judgment and decision making [instructor name] [class and section number]
TRANSCRIPT
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Judgment and Decision Making[Instructor Name]
[Class and Section Number]
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Overview
• Introduction• What is a Rational Decision?• Biases in Decision Making• Contemporary Developments• Fixing Our Decision Making
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Introduction
Bounded Rationality – Cognitive limitations prevent humans from being fully rational
Biases – Mistakes that influence judgment
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Overview
• Introduction• What is a Rational Decision?• Biases in Decision Making• Contemporary Developments• Fixing Our Decision Making
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What is a Rational Decision?
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What is a Rational Decision?
Rational Decision Making Define the problem Identify criteria necessary
to judge Weigh the criteria Generate alternatives Rate each alternative Compute optimal decision
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Overview
• Introduction• What is a Rational Decision?• Biases in Decision Making• Contemporary Developments• Fixing Our Decision Making
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Biases: Overconfidence
Overconfidence - The bias to have greater confidence in your judgment than is warranted based on a rational assessment.
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Biases: Anchoring
Anchoring – The bias to be affected by an initial anchor, even if the anchor is arbitrary, and to insufficiently adjust our judgments away from it.
10 – 100 – 200?The size of your anchor does matter.
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Biases: Framing
Framing - The bias to be systematically affected by the way in which information is presented.
Positive or negative? Influence of frame
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Biases in Decision Making
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Overview
• Introduction• What is a Rational Decision?• Biases in Decision Making• Contemporary Developments• Fixing Our Decision Making
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Contemporary Developments
Bounded Willpower – We give greater weight to present concerns over future ones.
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Contemporary Developments
Bounded Self-interest – Our own behavior is influenced because we care about the outcomes of others.
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Contemporary Developments
Bounded Ethicality – Our ethics are limited in ways that we don’t realize.
Bounded Awareness – There is a broad array of focusing failures that affect our judgments.
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Overview
• Introduction• What is a Rational Decision?• Biases in Decision Making• Contemporary Developments• Fixing Our Decision Making
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Fixing Our Decision Making
System 1 System 2
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Fixing Our Decision Making
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Fixing Our Decision Making
4.25% 99.98%
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Appendix A: Problem 1
1. Year Harvard was founded2. Value of Yale University’s endowment (2010)3. # of acres of housing at UT (2013)4. Nobel prizes won by UC Berkley’s faculty,
alumni, and researchers (2013)5. # of undergraduates at Northwestern Univ.
(2013)
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Appendix A: Problem 1
6. Pulitzer prizes won by faculty and alumni of Boston University (2013)
7. 2012-2013 annual budget for U PENN8. # of academic staff members at Carnegie
Mellon University (2013) 9. # of postgraduate students at Massachusetts
Institute of Technology (2013) 10. # of colleges and universities in Boston area
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Appendix A: Problem 1
1. 1636 6. 222. 19.4 billion 7. 6.007 billion3. 1,438.5 8. 1,4234. 71 9. 6,5105. 8,425 10. 52
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Appendix B: Problem 2
• > 10 in 1000 firms?
• _______ in 1,000 Big Four clients have significant executive-level management fraud
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Appendix C: Problem 3
• Program A– 200 people saved
• Program B– 1/3 probability 600 people saved– 2/3 probability 0 saved
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Appendix C: Problem 3
• Program C– 400 people will die
• Program D– 1/3 probability 600 people saved– 2/3 probability 0 saved
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Photo AttributionSlide 1
Photo Credit: koocbor https://www.flickr.com/photos/30451996@N00/4420042160/ https://creativecommons.org/licenses/by-sa/2.0/
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Slide 13
Photo Credit: Charles H. Bennett http://commons.wikimedia.org/wiki/File:The_Ant_and_the_Grasshopper_by_Charles_H._Bennett.jpg http://commons.wikimedia.org/wiki/Public_domain
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Slide 17
Photo Credit: Martin Whitmore https://www.flickr.com/photos/rustychainsaw/3064090492/in/photostream/ https://creativecommons.org/licenses/by-nc-sa/2.0/
Slide 18Photo Credit: zampano!!! https://www.flickr.com/photos/20875074@N00/268351934/ https://creativecommons.org/licenses/by-nc-nd/2.0/