Mar 12 Decision Making

• Decision Making

  1. Heuristics: Mental short-cuts that allow us to skip careful deliberation to draw an inference

  2. Thinking Fast and Slow (Kahneman, 2017): Two types of reasoning systems: Slow - Serial logical analysis of information; effortful, non-automatic, Fast - Heuristics-based reasoning; easy, automatic
• Availability Heuristic


  • A heuristic in which we estimate the probability of an event based on the ease at which it can be brought to mind
• Lichtenstein (1978): 'what is more likely to cause death? Tornados vs. Asthma People rated tornadoes as the larger cause of death, though it kills 20x less people than asthma Why? Because it is easier to bring to mind deaths by tornadoes than asthma (System 1)'
• Affect Heuristic


  • The tendency to overestimate the risk of an event that generates strong emotional response
• Representativeness Heuristic


  • People tend to make inferences on the basis that small samples resemble the larger population they were drawn from
• Biases related to Representativeness Heuristic

  • Base-rate neglect
  • Conjunction fallacy
• Representativeness Heuristic relies on stereotypes, schemas, and other pre-existing knowledge structures
• Base Rate Neglect is when you fail to use information about the prior probability of an event to judge the likelihood of an event
• If you get a positive mammogram result, the chances you have breast cancer are 9%
• Doctors often get the question about mammograms wrong due to neglecting the base rate of actually having breast cancer
• Conjunction Fallacy is the false belief that the conjunction of two conditions is more likely than either single condition
• Representativeness Heuristic

  • Conjunction Fallacy: False belief that the conjunction of two conditions is more likely than either single condition
• The likelihood of an event is always higher than the likelihood of that event and something else
• Anchoring and Adjustment

  • Anchoring: The tendency for people to overweight initial information when making decisions
  • Adjustment is particularly important for designing self-report scales
• Regression to the Mean


  • When a process is somewhat random (i.e. weak correlation), extreme values will be closer to the mean (i.e. less extreme) when measured a second time
  • This is not a fluke; this is a statistical necessity
• Bounded Rationality: theory that humans are rational relative to environmental constraints (e.g. time pressure) and individual constraints (e.g. working memory, attention)

  • People are Satisficers: we look for solutions that are "good enough"
  • "Making do" with the limitations we have as humans
• Ecological Rationality


  • The view proposed by Gerd Gigerenzer (1999) which sees heuristics not as a "good enough" approach to solving a problem but as the optimal approach
  • A heuristic is the best solution to a particular problem; what is the best way for me to answer this question, given all of my constraints
  • Given the right environment, a heuristic can be better than optimization than other complex strategies
• Heuristics and biases arise from the limitations we face but can sometimes produce correct responses (ecological rationality)
• Applying heuristics too often can lead to biases
• Types of heuristics

  • Availability
  • Representativeness
  • Anchoring & Adjustment
  • Regression towards the Mean
• Decision Making

  • Perceptual Decision Making: Objective (externally defined) criterion for making your choice
  • Value-based Decision Making: Subjective (internally defined) criterion for making your choice
  • Decisions Under Risk: Decisions when outcomes are uncertain
• Risky Decision-Making


  When outcomes are uncertain, we still need to decide. Much study has gone into the question of how we make such choices. Extremes in risk taking (high or low) can be very harmful, leading to stagnant living or addiction
• Conjunction Fallacy: a cognitive bias where people incorrectly judge the probability of a conjunction of two events being more likely than a single component of the conjunction