade-offs Behavioral challenges:

23. Behavioralperspective in modeling BehavioralDecisionAnalysis caninform general modelingstudies What is thehumanimpact on themodelingprocess? Modeler biases, communication, groupinteraction etc. Man and thehammer – syndrom BehavioralOperationalResearchis an emergingarea (Hämäläinen et al. 2013) Upcomingspecialissue in (Franco and Hämäläinen 2015)

24. Emotionsareneeded in decisionmaking People withdamagedemotionrelatedbrainareashavedifficulties in decisionmaking(Damasio 1994) Negative emotionscanlead to avoidingdecisionmaking, stickingwith status quo(Luce 1998) Frustration and angerincreasesrisktakingbehavior(Leith and Baumeister 1996)

25. Future?Decision neuroscience Does it help to understand the neural processes? • Differentareas of thebraininvolved in differenttasks • Striatumrelated to rewardevaluation • Striatum is a subcorticalpart • In thebrainareathatwasdevelopedveryearly in humanevolution • Insularelated to riskevaluation • Insula is located on braincortex • Developedlater in evolution Striatum activation (Niv and Montague 2009) Insula activation (Preusschoff et al. 2008)

26. Summary Howard Raiffaacknowledgedtheimportance of behavioralaspectsearly on Today: Wide awareness of biaseswithinthedecisionanalysiscommunity • Challenge to spreadawareness to practitioners in differentareas, e.g. in environmental management and policydecisionmaking • Debiasingmethodsneed to betested and taken into practice Behavioralperspective is important in theentiremodelling and systemsanalysisprocess

27. References Bleichrodt, H, J.L. Pinto, and P.P. Wakker. Making descriptive use of prospect theory to improve the prescriptive use of expected utility. Management science 47(11), 2001: 1498-1514. Carlson, K. A., and S. D. Bond. Improving preference assessment: Limiting the effect of context through pre-exposure to attribute levels. Management Science 52(3), 2006: 410-421. Damasio, A. R. Descartes' error and the future of human life. Scientific American 271(4), 1994. Delquié, P. Inconsistent trade-offs between attributes: New evidence in preference assessment biases. Management Science 39(11), 1993: 1382-1395. Franco, L. A. and R.P. Hämäläinen. Behavioural operational research: Returning to the roots of the OR profession. European Journal of Operational Research, In Press, 2015. http://www.sciencedirect.com/science/article/pii/S0377221715009601 Hammond, J. S., R. L. Keeney, and H. Raiffa. Smart choices: A practical guide to making better decisions. Vol. 226. Harvard Business Press, 1999. Hämäläinen R.P. , J. Luoma and E. Saarinen: On the Importance of Behavioral Operational Research: The Case of Understanding and Communicating about Dynamic Systems European Journal of Operational Research, 228 (3), (2013): 623-634. Hämäläinen R.P.: Behavioural issues in environmental modelling - the missing perspective. Environmental Modelling & Software, 73, 2015: 244-253. Hämäläinen R.P. and T. J. Lahtinen: Path Dependence in Operational Research - How the Modeling Process Can Influence the Results. 2015. Manuscript: http://sal.aalto.fi/publications/pdf-files/mham15c.pdf Hämäläinen, R.P., S. Alaja: The Threat of Weighting Biases in Environmental Decision Analysis Ecological Economics, 68, 2008: 556-569. Janis, I. L.  Groupthink: Psychological studies of policy decisions and fiascoes. Boston: Houghton Mifflin. 1982. Keeney, R. L., and H. Raiffa. Decisions with multiple objectives: preferences and value trade-offs. Cambridge university press, 1993.

28. References Lahtinen T.J. and R.P . Hämäläinen: Path Dependence and Biases in the Even Swaps Decision Analysis Method. European Journal of Operational Research, 2015, In Press. http://sal.aalto.fi/publications/pdf-files/mlah15.pdf Leith, K. P., and R. F. Baumeister. Why do bad moods increase self-defeating behavior? Emotion, risk tasking, and self-regulation. Journal of personality and social psychology 71(6), 1996. Liesiö J., P. Mild, and A. Salo: Robust Portfolio Modeling with Incomplete Cost Information and Project Interdependencies European Journal of Operational Research, 190, 679-695. Luce, M. F. Choosing to avoid: Coping with negatively emotion-laden consumer decisions. Journal of consumer research 24(4), 1998: 409-433 Montibeller, G., and D. Winterfeldt. Cognitive and Motivational Biases in Decision and Risk Analysis. Risk Analysis, 2015. Mustajoki J. and R.P.Hämäläinen: Web-HIPRE: Global decision support by value tree and AHP analysis INFOR, 38, no. 3, 2000, 208-220 Mustajoki J. and R.P. Hämäläinen: Smart-Swaps - A decision support system for multicriteria decision analysis with the even swaps method Decision Support Systems, Vol. 44, No. 1, 2007, pp. 313-325. http://smart-swaps.aalto.fi/ Niv, Y., and P. R. Montague. Theoretical and empirical studies of learning. Neuroeconomics: Decision making and the brain, 2008: 329-50. Preuschoff, K., S. R. Quartz, and P. Bossaerts. Human insula activation reflects risk prediction errors as well as risk. The Journal of neuroscience 28(11), 2008: 2745-2752. Raiffa, H. Decision analysis: a personal account of how it got started and evolved. Operations Research 50(1), 2002: 179-185. Raiffa, H. The art and science of negotiation. Harvard University Press, 1982. Raiffa, H. Decision analysis: introductory lectures on choices under uncertainty. 1968. Raiffa, H. Post-settlement settlements. Negotiation Journal 1(1), 1985: 9-12. Rilling, J. K., and A. G. Sanfey. The neuroscience of social decision-making. Annual review of psychology 62 (2011): 23-48.