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The Psychology of Judgment and Decision Making. Ahmed Abbasi Jessica Bagger Daning Hu Xin Li Jon Marthaler Nicole Forsgren Meek Matthew Pearsall David Shimko Tao Wang Jerod Wilkerson . November, 10 2004. Chapter 1: Selective Perception. Summary.
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The Psychology of Judgment and Decision Making Ahmed Abbasi Jessica Bagger Daning Hu Xin Li Jon Marthaler Nicole Forsgren Meek Matthew Pearsall David Shimko Tao Wang Jerod Wilkerson November, 10 2004
Summary • Perceptions are heavily influenced by what we expect or hope to see • Given past experiences and/or future desires, two people who are looking at the same thing may perceive it in very different ways
Example • Most people do not see that this card is actually a black three of hearts– they see it as a regular three of hearts or spades. • Typical quote from an experiment subject confronted with this card: “I can’t make the suit out, whatever it is. I don’t know what color it is now or whether it’s a spade or heart. I’m not even sure now what a spade looks like!”
Lesson “Perceptions are heavily influenced by what we expect or hope to see.”
Summary • Cognitive dissonance is a difference between our motives and our actions (psychological inconsistency) • People are usually motivated to reduce or avoid psychological inconsistencies • It has been suggested that people only discover their own attitudes and other internal states by watching themselves behave • Takes two forms: predecisional and postdecisional dissonance
Example Famous study from Stanford University: • Undergraduates were required to do extremely tedious tasks for an hour • They were then paid either $1 or $20 to tell a waiting student that the tasks were very enjoyable, then asked to evaluate how enjoyable they themselves found the task • Those that were paid $1 rated the tasks as much more enjoyable! • The students who were only paid $1 felt the need to rationalize their behavior. Those who were paid $20 already had their (monetary) motivation in hand and thus felt no such need to rationalize.
Lesson “People may reconstruct their motives to reduce cognitive dissonance.”
Summary • Memory is not a storage chest where we deposit memories for later recall • Memories are constructed at the time they are recalled (they are not copies of past experiences) • People fill in missing details with logical inferences and associated memories • People are subject to hindsight bias (I knew it all along)
Examples • Close your eyes and recall a scene in which you experienced something pleasurable. Did you see yourself? • 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) • People recalling a recorded discussion two weeks later omitted more than 90% of the specific points and almost half of what they remembered was substantially incorrect
Lesson “Don’t believe everything you remember.”
Summary 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 recently (counteracts primacy effect) • The Halo Effect - Favorable impressions of one trait result in increased impressions of other traits
Examples • Contrast: Shapes compared to similar shapes of significantly different sizes changes our perception of the original shape’s size (the effect diminishes as the similarity of the shapes is reduced) • Primacy: 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 • Recency: When subjects were presented with court transcripts with pro or con sides first and the other last, their judgments reflected a recency effect when there was a delay between hearing the two sides of the case • Halo: Flight commanders showed a correlation between ratings of subordinates’ intelligence and physique
Lesson “Our judgments are based partly on the context in which we make them (there are no absolutes).”
Summary • The way questions are asked affects the answer • Question wording • Question or alternative order • On unfamiliar issues, people often give pseudo-opinions (opinions when they actually have no opinion) • Can filter pseudo-opinions out by listing “no-opinion” as a possible response, or by asking them if they have an opinion before asking the real question • People often demonstrate inconsistencies between their attitudes and their behaviors
Examples • In a Tide magazine survey 70% of respondents gave an opinion on a piece of fictitious legislation (the Metallic Metals Act) • Darley and Batson found a significant inconsistency between seminary students’ attitudes about being a “Good Samaritan” and their actions (attitude didn’t affect actions, but whether they were in a hurry did)
Lesson “Beliefs and behaviors are flexible, depending on factors unrelated to the belief.”
Summary • Question wording affects the response • Use of “forced choice” questions • Open vs. closed questions • Word choice • Social Desirability • Framing affects the response • Wording in terms of a gain vs. a loss • Decision makers frame choices and outcomes
Examples • Vietnam troop withdrawal survey was reversed when respondents were given a middle category • Average number of reported headaches was higher when preceded by a question asking if respondents get them “frequently” vs. “occasionally” • 27% of respondents endorsed opposite sides– in the same survey—of a nuclear freeze question when both question were worded in a socially desirable way
Lesson “Survey results must be interpreted very carefully (ask: What answer did the surveyor want?).”
Summary • Expected utility theory is intended to describe how people would behave if they followed certain principles of rational decision making. • Six principles • Order of alternatives • Dominance • Cancellation • Transitivity • Continuity • Invariance • Extensions of expected utility theory • Subjective expected utility theory (decisions can be based on subjective probabilities) • Stochastic models (preference for soup one day and salad the next)
Examples • St. Petersburg Paradox • Daniel Bernoulli’s utility and wealth relationship model: by assuming that the value of additional money declined with the wealth, Daniel Bernoulli was able to show that the expected utility of the St. Petersburg game was not infinite after all
Lesson “People often make irrational decisions.”
Summary • Violations of the Cancellation Principle and the Transitivity Principle of expected utility theory • Violations of expected utility theory don’t mean that the way people make decisions is unreasonable
Examples • Decision rules for recruiting • Rule 1: if the difference in intelligence between any two applicants is greater than 10 points, choose the more intelligent applicant • Rule 2: if the difference in experience between two applicants is equal to or less than 10 points, choose the applicant with more experience
Lesson • In the real world, there are many cases in which decision makers violate the principles of expected utility theory • The approximations subjects follow in order to simplify the difficult task of bidding might prove to be rather efficient, in the sense that they reduce cognitive effort and lead to outcomes not too different from the results of optimal strategies • Expected utility theory does not adequately describe how people make decisions
Summary • Prospect theory • Replaces the notion of “utility” with “value” • The value function for losses is convex while the value function for gains is concave • Recognized as extended version of classical expected utility theory • Regret theory • Two assumptions • Many people experience the sensations called regret and rejoicing • In making decisions under uncertainty, people try to anticipate and take account of those sensations • Reaches the same conclusion, risk aversion, as predicted by prospect theory • Add a new variable, regret, which could explain a lot of the paradox
Examples • Kahneman and Tversky’s experiment, 1979 • Experiment 1 design • Alternative A: a 50 percent chance of gaining $1000 • Alternative B: a sure gain of $500 • Experiment 1 result • Of the 70 respondents who were given this problem, 84 percent chose the sure gain. • Experiment 2 design • Alternative C: A 50 percent chance of losing $1000 • Alternative D: A sure loss of $500 • Experiment 2 result • Nearly 70 percent of those surveyed chose the risky alternative
Lesson • The first thousand dollar gain has more value than the second thousand dollar gain • If an outcome is viewed as a gain, the decision maker will tend to be risk averse; on the other hand, if the outcome is viewed as a loss, the decision maker will be risk seeking
Summary • Heuristics are “rules of thumb” that can be useful time saving estimators, but often lead to biases. • Representativeness: When people judge probabilities “by the degree to which A resembles B” people feel that the more specific event is more probable than the more general event. • Biases usually occur when people ignore base rates, which is the relative frequency with which an event occurs.
Examples • Linda the bank teller: • Alternatives: • Linda is a bank teller • Linda is a bank teller and is active in the feminist movement • Results: nearly 9 out of 10 respondents chose the second alternative • Biases: Readers believe that it is more likely that Linda is both a bank teller and feminist than just a bank teller.
Lesson • Don’t be misled by highly detailed scenarios. • Pay attention to base rates. • Be skeptical about the conclusions you arrive at from the heuristic
Summary • The availability heuristic – a rule of thumb in which decision makers assess the frequency of a class or the probability of an event by the ease with which instances or occurrences can be brought to mind • Availability leads to biased judgments when examples of one event are inherently more difficult to generate than examples of another
Examples • Tversky and Kahneman’s experiment • Experiment question: In a typical sample of text in the English language, is it more likely that a word starts with the letter K or that K is its third letter (not counting words with less than three letters)? • Experiment results: of the 152 people who were asked this question, 105 thought that words with the letter K in the first position were more probable. • Which is more the likely cause of death in the United States – a car accident or stomach cancer?
Lesson • The availability heuristic is the central probability and frequency estimator among all heuristics. • In some cases, the availability heuristic leads to critical biases in judgment. • One way to correct this problem is by explicitly comparing over- and underestimated dangers with threats that are misperceived in the opposite direction.
Summary • Probability and risk are everywhere • Risk is often difficult to quantify • Probability estimates are also influenced by the “valence” of an outcome
Examples • David Rosenhan and Samuel Messick’s experiment, 1966 • Question: Subjects were asked to guess on each of the 150 trials whether the card would show a smiling face or a frowning face when it was turned over. • Results ? 68.2 57.5
Lesson • Maintain accurate records • Beware of wishful thinking • Break compound events into simple events
