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!

Lecture 3: Decision Making Under Risk and Uncertainty

For our third lecture (week 4) we were asked to read The Priority Heuristic: Making Choices without Trade-Offs, by Brandstatter, Gigerenzer and Hertwig. Also to read Chapter 7 of Introduction to Judgment and decision making (JDMPP) to re familiarise ourselves with the theories of risky and uncertain decision making. Including the expected value theory, expected utility theory, and the Prospect theory. I found this reading useful as i had little memory of this subject!
Expected value theory states that a decision maker (DM) will assign a value to each attribute and they will choose that action with the highest expected value (i.e. highest monetary outcome). However this theory conflicts with peoples intuitions (see St Petersburg paradox). The expected utility theory takes peoples personal choices into account and looks at how a DM makes a choice between two or more risky or uncertain outcomes by comparing expected utility values (or subjective values) of the outcomes and multiplying them by their respective probabilities.
This theory has been highly criticized on three major points:
These theories argue that the DM is risk averse, in that they will avoid risky decisions because a loss looms harder than potential gain. However this risk aversion idea is not supported when outcomes are not sure things i.e. people will risk-seek when outcomes are both losses.
They state that a DM will always try to maximise their utility. However the Allais Paradox proves that this is not the case! It shows that when a problem is worded differently the DM will choose a route with a certain gain even if it is not the option with the largest outcome.
Lastly, the isolation effect: The theory assumes that people integrate possible outcomes with their current assets. Again this has been proven to be untrue, for example people will not always take into account money they get given before a task.
In the reading there were examples of these, and I even found that I would choose a certain outcome over an uncertain outcome, even if the uncertain outcome had a higher expected value! I think this is because if I chose the certain outcome I did not have to worry about the prospect of leaving the situation with nothing when there was a chance of winning some money.
Then came the prospect theory to combat these failures.. This theory accounts for the fact that a gain can be seen as a loss if you don’t gain as much as you expect to win. I can relate to this as when I received a payslip over the summer it was not as high as I expected it to be, the money I had earned therefore seemed like a bit of a letdown rather than a gain!
It also accounts for the impact of small probabilities. People overestimate small probabilities and underestimate large probabilities. For example lots of people -including myself- buy lottery tickets the expected value of a lottery ticket is very low as is its probability of winning however people still carry on buying them week after week.
I found the reading on priority heuristics a little hard going at times but I think I understood the overall gist of the article. The theory is similar to the take the best algorithm in that the DM will base their choice on 1 reason without looking at all the probabilities, just the outcomes. There are also 3 rules the DM must follow to make their choice. I do find this theory believable as it explains why we choose certainly over uncertainly because we don’t look at all the probabilities. Also in real life it is often impossible to work out all the probabilities of outcomes especially when we don’t have much time to make a choice!
During the lecture we were set a task to fill in two questionnaires. The were two different methods of measuring a person utility. The two graphs at the top of the page show my utility of certain monetary values for each method. Monetary values are on the x axis and utility values are on the y axis.

The first method was the certainty probability method. I was asked questions to test my utility, like if i was offered a lottery ticket with a 50% chance of getting £1000 and a 50% chance of getting £0 or getting a certain sum of money, how much would the certain sum of money have to be to make me indifferent between the two. to this particular question i answered £200 (my utility of 200 is therefore 0.5 because it was a 50% chance of getting all the money: £1000 or £0).

Then, the second set of questions was the probability method. This method should come up with the same graph as the first set because the questions were the same just framed differently . An example is: if i had the £200 for certain or a lottery of £1000 and £0, what probability of winning £1000 would make me indifferent between the two? I answered 80%.

As you can see the graphs are similar but not exactly the same! My utility for the £50 is a lot lower in the certainty equivalence method. This could be an example of the framing effect, that changing wording of a description of a decision can affect our preferences of decision. I did find it hard to give a totally honest answer because it was a made up scenario and not real life. I also found thinking in terms of probability was difficult. However they both curve showing that in both instances i was risk averse!

Second Lecture (week 3)

I am writing a couple of days after my second lecture, because of the strike we had no lecture in the second week. Instead we did the reading (Reasoning the fast and frugal Way: Models of bounded Rationality by G, Gigerenzer and D,G, Goldstein), and in class we discussed it in our groups then summarized it to the class.

The article firstly looks at the different theories of how humans and other species make inferences about unknown aspects of the environment. It begins with the classical view that the judgements and decisions we make are merely laws of probability and statistics, not a lot of logic. It argues that the mind uses quick, simple processes or algorithms as a tool to makes inferences about the world. This enlightenment view was highly criticized for being too simple and unrealistic. Even for treating the mind as a 'laplacean demon' or a super calculator, because it looks at all available information.

The article we read argued that we make judgements just based on on cue rather than looking at all available knowledge (take the best ignore the rest!). For example if the question was asked: which is the biggest city A) or B) and the participant knows A has a university and B does not then they will pick A to be the biggest city, rather than looking at all the cues available (the classical view). Above is a flow chart of this process. Test results backed up this take the best theory showing that it was just as accurate as the other theories and can be preformed in a quicker time.

I am unsure were i stand in this debate on reasoning. I think that obviously we often make snap decisions and judgements which don't require much thinking or processing of information. However i know from my experience i often take a long time to make a decision and do take the time to think about more than just one cue, these sorts of decisions cannot be as simple as these theories suggest. However when we are put into a situation where we have to make a very fast decision i can see that we may base it on just one cue.

At first i found the article a little hard going as there was a lot of information to take in and it was quite long. It took me along time to read and i was worried i had not fully grasped the over all concept. However, when we got into groups in class it was really helpful to discuss it, i was able to fill in some of the gaps and see what every one else made of it. At the end we did a small presentation on one part of the paper. It went okay, but although i had it clear in my head, it was hard to put it across in the correct words and explain it to those who had not read the article. I think with practice this will become easier. After our presentation the other groups talked about their papers on how judges and professionals make fast judgements, and whether they look at all the information or base decisions on what they believe is one most important cue. It was interesting because one would think that judges are very fair and take all information into account but it would seem that sometimes they do not.

Next weeks reading is on priority heuristics and making choices without trade-offs. I plan to start this on Monday so I'll see how i get on with that.

(Diagram reprinted by permission of the American Psychological Association).

Judgement First Lecture

This is my first entry and was surprised how easy it is to set up!
I am in my final year and one of my three modules this semester is judgement and decision making. My first lecture for this was last Friday. My first impression of the module was that i liked the way it was assessed. Rather than doing essays and exams it’s comprised of reading, group work and participation in class which I think I will prefer. Although sometimes I have to really push myself to participate, i think it will be very good practise and help me become more confident.

I did the reading for the first lecture (Hardman 2009)chapters 1 and 2, which was on judgement and decision making which I found quite interesting, looking at conscious and unconscious decisions and the dual system. I also found rationality interesting, which is adhrence to a normative model, or behaving in a 'normal' way in a given situation. Some say this is learnt by gaining experience in a certain domain. However ther is evidence of irrational behaviour in people who are experienced in a domain. An example of this is visual illusions, take the illusion in the top left hand corner, (the online optical illusion of Muller-Lyer). even when you are told that both the horizontal lines are equall you still see them as the same length! A further example of irrational judgements is when people do not focus on immediate concerns, for example, not saving for a pension or smoking and drinking heavily when you are young. I can see how this is very true to everyday life as i often do not think about future consequences when i am 'in the moment' eg, spending all my money in one shopping trip!

We had a discussion about that and other approaches to understanding why we make decisions and also what exactly a good decision is. Then we formed groups. I am glad we get to work in groups instead of alone, this way we can discuss the reading between ourselves before we present it to the class so it’s clear in our minds!

I am in the process of doing the reading for the next lecture, reasoning the fast and frugal way by Gigerenzer and Goldstein. This reading is taking me along time to take it all in but its still very interesting. Then I will get in touch with my group to discuss. As we don't have a lecture next week because of the strike in our groups we will still do written work on "wiki", and discuss the reading on fast and frugal reasoning in class.

Above i have posted a picture of David's book Judgement and Desision Making (Hardman 2009). I plan to buy it as it is essentail reading in this module. Hopefully i can get it from amazon! i will write an update before my next lecture on how the reading has gone.
Alice.

references:
Hardman, D.(2009). Judgment and Decision Making: Psychological Perspectives. Chichester, UK: BPS-Blackwell.