Rationality and Emotionin Decision Making

by Fred Phillips,Stolen from Based on...

Based on material from:

• How We Decide, by Jonah Lehrer

• Thinking Fast and Slow, by Danny Kahneman

• Nudge, by Cass Sunstein and Richard Thaler

History of ideas about DM

We seem to make

Case 1: Baseball

Case 2: Defense

William JamesThe

http://www.youtube.com/watch?v=1wup_K2WN0I

“Before you implement a decision, check whether

your calculation and your belly agree. If they don’t, find out why. Change the decision if necessary until the two agree.” - George

Kozmetsky

Exercise: Discuss a situation in which you

used - or tried to use, or failed to use - both rational and “gut”

methods to arrive at an important decision.

Daniel Kahneman

• 2002 Nobel Laureate in Economics• Like William James, believes we have 2

mental ‘systems’:– System 1, for near-instinctual decisions;– System 2, for higher logic.

• We make most decisions based on emotion, but even the rational parts:– Depend on our mood;– Are often flawed,– No matter how smart we are.

Kahneman’s examples• Seeing frequent advertising leads

to a more favorable opinion of the product.

• We need simplicity, so we jump to false (but consistent) conclusions.

• “People, including scientists, often search for information that confirms their own beliefs.”

Conclusions from Kahneman

1. Before implementing, revisit a decision on another day or another part of the day, to correct for mood changes.

2. Devise your own ad hoc strategies: DK let students’ answers to Q1 influence his grading of Q2. Now he grades all Q1s before going back to grade all students’ Q2s, etc.

Exercise

• Consider choosing a restaurant to take guests to dinner.

• What parts of the decision making process are rational? What parts are emotional?

• How would your answer change if it were a very important decision, for example, for your wedding or your daughter’s wedding?

When do we need the rational side?

• Organizationally, or for policy– To explain - or justify! - a decision

• Psychologically – Loss aversion– Random events– Discounting

Loss Aversion• Doctors are asked to choose, in 2 trials:

– 1st trial: Alternative A is “60% chance of saving patient.”

– 2nd trial: The same alternative is called “40% chance patient dies.”

– More doctors choose alternative A in Trial 1 than in Trial 2, even tho choices are identical.

• We hate losing more than we want winning.• People with brain lesions that inhibit emotion

do not display loss aversion behavior. “Normal” people do, consistently.

Random events

• The emotional brain looks for patterns.• Casino games are random (except that

e.g. slot machines pay 10% to the house). That is, no pattern.

• Thus, emotional brain does not want to stop playing.

• People with brain lesions inhibiting rational thought easily become addicted to gambling.

Discounting over time, space, and scope. The emotional

brain...• ... values short-term payoff more than we

value a greater long-term benefit.• ... is more concerned with our own

neighborhood than with events in distant countries.

• ... cares more for what happens to individuals than to what happens to masses.

• Example: Genocide & starvation in South Sudan vs. abuse of one child in Oprah Winfrey’s school (2010).

Metacognition and “executive control”

• How can we balance the effects of emotion vs. rationality?

• The answer is self-examination. – We can be aware of our own emotions.– Ask, “Why do I feel this way?”

• Thus, Kozmetsky and Kahneman gave us good advice for evaluating our decisions.

The pre-frontal cortex is home to rationality and to

creativity.• Other parts of the brain can do only one

thing.• But the PFC is versatile,

– “does whatever you program it to do.”– has connections to all other parts of the

brain.

• Beware of fMRI results, though– Attempts to tie specific brain activity to

specific behaviors are not yet reliable.

What inhibits PFC function?

• Placebo effect• Distraction• Tiredness• Susceptibility to logical fallacies• Stress

Signs of StressHeadaches, etc.

Sleepless-ness

Negativity, cynicism

Feeling pressured, over-whelmed

Loss of humor

Difficulty Concentrat-ing

Obsessive behavior

Irritability Unwilling-ness to take leave

Alcohol or drug abuse

Disillusion-ment

Risky behavior

Stress reducers

Eat well Exercise Rest

Sleep RelaxationActivities

Work-lifeBalance

You will make better decisions.

Remember Lt. Cmdr. Riley’s great emotional

decision. However,• A veteran firefighter saved his own life by

setting a fire around himself before he was engulfed by oncoming firestorm.

• An airline pilot saved passengers’ lives by figuring out how to fly without hydraulics.

• Their strategies had never been tried before!!

• The strategies are now part of regular training.

• They were rational, creative strategies.• How did these men do it?

How did they do it?

• They felt fear.• They understood fear would not

save them.• They over-rode the fear and

allowed the creative mind to engage.

The Lt. Cmdr. saved lives via emotional decision. The

firefighter and the pilot, by rational/creative decision. How

to tell when to use which mode?

• Experience• Wisdom• Speed in exhausting all possibilities

of one mode, realizing the only possible answer is the other mode.

The Lt. Cmdr. saved lives via emotional decision. The

firefighter and the pilot, by rational/creative decision. How

to tell when to use which mode?

• Experience• Wisdom• Speed in exhausting all possibilities

of one mode, realizing the only possible answer is the other mode.

• Observe• Visualize• Think

through

Over-rides

• Emotion can over-ride rationality.• Rationality can over-ride emotion.• This is “executive control.”• Have you experienced this? In

what circumstances?– GROUP DISCUSSION

A difficult discussion exercise: Using rationality under high stressA person is facing rape, or is taken hostage.

In either case, the victim’s options are:•Talk•Shout•Flee•Fight•Submit

The terrorist/robber is motivated by•Ideology•Terror•Desperation•Greed•Mental imbalance•Protest

The rapist is motivated by•Anger•Power•Sadism•Opportunity

How would you match options to situation?

Psychological biases prevent us from acting in

our (objectively) best interests.

• Proving this won Kahneman the Nobel Prize.

• We have discussed some of these biases (loss aversion, etc.).

• It may be possible to “nudge” people to better decisions by presenting choices in different ways.

“Nudge” is being tried in many places, but efficacy

differs by culture.• Denmark: Green footprints leading

to bins decrease littering; green prints leading to stairs, people still use escalator

• USA: Telling people how much electricity their neighbors use decreases energy consumption.

• This does not work in France.

“Nudge” has big implications for policy

• Realistic policies that recognize how people really behave

• Also big potential for unethical manipulation of people.

• See economist.com/nudge12• Have you nudged or been nudged?

DISCUSSION

Now we need to get quantitative!

• http://www.youtube.com/watch?v=vhToKaPwKE4

• http://www.youtube.com/watch?v=E3aE3SpT-BU&feature=channel

• http://www.youtube.com/watch?v=ZQ7uYel4qqk