PSYC 335 Intro and Decision-Making

astragaloi

knucklebones of sheep, painted with symbols and used like dice by Greeks/Romans for betting

Aztec ball game

rubber ball game, where sepctators bet on outcomes

• used dried beans as betting tokens

lukochuko

tossing bark like a coin, families bet useful household objects (eg: axes, arrowheads)

• winners are pressured to keep playing to redistribute items amongst families

• used gambling prosocially and for social levelling

prosocial gambling

using gambling as a way to share resources

social levelling

prevents inequality, no family keeps all valuable items

why no money in lukochuko?

money is more emotionally charged and isn’t as willingly redistributed

house edge

built-in profit margin for the operator

• ensures that gamblers lose in the long run

expected value (EV)

what you expect to earn on average in the long run

• eg: long-term average return

negative EV

long-term loss - common in most gambling

positive EV

long-term profit

psychological definition of gambling

behaviour where something of value is risked, often money, on an uncertain chance for a larger prize

problems with the psychological definition of gambling

is overly broad - gambling can include "stocks, crypto, marriage, university

• these are all risky with uncertain outcomes

legal definition of gambling

consists of…

• 1. consideration: cost to enter (eg: stake, wager)

• 2. prize: what can be won

• 3. outcome: determined by chace

loot box

virtual item in video games that generates a random reward of varying rarity

• common items = low value

• obtained via gameplay or microtransactions (small real-money payments)

concerns of lootboxes

popular amongst underage children, often disliked, regulators unsure whether to classify it as gambling

Li et al study findings

loot box purchasers are more likely to play daily/long sessions, score higher on IGD (internet gaming disorder), and have higher gambling behaviours

value of loot boxes

• monetary value: items can be sold on third-party sites, similar to gambling

• non-monetary value: game advantages, faster levelling, bragging rights

• no losses debate: rarity affects value, but duplicates are less wanted - players often keep spending

what is a decision

situation with more than one response option

risky decisions

outcomes are uncertain, emotional, and involve rewards and/or punishments

parameters of decisions

• size of gains/losses

• probability

• delay

• effort

effort

difficulty of obtaining payoff

delay

timing of payoff, eg: immediate vs future

probability

likelihood of outcome

judgement

personal estimation of an outcome to occur

risk as variance (economics)

risk is the spread of outcomes, more variance = riskier

• eg: $90/10 is riskier than $60/40

risk as a hazard

risk is the chance of harm, potential for negative consequences

• eg: a -10/+50 is more risky than a +10/+30 gamble

Knightian risk

based off of known probabilities

• eg: roulette

Knightian uncertainty

probabilities are unknown, must be estimated

• eg: sports betting

expected value formula

probability x value

• results in the long-term average return if the gamble is repeated many times

expected utility

probability x utility

• explains real-life choices, eg: lottery tickets bring suspense and hope

utility

based on your subjective value, including emotions

Bernoulli effect

diminishing marginal utility: each additional gain is worth less subjectively

• eg: $100 has more value to a poor vs rich person

framing effect - violations of expected utility

tropical flue problem

• people are risk averse with gains, and prefer certainty

• people are risk seeking with loss, to try and avoid certain loss

• identical EVs, but choices shift with framing

prospect theory - 2 functions

1. value function

2. weighting function

value function

reference point = current state

• gains and losses are treated differently, where losses feel stronger

• diminishing sensitivity: utility curve flattens with larger amounts

weighting function

objective probabilities are distorted into subjective ones (inverted S curve)

• rare events are overweighted, eg: lottery winning seems more likely

• common events are underweighted, eg: 50/50 events feel less certain

probability distortion

rare risks are overestimated, and common risks are underestimated

optimism bias

the belief that bad things are less likely to happen to yourself

heuristics - definition

simple rules that save effort, giving “good enough” answers

availability heuristic

judge frequency of an event by how easily examples come to mind

representativeness heuristic

judge likelihood by similarity to stereotype

engineers and lawyers is an example of…

representativeness heuristic

engineer vs layers example

• group A is told 30 people are engineers, 70 are lawyers

• group B is told 70 people are engineers, 30 lawyers

  • when given a description of one person, they are likely to say 50/50 chance of them being an engineer vs lawyer despite being given the numbers

base-rate neglect

ignores true frequencies when numbers are provided

• eg: engineers vs lawyers

conjunction fallacy

thinking that two conditions are more likely than one alone

• eg: Linda is a bank clerk and active feminist

the Linda problem

• description of Linda is given to participants

• tasked to sort 10 cards in order of likelihood

• people are more likely to think 2 characteristics (eg: Linda is a bank clerk + feminist) instead of 1 (bank clerk), even though 1 is more likely

gambler’s fallacy

expecting outcomes to “balance out”

• eg: red comes up 4 times, so black is due the next time

heuristics in blackjack study

• most gamblers increase their bet after runs of loses, decreasing bets after runs of wins - relying on representativeness

• smaller number increase bets after win, and decrease after losses - relying on availability

goal of risk communication

convey threats clearly so people make informed choices (eg: evacuations)

challenge of risk communication

perceptions shift with fraiming and uncertainty