Revision session

This week our lecture only lasted an hour, as it was a revision session we went over ,as a class, all the different topics we've covered so far. From fast and frugal reasoning to framing effects and the endowment theory.
I have to say i have found the topic of judgment and decision making really interesting and at times surprising. I find it especially shocking that even as humans with free will and the capability to make our own independent decisions and judgements, that we often have confidence are the correct and truthful ones, can usually be predicted and irrational. Take the mug and candy experiment ,i spoke about earlier in the endowment effect blog, for example, it shows it is possible to predict that if you are endowed with a good your more likely to stick with it rather than swap it with something of similar value. This is an irrational decision as your not picking the one you like the most but the one you had to start off with.
We have also learnt that our thinking which results in a decision or judgement being made may be like a very simple algorithm. Take the best algorithm, for example, argues we can base decisions on just one cue rather than looking at all the available information, i find i often do this when making quick snap decisions. This can understandably lead to irrational and inaccurate decisions, which is a scary thought as decisions people make can have a large impact on others, for instance jurors decisions in court! ( which i will be looking into further for my last wiki)
Lastly, a finding from the reading i recently did on framing effects, that the wording of a question has an effect on peoples choices even if they have time to think about their answer, really surprised me. Before i had given this subject any thought i did think that as humans our decisions are relatively rational and accurate. However reading the findings about the disease problem and many others proved my initial thoughts to be wrong! Thinking about it now however, and finding that even i was effected by framing effects in the disease problem, i realise that there are many factors that can influence our beliefs about things and they can easily become illogical and unreasonable, even if after careful consideration of the choice being made!
Now i am starting my reading for our last wiki, jury decision making. I am hoping that for this wiki our group will be a little bit more organised than the last one, we will have to make sure every one has done their bit in time to meet up as a group and discuss the overall piece of work. We have found it hard to allocate each person to a certain topic in the subject so that we all have an equal part in the wiki. Also We need to start preparing soon for our presentation on one of the papers which will take place on our very last lecture.

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Doing my first wiki.

Last week we started the reading for our first collaborative wiki. Our group decided together to base this written work on framing effects, as it was the most recent subject we had learnt about for our class and everyone felt they had a good basic understanding of it. We each read one article and one member of our group did an introduction and conclusion. I was happy with this choice as I found the previous two articles slightly harder to get to grips with and found it more interesting.
My part was to read an article about susceptibility to framing (I.E. whether different factors can minimise the effects of framing), then write around 500 words on the subject and add it to our collaborative work. After every one has done their bit we will come together to make sure the piece of work flows as if it were an essay. The deadline for this work has been pushed back a week to next Friday because some people had difficulty accessing the wiki. Although it has caused problems for some members of the class, I think once everyone gets used to them these online collaborative sites are a good way of working, I like the fact you can change things then post comments at the bottom. Also if the group can’t get together then we can have discussions online.
The reading I did extended my understanding of framing effects. For example, it has been suggested by psychologists that framing effects only happen as a mistake by the subject, and that given time and thought they will understand that the two frames of the same outcome are actually equivalent, and therefore make a more rational choice. However it was found that this is not actually the case. Even when participants were given longer to think more carefully about their choices they were still affected by framing. Although people who were categorized as more careful thinkers were more consistent, as they were more likely to respond to a second framing of a problem in the same manner as they did with an earlier response to an alternative frame.
I think this finding is not that relevant in everyday life because it is very rare that we get two frames of the same problems. For example if someone is trying to persuade you to do something then they may frame a question in a certain way, e.g. in the context of a gain. In this scenario even the most careful thinkers would still be affected by the frame. However the fact that framing does seem to effect peoples choices is extremely important in the way people to make decisions in everyday life. Going back to the disease problem, the government may choose to adopt a more risky decision just because of the way the question is framed!
When all of my group have contributed to the wiki, we will all read through it to make sure it makes sense as a whole piece of work. Then we will start on the reading for the last wiki. As this one will contribute 40% of my overall mark for this module I am eager to start the reading a.s.a.p. Our group has been allocated jury decision making as a topic for our wiki. This wasn’t our first choice but I am happy with it as it seems quite interesting.

Neoclassical Theory Vs. Prospect Theory and The Endowment Theory!

This lecture was based on the endowment theory and how it can be explained. My group read a paper by John A, List which looks at the neoclassical and prospect theories.
I found this paper quite interesting as i can see how it the endowment effect can play its part everyday choices!
The endowment effect is pretty straight forward. Basically it is when a person values a good/item that is their property higher than they would if it was not theirs! Therefore, if someone starts of with an endowed good (An item that is theirs or that they have been given) then they are more likely to keep it rather than swap it for something else even if the other item is of the same value.
This effect is in line with the Prospect Theory because according to the prospect theory we value an outcome relative to our reference point. Also that loosing the item we posses is weighted more heavily than gaining another.
However the neoclassical model would say that this endowment effect is mealy down to a mistake by the consumer because of their inexperience, and that in time they will learn to make rational choices that will maximize their profit - in line with neoclassical view.
I agree that the endowment effect is an irrational choice, as it is a mistake that results in not maximizing ones profit! However i can understand that if you receive something then it may be hard to give it up, perhaps if the item has more sentimental value then there would be a bigger endowment effect? Also i think it is believable that once a person has lots of experience in trading in a certain area then they will show a lesser endowment effect, i think this may be because they learn to be more certain of their preference and the value of items. Maybe through trial and error, for example if someone losses a lot of money through not trading goods because they were endowed then they may overcome this effect.
List created an experiment to test whether consumers do actually overcome the endowment effect. His experiment took place in a real market place. He found that when a non-dealer ( a person with little experience in dealing goods in the market place) is endowed with a good they were four times more likely to keep that good rather than exchanging it for another good of the same price, this can be explained by the prospect theory. However, the more experienced dealers did not show any preference for trading for the other good whether they had been endowed with it or not. This is in line with the neoclassical view that people make rational decisions, taking all information into account.
So the endowment effect was only present in the non dealers, therefor the experienced dealer had seemed to learn over time to treat goods leaving their endowment as an opportunity cost rather than a loss! Meaning that the prospect theory can predict the actions of non dealers and the neoclassical theory can predict the actions of experience dealers.
In class we were not able to present the work we had done in groups however i did feel i had a good understanding of the reading and would have been confident to present it to the class.
Next, we have to start on the wiki with our groups, as we don't have a class next week i will spend time during the week doing the reading for that on decision framing!

Lecture 4: Gain-Loss Framing, The Disease Problem

For this weeks lecture our reading was on framing effects. This is when that the wording of a problem influences a persons preferences and choice.

Tversky and Kahneman illustrated the framing effect in 1981 with their 'disease problem'. The problem was as follows:

The participants are told to imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. They are told to choose one of these two alternative programs to combat the disease:

A) 200 people Will be saved.

Or B) 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved.

Another group were asked to choose between the two following prospects:

C) 400 people will die.

Or D) 1/3 probability that no one will die and 2/3 probability that 600 will die.

Which would you choose? I chose A then D. I think i chose A because i would of felt bad if i chose B and no one got saved which is the worst possible scenario. Then i chose D because the prospect of 400 dying seemed worse than 200 living, which i retrospect it exactly the same! My choice could be explained be The Prospect Theory that argues people will chose the most risky choice in the loss frame. However it goes against the Expected Utility Theory which says framing prospects should have no effect on preference.

The study shows that the majority of people answer A which is the certain option in the first set, and D which is the risky option in the second set! This finding is peculiar because one would expect that if you answer A out of the first two programs then you should answer C out of the second two. Or that B and D would be picked, because it was supposed that A and C and B and D were the same outcomes just described in different ways!! The only posible explanation for this is a frammimng effect.

However, Kuhberger in 1995 said that the framing effects were due to ambiguity in the description of prospects A and C. They have missing information as they do not make it clear what is going to happen to all the 600 people! Participants may think that, in A the remaining 400 people unaccounted for, some of them may still survive.

The article i read: Gain-Loss Framing and Choice by David Mandel, was about a new experiment that he devised to test whether this ambiguity in the questioning was what caused the framing effect and if different formulations of negative and positive framing had an effect on choice. This was done using the subtractive method, in which the ambiguous descriptions (A and C) were left the same and the fully described prospects (B and D) had information subtracted from them. Therefor controlling for asymmetries. Mandel also changed the wording of the scenario to one which was happening in the present rather than in the future. He also asked the participants to actually imagine they were one of the 600. This was to make it more realistic to the participant. I think this is very relevant as i believe that the descriptions were not equal in the original as A and C were far more ambiguous, and that the problem seemed very distant and i did not take it very seriously!

Mandel found that framing was not as pervasive or roust as T & K had once considered. However the ambiguity of a problem can have an effect on choice.

I found this paper a lot more easy going than the previous papers, perhaps because i found it more interesting and easier to understand. We discussed it in class with our groups which is always useful, to get others opinions on the text. This week our group did not present anything in front of the class, so must be prepared to do so next week! So plan to start the reading for next week asap!