COGS 11 (11/24) Lecture 11
Decision Making
Auction!
Bidding starts at $1, goes up in a $1 increments
This is for real money! You get a real $20 if you win
The highest bidder gets the $20 for whatever is their bid (if you bid $2 and no one else bids higher, you get the $20 for $1- you make the $19 just like that)
The second highest bidder has to give their bid
Some people will bid $21 to get the $20
Some will go higher and higher depending on how stubborn the people are
highest someone got was $200
People don’t want to lose because they already bid so much that they can’t go back
What does this tell us?
Heuristics and Biases
Maximizing locally, but digging yourself in a hole globally
you’ll make a small choice not knowing what the other person’s decision-making will be
Sunk costs
should you invest the last 10% of the research funds since you are 90% done with the plane that is inferior to your competitors? (I said yes)
should you build and invest a billion dollars into a plane that is already inferior to your competitor’s plane? (I said no)
Structurally, this is the same problem
The feeling of sunk cost “oh we’re already almost done, all of the other stuff would have been for nothing”
Sunk cost reasoning are irrelevant to current decisions
Only incremental costs should influence future decisions
Sunk costs have already been paid- you can’t get that cost back
Framing
Imagine the US is preparing for the outbreak of a foreign disease, expected to kill 600 people:
If program A is adopted, 200 people will be saved (72% voted for this)
If program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved (28% voted for this)
Statically, this is the same
If Program C is adopted, 400 people will die (22% voted for this)
If program D is adopted, there is a 1/3 chance probability that nobody will die and a 2/3 probability that 600 people will die
Again, statistically the same
if program C is adopted, 400 people will die (feels better to day this than program D, but they both mean the same thing.
If program D is adopted, there is 1/3 probability that nobody will die and 2/3 probability that 600 people will die
Framing effects occurs all the time
Availability
Are there more words that have…
A. K as the 1st letter?
B. K as the third letter
People choose A because it’s easier to retrieve words by their starting letter than by their 3rd letter (words that start with K are more available)
list 3 things you like about your partner
he’s handsome
he’s considerate
he loves me so much
add 5 more things
he’s kind
he’s funny
he’s ambitious
he’s smart
he’s muscular
maybe was a bit harder to name 8, which is normal
Which of the following causes more deaths in the U.S.?
a. stomach cancer
b. drunk driving accidents
We’ll most likely think drunk driving since we here about it the most, bit its actual stomach cancer, we think drunk driving because its more available, like it’s in the news
how likely are you to get bird flu?
how likely are you to die in a Terriots attack?
How likely are you to receive anthrax in the mail?
All depends on what’s on the news, and what’s most vivid (easiest to imagine
Representativeness
Linda is 31 years old, single, outspoken and bright. She majored in philosophy and was concerned about social justice as a student. She participated in antinuclear demonstrations
whats most probable
shes a bank teller
shes a bank teller who is active in feminist movement
a republican
people choose B more often than A
but its impossible for b to be more probable than A (conjunction fallacy)
Which is more probable>>?
war between the US and Russia
war between the U.S. and Russian triggered by third country such as Ukraine, Iran, and North Korea
As the amount of detail in the scenario increases, its probability decreases but its representativeness and hence its apparent likelihood may increase
Anchoring
we start off with a guess, and then adjust to the first impression
Under time pressure, estimate
A. 8x7x 6x 5x 4x 3x 2x 1
B. 1x 2x 3x 4x 5× 6x 7x 8
People estimate:
Given A: 2,250
Given B: 512
actual answer: 40,320
People who were given the higher anchor to start will end up at a high number
People given a lower number will end up with a lower number
this is because people will usually multiply the first few numbers and just estimate from there
Strategy to make a decision and a stick with it use future information only to make slight adjustments to original judgment
The Tom Sawyer effect
People don’t know the value of things
sometimes people don’t know whether the value of something should be positive or negative
we do know that more should be more
to make something desirable, just make it difficult to obtain
Not all money is equal
hard to compare across categories of expenses
what proportion of your 6-month car insurance payments should you be willing to pay for a candy bar?
So, we create categories of money
food money, rent money, entertainment money, clothes, etc.
Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theater you discover that you have lost a $10 bill. Would you pay $10 for a ticket for the play?
Morality and emotion
2 rails, one rail has 5 people, one rail has 1, who do you choose to save from the train?
one rail, 5 people, who can let the 5 people die, or push one person to save them
it’s the same scenario, but the feeling of it is different
our judgment of morality are very flexible depending on the situation
Naive Realism
The most tenacious bias: we believe we see the world as it really is
If people disagree with us, it’s because they haven’t been exposed to the true facts
If you tell them all the true facts, and they still don’t see things your way, it’s because they are biased and irrational or else stupid
"Have you ever noticed that anybody driving slower than you is an idiot, and anybody driving faster than you is a maniac?”