DECISION MAKING

and
REASONING
Two Models for Decision Making

• Prescriptive Models
- Models describing the best way to make a decision
- What people should and can do.

• Descriptive Models
- Models describing the way decisions are actually made
- What people actually do, or have done.

Cognitive psychologists are interested in how people actually makes decisions

Classical Decision Theory

• Consider all the options available

• Understand pros and cons of each option
• Rationally makes their final choice
• Goal is to maximize value of decision
• (Reflect the strength of an economic perspective)
Subjective Expected Utility Theory
• The goal of human action is to seek pleasure and avoid pain in making decisions,
people will seek to maximize pleasure (positive utility) and minimize pain (negative
utility)
• Actual judgement of pleasure and pain is made by each decision maker (subjective)

Subjective Expected Utilities

• Consider all possible alternatives
• Use all information currently known
• Weigh potential costs and benefits
• Subjective weighing of various outcomes
• Sound reasoning consider above factors
Heuristics and Biases

Heuristics – mental shortcuts that lighten the cognitive load of making decision
• Satisficing – accepts what is good enough
• Maximizing – exhaustively seeks the best

Elimination by Aspects
• Begin with a large number of options
• Determine the most important attribute and then select a cutoff value for the
attribute
• All alternatives with values below that cutoff are eliminated
• The process continues with the most important remaining attribute (s) until only
one alternative remains
Example
A traveler may first compare a selection of
hotels at a target destination on the basis of
classification, eliminating all hotels with fewer than
three stars. The person may then reduce the choice
set further by walking distance from the beach,
followed by guest reviews, etc., until only one option
remains.
Representativeness Heuristic
• Judge probability of an event based on how it matches a stereotype
• Can be accurate
• Can also lead to errors
• Most will overuse representativeness

Example:
Steve’s description fits our vision of a librarian.
Social relationships: Representativeness heuristic
can affect the judgments we make when meeting
new people. It may lead us to form inaccurate
impressions of others, such as misjudging a new
acquaintance or blind date.
Political choices: Representativeness heuristic can play a role in
how people vote and the candidates they support.
Example: A person might support a political candidate
because they fit the mental image of someone they think is a
great leader without really learning about that person's platform.
Availability Heuristic

• Making judgements of how easily we can call to mind what we perceive as relevant
instances of a phenomenon
• People use the most easily accessible information to inform their decision-making
- Recent events in memory
- Information memorized more easily
- Something that affected you strongly or had a bigger impact on you

Examples:
- Deciding who to promote to a new leadership position
- Plane crashes can make people afraid of flying
Anchoring-and-Adjustment Heuristic
• Begin by guessing a first approximation (an anchor)
• Make adjustments to that number on the basis of additional information
• Often leads to a reasonable answer
• Can lead to errors in some cases

Anchoring-and-Adjustment
• People are influenced by an initial anchor value
• Anchor value may be unreliable, irrelevant, and adjustment is often
insufficient
In 5 seconds…

8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 = ??
Now quickly calculate your answer to the following
problem …

1 x 2 x 3 x 4 x 5 x 6 x 7 x 8 = ????
Anchoring-and-Adjustment Heuristic

Participants asked to calculate in 5 secs the answer to one of the following problems:
1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 = 512
8 X 7 X 6 X 5 X 4 X 3 X 2 X 1 – 2, 250

• The order of presentation for these two groups had a significant impact on their
estimates
• The correct answer, in both cases, is 40, 320!
• People do not have sufficient time to calculate the answer. Instead they perform a few
steps of computation from left to right (i.e. anchoring) and then they estimate the
answer by extrapolation (i.e. adjustment)
Framing Effect – people stick to what they hear or seen as something more heavily
impacts them (we have almost cleaned the Manila Bay vs. Manila Bay has been cleaned at
4.6% scale)

Which choice would you make?

Suppose you have invested in stock equivalent to the sum of PhP60,000 in a
company that just filed a claim for bankruptcy. They offer two alternatives in order to
save some of the invested money:

• If Program A is adopted, PhP20,000 will be saved

• If Program B is adopted, there is a 1/3 probability that PhP60,0000 will be saved
and a 2/3 probability that no money will be saved
Framing
Effect

How a piece of information is framed

can make it more or less effective at
changing behavior.
“Seat belts save more than 13,000 lives every year”

“More than 4,000 die every year because they

weren’t wearing a seatbelt” would be far more
effective in a public health campaign. People
don’t like to imagine themselves or a family member
as one of those 4,000 people.
Biases

Illusory Correlation

People are predisposed to see particular events or attributes and categories as going
together, even when they do not (contradiction on both ends but one is unrelated to the
situation); formed by the pairing of two distinctive events
Example:

Let's say you visit Cebu City and someone cuts you
off as you are boarding the taxi. Then, you go to a
restaurant and the waiter is rude to you. Finally, you ask
someone on the street for directions and they blow you off.
18 arthritis patients observed over 15 months
• Most of the patients were certain that their
condition was correlated with the weather
• The weather was also recorded
• The actual correlation was close to zero
Biases

Overconfidence
• an individual’s overvaluation of her/his own skills, knowledge or judgement
• People tend to have unrealistic optimism about their abilities, judgements and skills

Examine your confidence judgements about future events. Are you confident your
judgements are accurate?
A student who thinks he is much smarter than he actually
is chooses not to study for his tests, thinking he doesn’t
really have to study.

As a result, he could end up with much lower scores than

he could otherwise have received.
A person who thinks he is a great boxer and who
challenges someone who is an amazing fighter to a boxing
match is overestimating his abilities. Being mistaken about
his actual boxing abilities could end up in him getting
badly defeated in the fight as a result of overconfidence.
Biases
Hindsight Bias I knew that
would happen..
• “I knew it all along” phenomenon
• When people look at a situation retrospectively,
they believe they can easily see all the signs and
events leading up to a particular outcome.
• The memory of how we acted previously changes
when we learn the outcome of an event
Example
After attending a basketball game, you might
insist that you knew that the winning team was
going to win beforehand.
Fallacies

• Gambler’s Fallacy – a mistaken

belief that the probability of a given
random event, such as winning or losing
at a game of chance, is influenced by
previous random events

“Hot Hand” Effect – a belief that a

certain course of events will continue
Fallacies

• Sunk-Cost Fallacy – represents the decision to continue to invest in something

simply because one has invested in it before and one hopes to recover one’s
investment.

Example
Let's say that last month you purchased a P500 ticket to see a
new science fiction movie in theaters. As the date approaches, you realize
the showtime you purchased the ticket for conflicts with one of your
appointments. Although you should be going to your appointment
instead, you decide to see the movie because you don't want the ticket or
money you spent on it to go to waste.
Group Decision Making
• Can enhance decision making / more ideas
• Better memory of events

Disadvantages of Group Decisions

• Group think ( a phenomenon characterized by premature decision making that is
generally the result of group members attempting to avoid conflict)
• Premature decision made by members trying to avoid conflict

Symptoms of Groupthink
• Closed-mindedness
• Rationalization
• Squelching o dissent
• Formation of “mind guard”
• Feeling invulnerable