10. Decision Making and Reasoning

Classical Decision Theory

• Economic Man and Woman Model for Decision Makers:

  1. Fully informed about all options and outcomes

  2. Sensitive to distinctions among choices

  3. Fully rational in decision-making

Subjective Expected Utility Theory

• Principle:

  • Human actions aim for pleasure and avoid pain

• Emphasis on subjective utility and probability in judgments

Heuristics and Biases

• Satisficing:

  • Satisficing occurs when individuals choose a satisfactory option rather than the optimal one, typically to save time or effort, especially when the optimal option is unknown or too costly to find. For example, if you're short on time and need a new pair of shoes, you might choose the first pair that meets your basic needs (e.g., comfortable, in your size, reasonably priced) instead of spending hours comparing every available shoe.

Elimination of Alternatives

• Procedure:

  • Focus on one aspect of each alternative individually without comparison

  • Example: Choosing a partner by evaluating appearance first, then personality, etc.

Representativeness Heuristic

• Inferring from characteristics of specific instances about the broader population

  • Example: A person judges a new acquaintance to be a librarian because they are quiet and enjoy reading, despite the fact that they could also be a teacher or an engineer.

Availability Heuristic

• Judgments based on how easily instances come to mind relevant to a phenomenon.

  • Example: After seeing news reports about multiple airplane accidents, a person may overestimate the danger of flying despite statistics showing it to be one of the safest modes of transportation. This occurs because the dramatic nature of the incidents makes them more memorable, influencing perceptions of risk based on readily available information in memory.

Anchoring and Framing

• Anchoring:

  • Evaluations adjusted based on specific reference points.

    • Example: When negotiating a salary, the initial number mentioned serves as an anchor, influencing subsequent discussions. If a candidate expects a salary of $70,000 but the employer offers $60,000, the negotiation may center around that reference point, possibly resulting in a final salary close to $65,000, rather than what might have been achieved without the anchor.

• Framing:

  • Presentation of options influences decision-making tendencies

  • Preference for smaller, certain gains over larger, uncertain gains.

    • Example: In marketing, a product priced at $50 that offers a $10 discount (showing a price frame of $50) may seem like a greater deal compared to the same product offered at $40 with no discount. This framing can significantly affect consumer perception and choice, as people are drawn to the idea of saving money even when the end price is the same.

Biases in Decision Making

• Illusory Correlation:

  Seeing connections between unrelated events or attributes.

  • Example: A person may believe that individuals who own cats are more likely to be introverted. This belief persists due to observing a few introverted cat owners, despite any evidence supporting a correlation between cat ownership and introversion.

• Overconfidence:

  Overestimating one’s own skills and knowledge.

  • Example: A student might be confident that they will ace a test based on their belief in their study habits, despite not having prepared adequately. Their overconfidence leads them to underestimate the difficulty of the material.

• Hindsight Bias:

  The perception that one could have predicted an outcome after knowing it.

  • Example: After a sports game, fans often claim they "knew all along" that a particular team would lose, even if their predictions prior to the game were different. This reflects a tendency to see events as having been more predictable than they actually were.

Fallacies in Decision Making

• Gambler’s Fallacy:

  Belief that prior events influence the probability of future independent events.

  • Example: A gambler believes that after losing several bets on red in roulette, the chances of hitting red increase; however, the probability remains the same for each spin regardless of previous outcomes.

• Hot Hand Fallacy:

  Assuming success will continue based on previous successes.

  • Example: A basketball player who has made several consecutive shots thinks they are ‘hot’ and will continue to score on subsequent attempts, even though each shot is an independent event with its own probability of success.

• Conjunction Fallacy:

  A cognitive bias where people mistakenly judge the probability of two events occurring together (a conjunction) as more likely than one of the events occurring alone.

  • Example: People may incorrectly judge that the likelihood of a person being a bank teller and active in the feminist movement is greater than just being a bank teller, despite statistical laws of probability indicating the opposite.

• Sunk-Cost Fallacy:

  The phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.

  • Example: An individual continues to watch a movie they dislike because they have already paid for the ticket, believing that the money spent justifies the time spent, rather than evaluating the time left compared to their enjoyment.

Group Decision Making

• Benefits:

  • Collective expertise enhances resources and ideas

  • Group memory typically surpasses individual memory with conditions:

    • Small groups

    • Open communication

    • Shared mindset

    • Group identification

    • Consensus on acceptable behavior

Groupthink

• Premature decision-making to avoid conflict within a cohesive group. Prioritizes conformity over critical thinking and objective evaluation, leading to flawed decision-making

• Conditions Leading to Groupthink:

  1. Isolated, cohesive, homogeneous groups

  2. Lack of objective leadership

  3. High stress levels

Symptoms of Groupthink

1. Closed-mindedness

2. Rationalization distorts reality

3. Suppression of dissent

4. Formation of mindguards

   1. Mindguards: A group member who acts as an informational filter, consciously or subconsciously limiting the information available to the group to protect the group's cohesiveness and prevent potentially disruptive information

5. Illusion of invulnerability

6. Illusion of unanimity

• Antidotes:

  • Encourage constructive criticism and seek impartial feedback

Deductive Reasoning

• Conditional Reasoning:

  • Based on rational thought, applicable in daily situations

  • General to specific

Types of Deductive Arguments

• Modus Ponens:

  • If p, then q; affirming p leads to q

    • If it is a dog (p), then it is an animal (q).

    • It is a dog (p), therefore it is an animal (q).

• Modus Tollens:

  • If p, then q; denying q leads to not p

    • If it is a dog (p), then it is an animal (q).

    • It is not an animal (not q), therefore it is not a dog (not p).

• Examples of Fallacies in Deductive Reasoning

  • Denying the Antecedent: A fallacy in which one concludes that if the antecedent of a conditional statement is false, then the consequent must also be false.

    • Example: If it is raining (p), then the ground is wet (q). It is not raining (not p), therefore the ground is not wet (not q). This is a fallacy because the ground could still be wet due to other reasons such as someone watering the garden.

  • Affirming the Consequent: A fallacy where one concludes that if the consequent of a conditional statement is true, then the antecedent must also be true.

    • Example: If it is raining (p), then the ground is wet (q). The ground is wet (q), therefore it is raining (p). This is a fallacy because the ground could be wet due to other factors, like someone spilling water.

Syllogisms in Deductive Reasoning

• Characteristics:

  • Conclusions drawn from two premises

    • Categorical Syllogism

      • All men are mortal.

      • Socrates is a man.

      • Therefore, Socrates is mortal.

    • Universal Affirmatives & Negatives

      • All birds are animals.

      • All crows are birds.

      • Therefore, all crows are animals.

      Negatives:

      • No reptiles are mammals.

      • No snakes are mammals.

      • Therefore, no snakes are reptiles.

    • Particular Affirmatives & Negatives

      • Some dogs are friendly.

      • Fido is a dog.

      • Therefore, Fido might be friendly.

      Negatives:

      • Some fruits are not citrus.

      • A banana is a fruit.

      • Therefore, a banana is not citrus.

Inductive Reasoning

• Base on empiricism, valuing experience and observation

• Example of Inductive Reasoning:

  • Noticing cleverness among math students can lead to a broad generalization about all students in math.

  • Observing that every swan you've seen is white, and therefore concluding that all swans are white

• Cautions against conclusiveness without comprehensive observation

Causal Inferences

• Basis for judgments about causation

  • Relationships can create illusory correlations

• Methods of Inference:

  1. Bottom-up Strategies:

     • Observations lead to prototypes focusing on relevant properties

  2. Top-down Strategies:

     • Selectively looking for consistencies and integrating concepts

Why Use Inductive Reasoning?

• To navigate variability in environments and predict events, reducing uncertainty.