CDM Final

choice

selecting from 1 of 2 options

• distinct from a decision (special case of choosing what to do)

rational choice

what a normative model of choice should look like

• what should people do

utility

how preferable or desirable a person finds a particular choice (subjective)

• is also the numerical expression of a given person’s preference

  • [term] function is concave in a safe decision

quantification

people should express any preference and call that the utility

• rating something on importance on a scale from 1 to X

• principle of expected utility theory

completeness

people can always state a preference for one of two outcomes, or that neither are preferred

• principle of expected utility theory

transitivity

 if A is preferred to B and B is preferred to C, than A is preferred to C

• principle of expected utility theory

maximization

the goal of a choice should be to maximize utility

• principle of expected utility theory

classical theory of rational choice

we already have knowledge of all options and their consequences

• people are omniscient

  • we can already do every calculation to arrive at an optimal choice

expected utility

the anticipated desirability of two choices/gambles

• example: 30% probability of rain and a 70% chance it will not rain 

  • carrying umbrella and it rains: 4

  • carrying umbrella and it doesn’t rain: 2

  • leave umbrella and it rains: -5

  • leave umbrella and it doesn’t rain: 5

• math process ⤵

  • EU (carrying umbrella) → (0.3 x 0.4) + (0.7 x 0.2) → (1.2) + (1.4) = 2.6

  • EU (leave umbrella) → (0.3 x -0.5) + (0.7 x 0.5) → -1.5 + 3.5 = 2

  • add the two results up to get the expected utility, choose the result with the highest number (carry the umbrella)

bounded rationality

choice-making should be bounded by human limitations

• achieved by being adaptive in making said choice

• especially important in natural environments

  • people have limited access to information and limited computational abilities

adaptiveness

choices with [this] don’t need to lead to the best possible situation, instead only need to be good enough (satisficing)

• building knowledge is very costly (in time, energy, etc) and it won't be worth it to expend it

• can explain heuristics → are usually wrong, but are ‘good enough’

choice overload effect

the more choices someone has, the more difficult it is for them to make a decision

• likelier to happen when . . .

  • items are unfamiliar

  • items are difficult to compare (very simplistic)

  • the person is under a time constraint

• Iyengar, Lepper: people offered free samples of 6 or 24 jams at the store

  • people offered 6 samples bought more than people offered 24 samples

nudge theory

nudges are implicit initiatives that do not impose significant material incentives or disincentives (subsidies, taxes, fines, jail time)

• ex: increasing quantity of healthy foods at a grocery store is not a nudge because it changes the available options and thus the decision they have to make

  1. a nudge would be having healthy food near the front of the store and unhealthy food at the back of the store

libertarian paternalism

uses nudge theory to help people make choices in a way that help them do what can actually achieve their goals (nudge theory)

choice architecture

the environment in which people make decisions (nudge theory)

• people making those decisions are choice architects

paternalism

implicit interference in the life of another person without their knowledge or consent (nudge theory)

• believed that the interference will leave the person more well-off

  • problematic because the person interfering can be mistaken and the subject not fully informed 

• common in government

Gonclaves et al

group of researchers who tracked grocery store’s customers for amount of produce purchased (nudge theory)

1. arranged from soft (<4) to hard (10+) buyers 

2. displayed ads in store praising hard buyers, added “and you?”

3. results ⤵

   1. soft buyers: produce sales jumped 59%

   2. medium buyers: jumped ~20%

   3. hard buyers: jumped 8%

Dai et al

group of researchers who did the vaccine study (different text reminders for Walmart shoppers to get their flu vaccines)

1. ownership language (“flu vaccine is waiting for you!”) boosted vaccination appointments by 95% 

displacement effect

people going somewhere else to do something that a nudge is telling them not to (nudge theory)

nudges can be beneficial because

. . . they make the right thing easier to do more than they make it impossible to do the neutral/wrong thing (nudge theory)

criticisms of nudge theory

nudge theory has some drawbacks because of . . .

• consent → vast majority of nudges are done without the target pop’s behind-the-scenes knowledge

  • non-educative nudges are covert and/or sneaky, so they should have a clear right to opt-out 

  • people may still be unaware of how they are influenced by nudges whether or not there is an opt-out option

• profittering → some nudges are done to promote thoughtless behavior and/or profit for the self/company instead of being done to make the right thing

  • non-educative nudges are an insult to human agency (ex: convenience, rules)

    • they allow people to choose in theory, but they take advantage of the fact that people don’t have the mental energy to think about their choices

factors of good nudges

good nudging should include (Thalen et al):

• transparency → letting public know who is doing the nudging and why

• choice options → not manipulating the options to not create preference for a certain choice

• consent → telling the public that the nudge is a nudge

• considerable thought into how the nudge will improve public welfare

• care to avoid token nudging 

• care that sources used are up-to-date and replicable

token nudge

a nudge intended to create an illusion of improvement as a substitute for systemic improvements

fair gamble

a gamble with an expected value of 0 (choice theory)

• people avoiding these illustrates risk aversion

framing effect

illustrates how the wording of a situation affects a decision that people make based on it

• measured with gain framing and loss framing

• has one of the most replicable effects in psych research

gain framing

situation described in terms of getting something (choice theory)

loss framing

situation described in terms of losing something (choice theory)

risk aversion

general unwillingness to engage in activities in which one might lose something (choice theory)

• measured by the utlity function (start point = $0)

  • function is concave in a safe decision

    • measured by usefulness (ex: $1-$2M more useful than $8-$9M)

    • more money = less utility (“oh there’s already a lot”)

  • certainty is treated as having extra utility beyond tangible (ex: monetary) value