Decision making week 7: Overconfidence and Experiential Decisions

Narrative Fallacy defintion

To create simplified, coherent stories to explain complex events, often ignoring randomness and incomplete information.

Hindsight bias

To perceive past events as having been more predictable than they actually were, often leading people to believe they "knew it all along."

Creeping determinism definition

Tendency for people, after learning the outcome of an event, to view that outcome as having been inevitable all along

What was the Nixon Study

• President Nixon visits to China and
  Soviet Union

• Prior to event, students were asked
  to rate likelihood of various events.

• After the visits, students were asked again for
  these likelihoods, and asked to give their
  original probabilities

• Probabilities of events that actually occurred
  were inflated relative to others, especially
  after a long gap between initial and later
  assessments

Outcome bias definition

We blame decision makes for bad decisions and give little credit for successful moves

Regression towards the mean definition

Extreme values in a dataset tend to be followed by values closer to the average on subsequent measurements.

Illusion of validity definition

False confidence in the accuracy of a judgment or prediction, even when evidence shows it is unreliable or weak.

Outcome of the study done by Philip Tetlock: He interviewed 284 of ‘experts in political and economic trends’ over 20 years and they were asked to asses probabilities

The predictions by these "experts" were less accurate than random chance. This demonstrates that their expertise did not translate into superior forecasting ability.

Hedgehogs versus Foxes: Hedgehogs terms

Focused worldview, strong convictions

Hedgehogs versus Foxes: Foxes terms

Cautious, more likely to adjust their views, prone to self-doubt

Social judgment theory definition

Statistical models often outperform expert judges

Paul Meehl experiment result

Regression-like models can outperform experts on wine prediction

Actuarial model definition

Statistical tool that uses data and algorithms to make predictions or decisions, often outperforming human judgment by relying solely on objective, quantifiable factors.

Why do experts judgements go wrong on future approximations?

Looking too much at individual cases or specific information, give the wrong weight missing information

Bootstrap model definition

Model of the judge

Random linear model

Randomly chosen weights

Equal weighting model

Each cue equally weighted

Apgar score definition

Real-world example of an improper linear model. It is used to quickly assess the health of newborns based on five cues (appearance, pulse, grimace, activity, respiration)

One-reason decision making

Search for a cue that provides a reason to select one over the other and stop if you find such a cue

Recognition heuristic

Take the one you recognize

Simple heuristics: Take the best

Select the most valid cue, until you find a discriminating cue

Simple heuristics: Take the last

Select the cue that worked last time

Simple heuristics: Minimalist

Select a cue at random

What are the two basic conditions for acquiring skill

An environment that is sufficiently regular and opportunity for practice

Example of inconsistency between decision and (predicted) experienced utility

Heart shape chocolate for 50 cents, Cockroach shape chocolate for 2 euro. People say they would enjoy the heart more but when asked to choose most choose the cockroach

Peak/end rule in bad experiences

Tendency to judge an experience primarily based on its most intense moment (peak) and its final moment (end), rather than the total duration or overall average of the experience.

Difference between experiencing and remembering self

Momentary evaluation of how we feel vs overall evaluation based on memory

Decisions and judgments ar mostly made by the (…) self (Experiencing or Remembering)

Remembering

How do the peak-end effect and duration neglect influence judgments of happiness in life stories, according to the results of Ed Diener's research

People's judgments of happiness are influenced more by the peak moments and the ending of a life story rather than its duration, and adding slightly happy years can decrease overall happiness ratings due to the focus on prototypical moments instead of the sum of experiences.

According to amnesiac vacations, would a person decide to go again based on global rating or on day to day experience

Global rating

U-index definition

Measures the proportion of time individuals spend in an unpleasant emotional stateF

U-index function

Emphasis on attention and control (Emphasises that attention influences satisfaction and that we have control over what we do so we can spend our time living less in a unpleasant state)

Why do people often overestimate the long-term happiness associated with marriage, according to Kahneman's view on affective forecasting?

People overestimate the long-term happiness from marriage because they focus on marriage as a cue when directly asked about life satisfaction, but their day-to-day experienced well-being tends to be similar, with reasons for and against happiness balancing out