the psychology of judgment and decision making – scott plous doug derrickaaron elkins shaokun...

The Psychology of Judgment and Decision Making – Scott Plous

Doug Derrick Aaron ElkinsShaokun Fan Noyan IlkKunpeng Zhang David Zimbra

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Agenda

Book OverviewSection Reviews

Perception, Memory and Context – KunpengHow Questions Affect Answers – David Models of Decision Making – Aaron Heuristics and Biases – Doug The Social Side of JDM – Noyan Common Traps – Shaokun

Conclusion

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Book Overview

As scientists, it is imperative that we continually monitor our decision making processes as it is intrinsically subject to bias and errors. We must also be aware how experimental subjects make decisions in order to set up good experiments and conduct valid research.

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SECTION 1

PERCEPTION,

MEMORY,

AND

CONTEXT

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Section 1 – Perception, Memory, and Context

All judgments and decisions rest on the way we see, interpret and remember the world

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Section 1 – Perception, Memory, and Context

Selective PerceptionCognitive DissonanceMemory and Hindsight BiasesContext Dependence

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Selective Perception

Perceptions are selective and depend critically on cognitive and motivational factorsCognitive – what people

expect to see (prior beliefs and expectations)

Motivational – what people want to see (hopes, desires, and emotional attachments)

8


Four types of most reactions to incongruity

Potent expectationsThe ‘same’ game is not the

‘same’Hostile media effect

9


Nearly impossible to avoid biases in perception

Ask yourself questions before making an important decision

10

Cognitive Dissonance

People are usually motivated to reduce or avoid psychological inconsistencies People experience cognitive

dissonance when they simultaneously hold two thoughts that are psychologically inconsistent

“negative driven state” – motivational theory

“self-perception theory” – inferring beliefs from watching behaviors

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Predecisional dissonance – influence the decisions people make

Postdecisonal dissonance – its reduction has an effect on later behavior

Changes in attitude Changes in behavior

Well known

Cognitive dissonance

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Promote energy conservationApplication on electionsThe pressure to feel consistent will often

lead people bring their beliefs in line with behavior

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Memory and Hindsight Biases

Memory is reconstructive and highly dependent upon contextual factorsShattered memoriesSweet remembrancesHindsight biases –

“I-knew-it-all-along”

14


Memories are not like copies of our past experiences on deposit in memory bank

People construct and memorize a general scenario

Hindsight biases diminish (consider why and how an alternative outcome might have occurred)

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People have difficult telling how they are effected by information about an outcome

The value of keeping accurate records

Decision maker is

susceptible to biases

in memories

16

Context Dependence

Decision makers do not perceive and remember material in isolation;

they interpret new information

in light of past experience

and the context in which

the material occurs

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Context Dependence

The contrast effect – Ebbinghaus illusionThe primacy effect – first impression delay

delay

The recency effect – final presentationHalo effects – compound and magnitudeThe effects of context are not

limitless

response

response

Primacy effect

recency effect

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Context Dependence

Context effects are so commonApplication of context dependence Time selection

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SECTION 2

HOW QUESTIONS

AFFECT

ANSWERS

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How Questions Affect Answers

Format of the problem influences responsesHow much do decisions depend on the way

a problem is worded?What are specific ways in which the wording

of a question influences the answer?

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PlasticityOrder EffectsPseudo Opinions Inconsistency

Question Wording and FramingWording of the

QuestionResponse Alternatives

Framing

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Plasticity

Plasticity defined The degree to which responses can be affected

by the wording or presentation of the question or response alternatives

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Plasticity

Order Effects Responses influenced by

Ordering of response alternatives Asking questions to influence later responses

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Plasticity

Pseudo Opinions Respondents have no opinion or knowledge

about the topic or issue in question Exhibit ultimate plasticity Offer pseudo opinion in lieu of personal opinion

Influence on political issues

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Plasticity

Filtering Pseudo Opinions Filters identify respondents

who have no opinion or knowledge about the topic

Asking preliminary questions about knowledge

Offering ‘no opinion’ or ‘don’t know’ response alternatives

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Plasticity

InconsistencyDiscrepancy between two related attitudes

or an attitude and corresponding behaviorRelated attitudesAttitude and corresponding behavior

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Question Wording and Framing

Question Wording and Framing Changes of only a word or two can influence

how respondents answer Question Response alternatives

?

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Wording of the QuestionMissing middle category

Force the choice of an extremeMiddle category collects 10 – 40%

Open-ended vs. close-ended questionsDifferent responses when alternatives

provided

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Wording of the Response AlternativesSocial desirability

Responses swayed toward socially desirableTerm strength

“Not allow” vs. “forbid” alter responses

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FramingDecision maker’s conception of the acts,

outcomes, and contingencies of a choiceFormulation of the problemNorms, habits, and characteristics of decision

maker

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Framing Gains vs. losses

Risk adverse when gains are at stake Risk seeking when losses are at stake

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Psychological accounting Framed as direct consequence of act or

evaluated with respect to previous balance Paying $10 and losing $10 vs. paying $20

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Question wording and framing influence responses significantly Therefore, be aware of causes and effects

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1. Order of questions

2. Context in which questions appear

3. Format: open-ended or closed

4. Use of filters

5. Use of “catch phrases”

6. Range and order of response alternatives

7. Use of middle categories

8. Framing in terms of gains and losses

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Relevance As a surveyor

To correct for these factors, elicit responses in a variety of ways and compare the results

As a respondent Be aware of the use of techniques designed to

influence your responses

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SECTION 3

MODELS

OF

DECISION MAKING

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Models of Decision Making

Expected Utility TheoryParadoxes in RationalityDescriptive Models of Decision

Making

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Expected Utility Theory

Nicholas Bernoulli “St. Petersburg Paradox”Two Rules

1. An unbiased coin is tossed until it lands on Tails

2. The player is paid $2 if Tails comes up on the opening toss and doubled for each subsequent Tails

How much would you pay?

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Why the “Paradox”?

(INFINITE)

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Daniel BernoulliNicolas’ cousin solved :

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“Utility” or value declines with amount won

4141


Declining Marginal Utility

Actual Value$1 + $.75 + $.50 + $.30 + $.15 + $.5 ≈ $2.75

Expected Value$1 + $1 + $1 + $1 + $1 + $1… =

4242

Oskar Morgenstern Jon von Neumann


Classical utility theory doesn’t describe how

people actually behave

Normative Model

It describes how people behave if they follow certain

testable assumptions

(1947)

4343


Maximizing Expected Utility

1. Ordering of alternatives

2. Dominance

3. Cancellation

4. Transitivity

5. Continuity

6. Invariance

4444


Expected Utility Family

Stochastic models of choiceDuncan Luce (1959)

Subjective Expected Utility TheoryLeonard Savage (1959)

4545

Paradoxes in Rationality

Cancellation Principle ViolatedMaurice “Allais Paradox” (1959)

Alternative A: $1,000,000 for sure

Alternative B: A 10 percent change of getting $2,500,000, an 89 percent chance of getting $1,000,000, and a 1 percent chance of getting $0

Alternative A: An 11 percent chance of getting $1,000,000 and an 89 percent chance of getting $0

Alternative B: A 10 percent chance of getting $2,5000,000, and a 90 percent chance of getting $0

4646


Why the “Paradox”

After Cancellation:

Both choices offer identical alternativesAlternative A: A 11 percent chance of getting $1,000,000, and a 89 percent

chance of getting $0

Alternative B: A 10 percent change of getting $2,500,000, and a 90 percent chance of getting $0

4747


Transitivity Principle Violated

Remember:If A > B and B > C then A > C

However, if there are:1. Two dimensions

2. Increase in small inversely related steps

4848


Intransitivity Demonstrated

1. If IQ different by more than 10 pick higher IQ

2. If not pick most experience

DIMENSIONS

Intelligence (IQ) Experience, Years

A 120 1

APPLICANTS B 110 2

C 100 3

B > A and C > B but A > C

4949


Do people violate Transitivity?

Amos Tversky (1969)

Short answer: YES!

Gamble Probability of a Win

Payoff, $ EV, $

A 7/24 5.00 1.46

B 8/24 4.75 1.58

C 9/24 4.50 1.69

D 10/24 4.25 1.77

E 11/24 4.00 1.83

6 out of 18 Harvard Grad Students demonstrated reliable intransitivity

5050


Are Violators Irrational?

Approximations provide a

rational decision strategy

“Expected Utility Theory does not adequately describe how people make

decisions”.

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Descriptive Models of Decision Making

Normative vs. Descriptive Models

Normative – how rational actors behave when assumptions are met

Descriptive – how people actually behave

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Prospect Theory

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•“Utility” replaced by “Value”

•Loss aversion leading to “endowment effect”

•Probabilities not perfect and based on decision weights

•Reference point based

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The Certainty Effect

Probabilities based on decision weightsElimination of risk weighed more than a

reductionPseudocertainty

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Multi-Attribute ChoiceCompensatoryTrades off low values on one dimension

against high values in another

Noncompensatory1. Conjunctive Rule2. Disjunctive Rule3. Lexicographic Strategy4. Elimination-by-aspects

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SatisficingHerbert Simon (1956)

•People “satisfice” not optimize

Alternative Theories

Regret TheoryBell, Looms & Sugden

•Faced with uncertainty people will act in anticipation and avoidance of regret

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ConclusionSt. Petersburg Paradox led to Expected

Utility TheoryProblems such as Allais Paradox led to

alternativesProspect theory a descriptive model is

now widely accepted and applicable

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SECTION 4

HEURISTICS

AND

BIASES

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Heuristics and Biases

Complicated judgments or decisions are simplified by general rules of thumbClose approximations to optimal

answersCreate predictable biases and

inconsistencies

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Heuristics and Biases

Representativeness HeuristicAvailability HeuristicProbability and RiskAnchoring and AdjustmentPerception of RandomnessCorrelation, Causation and ControlAttribution Theory

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The Representativeness Heuristic

People judge probabilities based on the degree to which “A” is representative of “B”Person “A” is representative of

group “B”Event “A” was produced by

process “B”

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Conjunction FallacyThe Law of Small NumbersNeglecting Base RatesNonregressive Prediction

XOXXXOOOOXOXX

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Actuarial PredictionsDo not be Misled by Detailed

ScenariosPay Attention to Base RatesRemember Chance is not Self-

CorrectingDo not Misinterpret Regression

to the Mean

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The Availability Heuristic

People assess the frequency of a class or probability of an event based on the ease with which instances or occurrences can be brought to mind

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Availability Can Go AwryImagination MAY Affect AvailabilityVividness Discussed

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Availability heuristic is often OK Can also lead to critical biases Central to frequency and probability

estimates Do not trust your immediate

intuitions for judgments of frequency or probability

Consider the cause of your intuition Test your intuition

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Probability and Risk

Risk is omnipresent and often difficult to quantify

Basic problems in probabilities can be challenging

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Confusion of the InverseValence EffectsCompound EventsConservatismThe Perception of Risk

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Maintain Accurate Records Beware of Wishful Thinking Remember Prior Probability Break Compound Events into Simple Events Beware Risk Perceptions

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Anchoring and Adjustment

Insufficient adjustment up or down from an original starting value – the anchorRobust phenomenonAffects most people across

many circumstances

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Staking out initial positionsFramingImagination

71


Form judgment without the frame first

Check if starting value is diagnostic Beware unusually high or low values Use imagination / reflection to

counteract the affect of anchoring Be aware of best / worst case

scenarios

72

The Perception of Randomness

Human often misperceive and misconceive random events

73


Coincidences are common, but particular coincidences are not

People often see meaning / patterns in random events

Superstitions Behaving randomly

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Do not over-interpret chance eventsIf there are independent events with

equally likely outcomes, do not view short runs of the same outcome as meaningful

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Correlation, Causation, and Control

It is often difficult for people to see correlation

Correlation between two variables does not imply there is a cause-and-effect relationship between the two

76


People generally have no adequate concept of correlation

Illusory correlationsInvisible correlationsCausalationControl

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Focus on more than positive and confirming cases of relationship

What did not take place may be significant

Determine if judgments rest on observations or expectations

Carefully distinguish between correlation and covariation

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Attribution Theory

Theory about how people make “casual” attributions or explanations for the causes of actions and outcomes The Person (Consensus) The Entity (Distinctiveness) The Time (Consistency)

“So, if it’s good it’ Mister Coffee.

If it’s bad, it’s me.”

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Attribution Theory

Ignoring the Base Rate of ConsensusSalienceThe Fundamental Attribution ErrorSelf-serving BiasEgocentric BiasesPositivity EffectAscribing Variability

“If the jury had been sequestered in a nicer hotel, this would probably never have happened.”

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Attribution Theory

Pay close attention to consensus information

Put yourself in others’ shoes

Look for hidden causes (beyond salience)

Be careful of wording and phrasing

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SECTION 5

THE SOCIAL SCIENCE OF JUDGMENT AND

DECISION MAKING

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Section 5 – The Social Side of Judgment and Decision Making

Social Influences

Group Judgments and Decisions

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Social Influences

“People are social by nature, so their judgments and decisions are subject to social influences”

Social factors’ pivotal role on decisions/actions “How will others react if I blow this

presentation?”

84

Social Influences

Social Facilitation The presence of audience

affects the performance

Social Loafing & Bystanders “None of my

business…”

85

Social Influences

Social Comparison “People evaluate their opinions and abilities

by comparing themselves with similar others.”

“Social comparisons can influence perceptions” “Social Analgesia”

ConformityPeople conform to the majority view, even if it

contradicts to their own judgment.

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Social Influences

Groupthink In-group pressure to deteriorate judgment

87

Social Influences

Groupthink Symptoms

One man to stand out – but WHO???

- Over optimism and excessive risk taking- Efforts to rationalize or discount warnings- Unquestioned belief in group’s morality- Seeing adversaries too evil, weak or stupid

- Pressure on dissenters from the majority view- Illusion of unanimity- Self censorship of deviations from the apparent group consensus- “Mindguards” who stop controversial information

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Social Influences

HENRY FONDA!

89

Social Influences

Impacts of social factors should be taken into consideration for decisions/judgment/performance

Diffusion of responsibility

Factors could influence decisions with or without underlying judgments

90


“Do groups make better decisions than individuals?”

“Do groups operate with the same heuristics and biases as individuals?”

91


Group Errors and BiasesGroup attribution errorGroup serving biasesOutgroup homogeneity bias

92


Group Polarization “Group discussion to

amplify the inclinations of a group”

“Risky shift”

93


Group discussion Better decisions? “Groups usually perform somewhat better than

average individuals” Dictatorship Beneficial???

94


“Groups usually outperform individuals”

“The best member often outperforms the group”

“However, the best is not to have more heads, but to put those heads together”

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SECTION 6

COMMON TRAPS

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Overconfidence

Disasters caused by overconfidencePearl Harbor in World War IIThe U.S. space shuttle ChallengerOthers…

97

Overconfidence

Joseph Kidd ExperimentA case study of “Joseph Kidd” includes four

partsAsk psychologists, grad students, and under

graduates to answer the same questions when they finish each part of the case study

Ask them to rate confidence level

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Overconfidence

Joseph Kidd Experiment Results

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Overconfidence

Joseph Kidd Findings No significant differences

among ratings from psychologists, graduate students and undergraduates.

Confidence increased with the amount of information subjects read, but accuracy did not.

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Overconfidence

Lichtenstein and Fischhoff Overconfidence is greatest when

accuracy is near chance level. The gap between accuracy and

confidence is smallest when accuracy is around 80%

It is not related to a decision maker’s intelligence

101

Overconfidence

Overcoming overconfidence May want to flag certain judgments for special consideration.

Overconfidence is greatest when judgments are difficult or confidence is extreme. In such cases, it pays to proceed cautiously.

May want to "recalibrate" your confidence judgments and the judgments of others. If a decision maker is 90 percent confident but only 70 to 75 percent accurate, it is probably best to treat "90 percent confidence" as though it were "70 to 75 percent confidence."

May want to automatically convert judgments of "100 percent confidence" to a lesser degree of confidence. One hundred percent confidence is especially unwarranted when predicting how people will behave.

102

Self-Fulfilling Prophecies

“If a card has a vowel on side, then it has an even number on the other side.”

Which of the cards would you need to turn over in order to decide whether the statement is true?

E K 4 7

103


Most common response was “E and 4”

“E” was the next most common Only five of 128 gave the correct

answer: “E and 7”

104


How to reduce self-fulfilling propheciesFocus on motivational factorsFrame questions in a way that

encourages disconfirming answersConsider why their judgments might

be wrong

105

Behavioral Traps

A behavioral trap is a situation in which individuals or groups embark on a promising course of action that later becomes undesirable and difficult to escape from

106

Behavioral Traps

Time Traps Momentary gratification clashes with long-term consequences

Ignorance Traps Unknown consequences

Investment Traps Prior expenditure leads to sunk costs

Deterioration traps Similar to Investment traps, with changing costs

Collective Traps Involve more than one party, such as prisoners’ dilemma and

the tragedy of the commons

107

Behavioral Traps

How to escapeConsider the costs of withdrawal

before embarking on a long term venture

Set limits in advance whenever possible

Have different people make initial and subsequent decisions

108

Behavioral Traps

Traps are not always bad.Recovering alcoholicsEx-smokersOthers….

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Conclusion

This book shows how a social perspective on judgment and decision making can offer practical suggestions on how to deal with many common problems in daily life. It helps us to understand human thought, feeling, and behavior. It also can help us to avoid decision biases, errors, and traps

Western bias in the judgment and decision making research

Judgment and decision making research can be fraught with biases itself…

the psychology of judgment and decision making – scott plous doug derrickaaron elkins shaokun...

Documents

biases doug

hindsight biasespeople

hindsight biasesmemory

hindsight biasesmemories

memory bankpeople construct

context kunpenghow questions

decisions rest

prior beliefs