Report on The Psychology of Judgment and Decision Making

1
Report on The Psychology of Judgment and
Decision Making

• MIS 696a
• November 6, 2002

2
Order of Business

• Introduction
• Section I Perception, Memory, and Context
• Section II How Questions Affect Answers
• Section III Models and Decision Making
• Section IV Heuristics and Biases
• Section V The Social Side of Judgment and
  Decision Making
• Section VI Common Traps
• Conclusion

3
Introduction
There is no such thing as context-free decision
making, All judgments and decisions rest on the
way we interpret the world...... Scott Plous

• Whether we work individually, or in groups...
• Whether we are considering
• Perception, Memory, Context,
• The Phrasing of Questions,
• or The Making of Decisions...
• We use Heuristics, have our Biases,
• are subject to Social and Group Influences,
• and can fall prey to many, many Traps and
  Pitfalls.......

4
Section I
We do not first see, then define, we define
first and then see. Walter Lippmann

• Perception, Memory,
• and Context

5
We all Experience Selective Perception at Some
Time

• We Generally See what we Expect to See
• Perceptual Denial Dominant Reaction
• Compromise Part Right, Part Not
• Disruption Rare, Little or No Perception
• Recognition Incongruity may be misinterpreted
• We Generally Experience what we Expect to
  Experience
• If told we are drinking, many of us will act like
  it!

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And Selective Perception can be Significant
Research Trap

• When conducting research, if we expect to see, or
  are motivated to see specific results, we are
  very likely to see those results!
• You should understand your motivations and
  expectations going into a research project, and
  control for their possible influence on your
  interpretation of results.
• Assume you are biased, at least a bit.
• Ask yourself how you would have interpreted the
  data if you didnt have the motivations and
  expectations.
• Consult with peers who dont share your
  motivations and expectations.

7
We Also can Suffer From Cognitive Dissonance

• When do people experience Cognitive Dissonance?
• - when they simultaneously hold 2 thoughts that
  are psychologically inconsistent

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Cognitive Dissonance Theory

• Proposed by Leon Festinger (1950)
• A Motivational Theory
• People try to justify the
  inconsistency between
  2 conflicting thoughts
  Natural Motivation

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Self-Perception Theory

• Daryl Bem (mid 60s)
• Explains how people infer the causes
  of their behavior
• Based on 2 main premises
• People discover their attitudes, emotions other
  internal states by watching themselves behave in
  various situations
• To the extent that internal cues are weak,
  ambiguous, or uninterpretable, people are in much
  the same position as an outside observer when
  making these inferences.

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Predecisional Postdecisional Dissonance

• Predecisional - Dissonance (or the prospect of
  dissonance) influences the decisions people make
• Become more liberated after been there - done
  that
• Postdecisional - Dissonance (or the prospect of
  dissonance) follows a choice that has been
  already made
• Once you commit the decisions become more
  correct

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Aronson suggests

• If you want someone to form more positive
  attitudes toward an object, get him/her to commit
  himself to own that object
• If you want someone to soften his/her moral
  attitude toward some misdeed, tempt him/her so
  that he/she performs that deed conversely, if
  you want someone to harden his moral attitudes
  toward a misdeed, tempt him/her but not enough
  to induce him/her to commit the deed

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What do we learn?

• Changes in behavior can also lead to changes in
  attitude !!
• Cognitive Dissonance can be helpful in managing
  resources people Getting them to
  commit to the work will result in increased
  dedication effort

13
Memory

• Memories are not fixed in storage, but
  re-constructed at the time of remembrance
• Memories are inter-linked its difficult to
  remember every detail separately, but easy to
  remember a general scenario

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Hindsight
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Hindsight Bias

• I-knew-it-all-along effect
• Tendency to view what has already happened as
  relatively inevitable and obvious without
  realizing that retrospective knowledge of the
  outcome is influencing ones judgment

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Reducing Hindsight Bias

• Explicitly consider how past events might have
  turned out differently
• If one only considers the reasons why something
  turned out as it did, he/she runs a good risk of
  overestimating how inevitable that outcome was
  and how likely similar outcomes are in the future

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What do we learn?

• It is very crucial to ask relevant and exhaustive
  questions, considering different alternatives, to
  reduce Hindsight Bias in research work
• It is equally necessary to maintain careful notes
  and records of past events (meetings, important
  conversations, etc.), in order to avoid biases in
  memory

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Context Dependence

• Memory, by its very nature, highly dependent upon
  contextual factors
• Decision makers interpret new information in
  light of past experience and the context in which
  the material occurs

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The Contrast Effect

• Contrast Effect only occurs when the contrasted
  stimuli are similar to one another
• e.g. a 510 sports announcer looks very short
  when interviewing a team of basketball players,
  but looks very tall when interviewing race horse
  jockeys

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The Primacy Recency Effects

• General Relationship between the position an
  entry occupies and the effect it has on judgments
• First Impression counts
• Assumption First piece of information is more
  important
• If there is a time lag between the first piece of
  information and the last, last one leaves a
  lasting impression
• Short-term memory overrides the long-term memory

21
Halo Effects

• We all have a number of
  general assumptions
  about what personality
  traits go together.
• The likelihood is that we
  like to see positive characteristics
  going along with other positive ones and vice
  versa
• Particularly powerful when we know relatively
  little about the person.

22
What do we learn?

• Any comprehensive analysis of judgment decision
  making must take context effects into account
• Keep an objective outlook towards your research
  well grounded methodologies will help
• Understand peoples subjectivity while conducting
  experiments
• Dont be a victim of Halo effects or do not try
  bank on the same as wellthey are temporary

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Section 2 How Questions Affect Answers

• Effect of question framing and wording
• Factors that affect an answers
• Inconsistencies about attitude
• Implications for research

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Factors affecting answers

• Order of questions
• Context in which question appeared
• Question format, open or closed
• Presence of filters
• Presence of catch phrases

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Factors affecting answers

• Range of response alternatives
• Order of response alternatives
• Presence of middle categories
• Framing in terms of gains or losses

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Attitude Inconsistency

• Attitude-Attitude inconsistency
• Abstract attitude unrelated to specific cases
• Attitude-Behavior inconsistency
• Attitude not usually related to behavior

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Implications for research

• Aware of factors that effect results
• Compare results from multiple procedures
• Measure behavior than attitude

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Section III Models and Decision Making

• Expected Utility Theory
• Describes How People Would Behave if they Thought
  Rationally
• Jon Von Neumann, Oskar Morgenstern (1947)

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The Rational Decision Making Model
Rational D Model
Reality
Compare
Ordering Alternatives Dominance Cancellation Trans
itivity Continuity Invariance
Actual Events
Feedback - Modify
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Its Wrong
?

• Whats Wrong With The Rational Decision Making
  Model

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Paradoxes in Decision Making
Allais Paradox
Alternative A 1 Million For Sure Alternative B
10 - 2.5 Million 89 - 1 Million 1 - 0
1
Alternative A 11 - 1 Million 89 -
0 Alternative B 10 - 2.5 Million 90 - 0
2
Violates the RDM Cancellation Principle
RDM Predicts 1- A then 2-A Reality 1-A, 2- B
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Prospect Theory
Value
Prospect Theory Value Function
-500
Gains
Losses
500
Adapted from Kahneman and Tversky
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Descriptive Models
Descriptive Decision Making Models

• Satisficing
• Certainty Effect
• Pseudocertainty
• Regret Theory

• Multi Attribute Choice
• Non-Compensatory
• Strategies
• The More Important Dimension

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Lessons Learned
Lesson Learned
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Section IV HEURISTIC AND BIASES

• How do people come to their decisions?

Decision Making
Answer
36
Representativeness Heuristic

• Advantage
• It reduces time and effort required for decision
  making.
• Disadvantage
• It might lead to systematic biases.

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Conjunction fallacy
1 bias

Linda is 31 years old, single, outspoken, and
very bright. She majored in philosophy. As a
student, she was deeply concerned with issues of
discrimination and social justice , and also
participated in antinuclear demonstrations.
Please check off the most likely
alternative. Linda is a bank teller. Linda is
a bank teller and is active in the feminist
movement.
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Conjunction fallacy
Feminist bank tellers

• Specific scenarios appear more likely than
  general ones because they are more representative
  of how we imagine particular events.

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Gamblers fallacy
2 bias

• The belief that a successful outcome is due after
  a run of bad luck

40
Hot hand
3 bias
A player has a better successful chance after
having successful shots than after having missed
a shot
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Neglecting base rates
4 bias

• A reliance on representativeness leads people to
  ignore base rate information

42
Nonregressive prediction
5 bias

• Extreme performances tend to be followed by more
  average performances
• Sports Illustrated Jinx

43
Availability Heuristic

• Most people estimate the frequency of an event by
  how easy it is to bring instances of the event to
  mind

44
Imaginative prediction
6 bias

• 8 in Reader Survey about causes of death
• diabetes or homicide
• tornado or lightning
• car accident or stomach cancer

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Imaginative prediction

• Overestimate
• -easy to visualize
• -vividness
• Underestimate
• -hard to imagine
• -horrifying imagine

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Conclusion

• Dont be misled by highly detailed scenarios
• Whenever possible, pay attention to base rates
• Remember that chance is not self-correcting
• Dont misinterpret regression toward the mean
• Beware of wishful thinking

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Chapter 12 Probability and Risk

• Confusion of inverse
• Example Were the chances of cancer given a
  positive test result roughly equals to the
  chances of a positive test result given cancer?
  No.
• How to avoid
• Bayes theorem
• Prior probability

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Probability

• Positive outcomes vs. negative outcomes
• Compound events
• Conjunctive A and B
• Disjunctive A or B
• The tendency overestimate vs. underestimate
• Conservatism
• Slowness to revise prior probability estimates

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Risk

• Highly subjective
• voluntary risk from smoking, skiing
• involuntary risk from electric power
  generation
• Biased in the direction of preexisting views
• Technology supporters vs. opponents

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Implications for MIS

• Avoid negative biases
• Maintain accurate records
• minimize primacy and recency effects,
  availability biases
• Beware of wishful thinking
• Break compound events into simple events
• System design

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Chapter 13 Anchoring and Adjustment

• What?
• Insufficient adjustment up or down from an
  original starting value, or anchor
• Effects of arbitrary anchors
• Estimates on the performance at problem-solving
  task
• Stake out extreme initial position

52
Anchoring

• Examples
• How thick would a piece of paper be if it were
  folded in on itself 100 times, given an initial
  sheet of paper 0.1 millimeter thick?
• Most people give estimates less than a few yard.
• The correct answer is 1.271023 kilometers
• Reason adjust upward insufficiently

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Implications for MIS

• Anchor values in our research
• Previous results that are unusually high or low
• How to avoid
• Generate an alternative anchor value in the
  opposite direction
• Consider multiple anchors

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Section V

• The Social Side of Judgment And Decision Making
• By Jason J. Li

55
Chapter 17 Social Influences

• People are social by nature, so their judgments
  and decisions are subject to social influences.
• How are personal decision makings affected by
  social factors?
• What shall we learn?

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Social Facilitation

• The presence of onlookers tends to
• enhance the performance of simple responses.
• but impair the performance of complex skills.

Choose an appropriate environment according to
the complexity of task.
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Social Loafing

• People do not work as hard in groups as they work
  alone.
• Diffusion of responsibility can have a powerful
  influence on judgment and decision making.

Clarify everyones responsibility in a research
group.
58
Social comparison theory

• People have a need to evaluate their ability
  levels and the appropriateness of their opinions.

• In the absence of objective nonsocial standards,
  people compare themselves with others, especially
  with those who are similar to them.

Benchmark with others research work.
Difference Metrics are necessary!
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How do people think in groups?

• People tend to succumb the pressure of
  conformity.
• When groups are cohesive and relatively insulated
  from the influence of outsiders, group loyalty
  and pressures to conform can lead to
  Groupthink.

Keep our brain clear and rational! Resist the
tend of Conformity Groupthink.
60
Chapter 18 Group Judgments And Decisions

• Will a group make better judgments and decisions
  than an individual would?
• Do groups operate wit the same heuristics and
  biases as individuals?
• How to exert the potential of a group?

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Group Errors Biases

• Many individual-level heuristics and biases
  appear to operate with equal force in groups.
• Group discussion often amplifies preexisting
  tendencies.

Be careful of the individual-level biases in
group judgment and decision making.
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Are N heads better than 1?

• Groups usually perform somewhat better than
  average individuals the best member of a group
  outperforms the group.
• Average(Xi) lt SXi lt Max(Xi)

Communication Cooperation Collaboration
Encourages all group members to express an
opinion. Use Dictator Technique in group
research.
63
The Perception of Randomness

• Recognize the difference between the probability
  of a particular event occurring in a particular
  situation, and the probability of some similar
  event occurring in some similar situation
• Be careful not to see patterns where they do not
  exist. Seeing a hot hand may get you in hot
  water.

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Correlation, Causation, and Control

• People often have difficulty assessing the
  covariation between two events, and they tend to
  rely heavily on positive occurrences of both
  events. p. 163
• Both and
• are dangerous

Illusory Correlations
Invisible Correlations
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Avoid Causalation

Just as correlation need not imply a causal
connection, causation need not imply a strong
correlation
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CCC Guidelines

• Focus not only on positive, confirming cases, but
  also on cases lacking these characteristics
• Is the perceived relationship based on
  observations or expectations?
• Carefully distinguish between correlation and
  causation. Remember correlation does not always
  mean causation

67
Attribution Theory

• Attribution is based on three sources of
  information
• Consensus Do others behave similarly?
• Distinctiveness Does the situation make a
  difference?
• Consistency Does the same thing happen every
  time?

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The Fundamental Attribution Error
Joe has trouble reading directions
This is a really complex gizmo
Joe
John
John couldnt put together a sandwich
There must be parts missing
Joe
John
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Other Attribution Errors

• Self-Serving Bias
• Egocentric Bias
• Co-authoring!
• Positivity Bias

I invented the Internet!!!
I contributed much more than my colleagues
Could the economy be any worse?
I couldnt have done it alonewell, maybe
70
Avoiding Attribution Pitfalls

• Dont ignore consensus information
• Ask How would I have behaved?
• Be sure to look for hidden causes, not just the
  most salient ones

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Section VI Common Traps
Common problems that beset decision makers
72
Examples of Overconfidence

• Chernobyl Nuclear Disaster (April 25th -26th,
  1986 Ukraine)
• Challenger Accident (January 28th , 1986 )
• Attack on Pearl Harbor (Dec. 7th, 1941 Oahu
  Hawaii)
• No problem in judgment and decision making is
  more prevalent and more potentially catastrophic
  than overconfidence

• P meltdown of the reactor lt1/10,000

• P catastrophic launch failure lt1/100,000

73
Confidence Accuracy

• Confidence increased with the amount of
  information subjects read, but accuracy did not

74
Overconfidence in research

• Overconfidence in literature review
• What you have read is far from enough
• Overconfidence in doctoral dissertation
  management

75
Confirmation Bias
If a card has a vowel on one side, then it has
an even number on the other side
E
K
Which of the cards would you need to turn over in
order to decide whether the person is lying?
Def Confirmation bias refers to a preference for
information that is consistent with a rule rather
than information which opposes it
4
7
76
Confirmation Bias in research

• Hypothesis Testing
• Positive test strategy VS. Negative test strategy

77
Behavioral traps

• Time delay traps
• Ignorance traps
• Investment traps
• Deterioration traps
• Collective traps(Gross and Guyer, 1980)

78
Examples of behavioral traps

• Time delay traps Euphoria of drinking vs. Next
  days hangover
• Ignorance traps Smoking vs. Lung
  Cancer
• Investment traps Sunk cost effect
• Deterioration traps Heroin addiction
• Collective traps Rush-hour
  traffic

79
Behavioral traps in research

• Behavioral traps almost happen everyday
• Traps are not always bad intentionally trapping
  ourselves in an active and healthy research life

80
Conclusion
Lets face it, we are all human!

• There is no silver bullet to solve the
  fundamental problem We are all human and rely on
  an extremely complex tool, our mind, which has
  evolved over millions of years to perform many
  functions in such a fashion that it facilitates
  individual and group survival, which does not
  necessarily equate to scientific consistency
  and/or accuracy!

81
Conclusion
We must shoulder the burden of having to hold our
biases in check at all times. We can never tire
of that burden, for when we cease to shoulder it
then we are no longer scientists.

• There is one conciliation, the inherent biases
  our brain uses to rapidly form opinions and
  judgments can be held in check by actively
  examining them, by asking what-if questions, by
  questioning our work and seeking other
  explanations.

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Conclusion

• Generally Unbiased Q A