Understanding Decision Making and Intelligence

Key Learning Goals

Understand the concepts of cognitive biases and their implications on decision making, specifically focusing on:
- Gambler's fallacy
- Overestimation of improbable events
- Framing effects
- Loss aversion

Laura's scenario highlights the tendency to misread probabilities in gambling and other scenarios.
Laura observes a roulette game where:
- Slots: 38 total (18 black, 18 red, 2 green)
- Probability of red or black is slightly less than 50% (exactly 0.474).
Despite observing red seven times, Laura bets on black believing it is "overdue."
Discussion of whether Laura's reasoning is appropriate indicates that her view conflicts with fundamental principles of probability.

Laura's reasoning is flawed due to the gambler's fallacy:
- Definition: The belief that the probability of a chance event increases if that event has not occurred recently.
- Misconception: Individuals expect random processes to self-correct over time, yielding fair outcomes.
Key Points:
- Each spin of the roulette wheel is an independent event; thus, previous outcomes do not influence future spins.
- The probability remains constant at 0.474 for black, regardless of previous outcomes.
Representativeness Heuristic:
- This heuristic influences Laura's belief that future results will reflect a random process.
- The tendency to perceive streaks in gambling could contribute to problem gambling behavior.

Many people significantly overestimate the likelihood of dramatic events:
- Example categories include tornadoes, shootings, and floods, often leading to inflated perceptions of risk.
The availability heuristic operates as follows:
- People base judgments on instances readily available in memory, largely influenced by media coverage.
- Illusory perceptions of risk can greatly diverge from actual statistical data.
Concrete Examples:
- Death tolls from media-highlighted events often overshadow other more common causes (e.g., tuberculosis outnumbers flood deaths by 6:1).
- Heavy media coverage can lead to exaggerated fears during events like the Ebola epidemic or the COVID-19 pandemic.

Framing Effects:
- Definition: How information is presented can significantly influence decision-making outcomes and perceptions of risk.
- Importance of understanding the context in which decisions are made.
Kahneman and Tversky's studies illustrate how framing alters perceptions:
- Two proposed programs to combat a disease (assumed to kill 600) are framed differently:
1. Program A saves 200 people.
2. Program B presents a one-third probability of saving all 600 with a two-thirds chance that no one survives.
These alternatives may shape decisions based on their framing, demonstrating the impact of contextual presentation of choices.

Loss Aversion:
- Definition: The psychological principle that losses are felt more severely than equivalent gains.
- Research indicates that losses could have approximately twice the psychological impact of gains.
Examples in Decision Making:
- People often avoid risks that might lead to losses despite potential gains, impacting financial decisions, consumer choices, and health care strategies.
- Kahneman and Tversky's findings showcase that reframing risks can lead to different choices:
- When negatively framed (deaths), people may react differently than when framed positively (lives saved).
Implications for Various Decisions:
- Loss aversion affects choices across many life spheres, reflecting inconsistent decision-making based on perceived threats rather than probable outcomes.

Skills to cultivate include understanding biases in judgment, particularly:
- Limitations of the representativeness heuristic
- Limitations of the availability heuristic
- Awareness of framing effects in decision-making
- Acknowledgment that losses loom larger than gains.

Understanding cognitive biases is crucial for better decision-making in uncertain environments. Awareness can lead to improved outcomes by recognizing irrational tendencies and reframing perspectives.

Three theories:
- Behaviorist: Language through imitation and reinforcement.
- Nativist: Neurological predisposition for language rules.
- Interactionist: Combination of predisposition and environment.

Historical context: Evolution from Binet's scale to modern tests like Wechsler.
Importance of boundaries in rational decision-making and the influence of culture on problem-solving styles.

Heredity-Environment Interaction:
- Discussions of the heritability ratio for intelligence.
- Cultural dissonance in intelligence measurements.
- Gardner's multiple intelligences and their implications on the study of cognitive abilities.

Understanding cognitive biases like the gambler's fallacy and overestimations can significantly influence choices made in practical scenarios such as finance, healthcare, and risk assessment.