Risk and Uncertainty in Decision Making

Estimating Probabilities and Risk

  • Evidence isn't always 100% certain.
  • Fast thinking relies on biases, favoring familiar, potentially safer options.
  • Risk aversion biases us, leading to suboptimal decisions.
  • Threats activate emotional biases, weakening critical thinking.

Weighing Wins and Losses

  • More sensitive to losses than gains (risk averse).
  • Evolutionarily, negative outcomes impact survival more than positive ones.
  • The perception of gains and losses is influenced by our current state.

Prospect Theory

  • Describes how perceived "goodness" or "badness" isn't linear.
    • Loss aversion: Losing 100annoysusmorethangaining100 annoys us more than gaining100 pleases us.
    • Diminishing sensitivity: Winning $$100 is more impactful when we have less.

Influences on Probability Estimates

  • Memories of past probabilities.
  • Familiarity leads to overestimation.
  • Confirmation bias, priming/anchoring bias, and framing effects influence choices.

Environmental Influences

  • Personal factors (education, wealth, age, health) affect risk perception.
  • Societal factors (peers, culture) also influence risk perception.
  • Australia: Risk-averse, prioritizing mitigation over innovation.

Risk Assessment

  • Clinical trials: Staged approach to determine if a medicine works and if it's safe.
  • Regulatory agencies: Therapeutic Goods Administration (TGA) controls quality, supply and advertising of medicines.
  • Cost vs. Benefit analysis: Assesses the 'economic risk' of a medicine.
  • Risk matrices: Estimate consequences (severity and likelihood).

Calculating and Interpreting Risk

  • Confirmation bias, anchoring bias, and framing effects affect estimations.
  • Distinguish between population-level risk and individual risk.
  • Relate risks to familiar scenarios for better comprehension.

Examples and Applications

  • Immunization: Use calculators to understand personal risk reduction.
  • Lung cancer: Calculate risk based on available data (deaths, population).
  • Hormone replacement therapy (HRT): Complex risk/benefit profile.
  • Contraceptive pill: Increased risk of some cancers, decreased risk of others; consider unintended pregnancy.