9: Decision-Making and Reasoning

Judgment and Decision Making

Involve choosing between different options or making conclusions based on available information

Classical Decision Theory

The theory is based on the rational actor model (assumes that individuals are fully rational and make decisions to maximize utility).

The Economic Man and Woman Model

This model suggests that people have complete information, can weigh pros and cons accurately, and will always choose the option that gives the highest benefit.

Subjective Expected Utility Theory

It extends the Classical Decision Theory by incorporating personal preferences and subjective probabilities.

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making.

Availability Heuristic

Judging the probability of events based on how easily examples come to mind

Representativeness Heuristic

Assessing the likelihood of an event based on how similar it is to a typical case

Biases

These are tendencies to make decisions in a particular, often irrational, direction.

Confirmation bias

The tendency to search for, interpret, and remember information that confirms one’s beliefs.

Anchoring bias

Relying too heavily on the first piece of information encountered when making decisions

Gambler’s Fallacy

The belief that after a series of losses, a win is “due”.

Hot Hand Fallacy

The belief that a person on a winning streak will continue to win.

Conjunction Fallacy

It occurs when people assume that specific conditions are more probable than a single general condition.

Example: people may mistakenly believe a person is more likely to be a “bank teller and a feminist” rather than just a “bank teller”

Sunk-Cost Fallacy

It is the tendency to continue investing in a decision based on the amount of prior investment, rather than considering future costs and benefits.

Opportunity Costs

These are the benefits that are foregone by choosing one option over another.

Effective decision making requires considering what is listed by not choosing the alternative.

Naturalistic Decision Making

It focuses on how people make decisions in real-world settings, particularly under time pressure and uncertainty.

Group Decision Making

It can lead to better outcomes by pooling knowledge, generating diverse perspectives, and fostering collaborative problem solving.

Groupthink

A phenomenon in which the desire for group condense overrides critical thinking.

Prefrontal Cortex

Weighs the risks and rewards in decision making

Amygdala

Processes emotional responses in decision making

Deductive Reasoning

It involves drawing logically valid conclusions from premises that are assumed to be true.

If the premises are true, the conclusion must also be true.

Conditional Reasoning

It involves “if-then” statements. Infer/predict outcomes based on conditions.

Example: if it rains, the group will be wet

Wason Selection Task

A famous experiment in conditional reasoning where participants are asked to verify a rule by turning over cards. It demonstrates common errors in reasoning, such as the tendency to confirm rather than falsify rules.

Categorical Syllogism

A form of deductive reasoning that involves two premises and a conclusion.

Inductive Reasoning

It involves making generalizations based on specific observations. It leads to conclusions that are probable rather than certain.

Casual inferences

Involves drawing conclusions about cause-and-effect relationships based on observed correlations.

Example: if people who eat more veggies are generally healthier, then eating veggies causes better health

Categorical inferences

Involves drawing general conclusions about categories of objects based on specific instances.

Example: if all observed swans are white, then all swans are white.

Analogical Reasoning

Involves drawing parallels between similar situations to infer conclusions.

Example: understanding how to heart works by comparing it to a pump