decison thinking and judgment - chapter 15

Problem solving

Accomplishing a goal when the solution or path to the solution is not clear

Algorithms

Problem solving strategies (series of steps) based on set of rules

Rationality framework

The idea that humans make rational decision based on costs and benefits (logic)

Bounded rationality

Assumption humans try to make rational decisions but are bounded by cognitive limitations

Steps of typical rational framework

1. Define the problem

2. Identify necessary criteria that lets you judge different options equally

3. Weigh criteria (whats more important)

4. Generate alternative options

5. Rate alternatives on each criteria that you find important

6. Compute the optimal decision

• the final decision may be biased/irrational and end up disregarding all logic that was just made

how are decisions influenced

By past experiences and biases

Mental set

• a cognitive obstacle that occurs when an individual attempts to apply a routine solution to what is actually a new type of problem

• Makes learning and problem solving more efficient (looking for patterns)

• not helpful when a problem calls for fresh insight or a new approach

Functional fixedness

• type of mental set

• When an individual identifies an object or technique that could potentially solve a problem but the mind can only think of its most obvious function

• Preventing us of thinking of alternative options with the objects

Heuristics

• Can be called “ rule of thumbs “

• problem solving strategies that stem from prior experiences and provide an educated guess as to what is the solution

What are the pros and cons of heuristics

• Usually accurate and provide fast decision making

• Help us make rapid judgment

Con - can lead us astray

Ex. Using what we learned from the past to make assumptions of whats right like if wifi is down, automatically resetting router

How algorithms and heuristics work together example

• in hangman, we an use algorithms to start and fill then use heuristics to put together what certain words can be made once we get more information

Representative heuristics

• making judgements about likelihood based on how well an example represetns a specific category

• Often correct but not always

Ex. Making a judgement of what a persons major was based on their characteristics

Conjunction fallacy

• assuming 2 traits are more likely than either traits on their own

• Statistically impossible but we assume based on heuristics

• is an example of the cons of representative heuristics and its inaccuracy sometimes

Anchoring heuristic

• the first information learned about a subject can anchor a persons judgement about that subject

• Subsequent judgement are related to this initial anchor point

Example of anchoring heuristic

1. population of sydney if its less than 8 million

• 8 million - anchor

• Subsequent guess - 7.2 million

2. Population of sydney if its greater than 2 million

• Anchor - 2 million

• Subsequent guess - 3.7

• we make assumptions/guesses based on the anchoring information we have

Example of anchoring heuristic in buying an expensive house

• Lowballing, so that the person may counter a price thats similar to the lowball or at least get closer to the anchoring price

Availability heuristic

• tendency to judge the probability of an event by how easy it is to think of examples or instances

• Ex. After 11/11, people assume planes are more likely to crash than cars when its actually the opposite

Mean world fallacy - selling fear

• advertisers ‘sell fear’ by appealing to multiple heuristics

Example of mean world fallacy in alarm systems

• they advertise bad guys breaking into rich homes Despite ‘richer areas’ having lower crime rates

Bad guys - availability heuristics

Bad guys are bad - increased risk assessment

avoiding loss

• people try to minimize risks and losses when making decisions

• Responses to that same choice will differ based on whether outcome is framed as a gain or loss

Ex. When problem is framed as saving people, we go for the sure thing. When its framed as dying, we avoid loss to save more people

Challenges in self assessment

1. Bounded awareness

We are often not aware of our limits/biases and fail to notice important information When problem solving

2. Bounded willpower

• we give greater weight to immediate concerns over long term concerns

3. Bounded self interest

4. Overreliance on intuitive responses rather than rational responses

Bounded ethicality

Ethics are limited in ways we arent even aware of ourselves

Overconfident

The bias to have greater confidence in your judgment tha is warranted based on rational asssessments

Hindsight bias

• tendency to overestimate ones ability to have predicted an event once the outcome is known

• Also known as the “i knew it all along” phenomenon

• Common in political, medical and military judgments/decisions

Confirmation bias

• favour information that confirms pre existing beliefs and ignoring evidence that contradicts it

Ex. Presidential election , we believe information that paints our favourite candidate in a positive light and dismiss information that paints them in a negative light

System 1

Our intuitive decision making system, typically fast automatic, effortless and emotional

• used more often in everyday decisions

System 2

Our more deliberate decision making system, which is slower, conscious, effortful and logical

• influences more important decisions

How to reduce effects of bias

By engaging more into our system 2 thoughts rather than always relying on system 1

• can be difficult as people tend to default back to system 1 when in a rush and or busy

Ex. Baseball players encouraged to think about the future rather than focusing on past mistakes

Improving decision making based on the book nudge by Thaler and sustein

• outlines a strategy that shows how changing environments in ways that account for human bias triggers better decisions

• Nudging can encourage people to make better decisions

Ex. Company enrolling all employees in a retirement plan and giving them an opt out option instead

Ex2. Automatically be applied to organ harvesting and giving them an opt out option

What book did Thaler and sustein Write

Nudge: improving decsions about health, wealth and happiness