Notes

Section 1
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PROFESSOR: Should I find a new job, stay where I am, or spend my savings account? In this section, we'll discuss the question how do people make important decisions? This is section one of decision making. Our objectives are to identify various types of decisions and strategies used to make decisions, and to summarize various influences on decision making.
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In this section, we'll be identifying various types of decisions and strategies used to make decisions. Decision making requires an element of problem solving. This is the process of evaluating alternatives and making choices among them. Unlike problem solving, most choices are present in decision making. So individuals try to make the best choice
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from a range of options. Decision making often involves choices about preferences. An abundance of choices may cause one to feel overwhelmed, make errors in choosing amongst alternatives, or feel post-decision regret. Judgments about alternatives are affected by extraneous factors. For example, if something costs more, we may think it's
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of better quality. People are also influenced by the brand of a product and their personal emotions. Making risky decisions occurs when one makes choices under conditions of uncertainty. Factors affecting risky decision making include expected value. This is the probability and utility of a given outcome, as
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well as subjective utility. This is what an outcome is personally worth to an individual. For example, buying a lottery ticket may allow one to dream about traveling the world and owning a yacht. Herbert Simon won the Nobel Prize for his research on decision making. He described the theory of bounded rationality, which
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states that people use simple strategies in decision making that focus only on a few alternatives. This can result in irrational decisions. People use several strategies to make decisions. With the additive strategy, one creates a list of attributes that affect the decision, and then rates each alternative based on each attribute. This is often used for simple choices.
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For example, Julie wants a new apartment. She has two that she likes. If she were to use the additive strategy, she would list the attributes that will affect her decision, such as cost, noise, location, and cleanliness. She would then rate each apartment on the attributes with a one to five scale, add up the rating, and choose the one with the highest rating.
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With elimination by aspects, one eliminates alternatives based on their attributes and evaluates the attributes by order of importance. This is often used for complex choices. For example, now that Julie has an apartment, she needs a car. If she were to use elimination by aspects, she would first decide she can't afford anything over $15,000.
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So all cars over $15,000 would be eliminated. She could then eliminate cars that don't get above her required 25 miles to gallon. She would continue to eliminate the alternatives that don't match her criteria until she had one car left. Now let's discuss heuristics, which can help us make decisions. We'll talk about the availability heuristic,
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representativeness heuristic, and fast and frugal heuristics, which involve recognition. The availability heuristic is a prediction about the probability of an event based on the ease with which relevant cases come to mind. This can lead to biased thinking. But it does help us make quick decisions. One study was done asking people whether there are more
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words that begin with the letter R or that have R as the third letter. The correct answer is that there are more words with R as the third letter. But because it's easier for people to list words that begin with the letter R rather than have R as the third letter, they're more likely to choose what they readily remember.
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The representativeness heuristic is a prediction about the probability of an event based on how similar it is to the norm or prototype. It can lead to biased thinking. But it does help us make quick decisions. For example, if you were to flip a coin three times, most people would expect the outcome to be representative of a random sequence.
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But it could be heads every time. Most people don't have an accurate perception of what a random sequence looks like. Fast and frugal heuristics help one make quick decisions with limited information. But some argue that people do not have time for traditional decision making strategies, which is why we use fast and frugal heuristics.
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Recognition heuristics are a method in which one chooses the alternative they recognize, and infer that it has a greater value. So to review in this section, we discussed making decisions. Making decisions and how decisions are made often involve our preferences. Because we have to choose from an abundance of choices. Risky decision making occurs when we make decisions under
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conditions of uncertainty. We also covered different strategies in decision making, such as the additive, elimination, and heuristic strategies. Next, we'll discuss what factors influence decision making.
Section 4
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PROFESSOR: Have you ever had a time where you were hungry but there was nothing to eat in the refrigerator? Well, what did you do? In this section, we're going to answer the question, what factors influence decision making? This is Section 2 of Decision Making. Our objectives are to identify various types of decisions and strategies used to make decisions, and to summarize
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various influences on decision making. In this section, we'll be summarizing various influences on decision making. There are several influences on decision making. Those include framing, fallacies, biases, regret, and loss aversion. Let's take a look at each. Framing is the way an issue is posed, or how two choices are
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structured. Decisions are influenced by how they are framed. Say for example a surgeon tells two patients the same information about a surgery but frames it differently. He tells 1 there's a 10% chance of dying. He tells the other patient there's a 90% chance of survival. Patients who hear that there is a 10% chance of dying are
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more likely to think that the surgery is risky because of the way the information was framed. The two types of fallacies we're going to talk about today are the conjunction fallacy and gambler's fallacy. The conjunction fallacy is the belief that the odds of two events occurring together are greater than the odds of either event occurring alone. Say you hear the following description, Edward is a
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16-year-old high school student who spends a lot of time studying and playing basketball. Is it more probable that Edward is an athlete or an athlete and a high academic achiever? Most people pick the second option, even though it's mathematically more probable that one event will occur alone rather than the two occurring in conjunction with each other.
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The conjunction fallacy is influenced by the representativeness heuristic. Researchers argue that most people make this kind of judgment because it seems more representative that Edward is an athlete and a high academic achiever based on the description, even though it's less likely. The gambler's fallacy is the belief that the odds of a chance event occurring increase when the event has
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not occurred recently. If you're playing roulette, you might predict that the ball will land on black, since it's landed on red the last few times. It's important to remember that each spin is an independent event, and the ball does not remember the previous color. There are several biases that affect our problem solving and
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decision making. They include the confirmation bias, overconfidence, belief bias, and belief perseverance. Let's discuss each. Confirmation bias is the tendency to search for information that confirms one's own preconceptions. Confirmation bias affects how well one looks at different perspectives.
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Sometimes we only look at research findings that support our bias. Confirmation bias is also what allows conspiracy theories to live on long after they've been disproved by science. Overconfidence is a tendency to have more confidence in judgment and decisions than one should. This is based on probability or past experience. For example, say you jump off a cliff into water and you
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don't get hurt. You may repeat this action because your confident nothing bad will happen based on prior experience. If you become too confident, or overconfident, you may make risky decisions because your biased about the outcome. Overconfidence can cause errors in reasoning and can make decision making easier. Belief bias and belief perseverance are two concepts
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closely related to overconfidence. Belief bias is the tendency for one's preexisting beliefs to distort logical reasoning and may cause one to make invalid conclusions seem valid, or vice versa. In a 198os study, researchers had ESP believers and nonbelievers watch attempts at telepathic conversation. Both attempts were rigged. One appeared successful and one appeared to be a failure.
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After, the nonbelievers and believers were asked what happened. Both agreed that the first attempt worked, but only the believers thought that the second attempt worked, which showed that they ignored evidence because of belief bias. Belief perseverance is the tendency to cling on to one's beliefs after the basis on which they were formed has
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been discredited. Once your beliefs are formed, it take stronger evidence to change them than it did to create them. If for example, you were raised to believe that potatoes were bad for your health, you may not consider research that eating potatoes is actually good for your health and continue to believe that they are bad for your health.
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Belief perseverance can be avoided by attempting to consider opposite viewpoints. People may make decisions based on their need to avoid feeling regret. This can cause one to make overly cautious decisions. Losses also appear to have more impact than acquiring gains. So losing $100 affects your happiness more
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than winning $100. Again, this can cause people to be overly cautious in decision making. So to review, in this section we've talked about influences on decision making, such as framing, fallacies, biases, regret, and loss aversion. In this unit, we've talked about strategies for decision making, the influence of heuristics in decision making,
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and influences on our decision making.