10. Judgement and Decision Making

The classical model assumes that a rational decision maker — an Economic Man or Woman — is:

1. Fully informed of all options and consequences,

2. Sensitive to fine distinctions among choices,

3. Fully rational.

But in real life, people are not always this rational. Enter: Subjective Expected Utility Theory. This theory says people weigh outcomes based on:

• Subjective utility (how desirable an outcome is)

• Subjective probability (how likely we think it is)

So, even if A is objectively better, we might choose B if it feels better or more likely to succeed.

Heuristics and Biases

Humans take mental shortcuts to make decisions quickly. These are called heuristics, and they’re super useful — but they also lead to biases and errors.

Types of Heuristics:

• Satisficing: You stop searching once you find something good enough. You don’t look at every possible option (e.g., choosing a life partner based on the first few satisfying traits).

• Representativeness heuristic: You judge something based on how much it resembles your mental prototype. This can lead to errors in understanding probability — like assuming a sequence of events is "due" to change.

• Availability heuristic: You judge based on how easily something comes to mind. For instance, after watching news about plane crashes, you might think they happen often.

• Anchoring: You rely on an initial reference point (anchor) and adjust from there — often insufficiently.

• Framing: Decisions are influenced by how choices are presented — people prefer certain small gains over risky big ones.

• Illusory correlation: Believing two things are related when they’re not.

• Overconfidence: Overestimating your own abilities.

• Hindsight bias: Thinking you “knew it all along” after something happens.

Biases and Fallacies

These are systematic errors in thinking.

Fallacies:

• Gambler’s fallacy: Belief that past random events affect future ones. (“I’ve lost 10 times — I’m due for a win!”)

• Hot hand fallacy: Believing success will continue (“She’s on fire!”).

• Conjunction fallacy: Thinking specific conditions are more probable than general ones.

• Sunk-cost fallacy: Continuing with a bad investment just because you’ve already put in a lot (e.g., staying in a boring movie because you paid for the ticket).

Group Decision Making

Groups can be great — they bring more resources, group memory, and different expertise. But only under conditions like:

• Small size,

• Open communication,

• Shared mindset,

• Respect for group norms.

Groupthink:

This is a danger when groups want harmony so badly they avoid conflict — leading to premature decisions.
Conditions for groupthink:

• Isolated, cohesive group,

• No impartial leadership,

• High stress.

Symptoms:

1. Closed-mindedness,

2. Rationalization,

3. Squelching of dissent,

4. Mindguards (norm enforcers),

5. Feeling invulnerable,

6. Illusion of unanimity.

Antidotes:

• Encourage criticism,

• Bring in outside opinions,

• Assign a devil’s advocate.

Reasoning

Reasoning = drawing conclusions from evidence. There are two main types:

Deductive Reasoning (General → Specific)

• Starts with premises that, if true, guarantee the conclusion.

Conditional Reasoning:

• Modus ponens: If p, then q.
  p → therefore, q. ✔

• Modus tollens: If p, then q.
  Not q → therefore, not p. ✔

Syllogistic Reasoning:

• Uses categorical syllogisms, e.g.:

  • All cognitive psychologists are pianists.

  • All pianists are athletes.

  • ∴ All cognitive psychologists are athletes.

Watch out:

• Universal affirmatives (All A are B) = Not reversible

• Universal negatives (No A are B) = Reversible

• Particular affirmatives/negatives (Some A are B / are not B) = Not reversible

Inductive Reasoning (Specific → General)

You make generalizations from specific examples — common in science and everyday life. But conclusions are not guaranteed, only probable.

Causal inferences: Figuring out what caused what.

• A → B?

• B → A?

• Or C → both?

Categorical inferences:

• Bottom-up: from observation to concept.

• Top-down: using prior knowledge to interpret.

Reasoning by analogy: Comparing similarities between new and known situations to draw conclusions.

Why Do We Use Inductive Reasoning?

• It helps us make sense of a complex world.

• Helps us predict future events.

• Reduces uncertainty