Outline 992021 Decisions Availability Heuristic The simulation heuristic

• Outline 9/9/2021 » Decisions ◊ Availability Heuristic ◊ The simulation heuristic – Counterfactual thinking ◊ The hindsight bias ◊ Anchoring and adjustment ◊ Framing Effects Study Questions. • What is loss aversion. Describe the effect of combining framing effects with loss aversion.

Decisions • Algorithms and Heuristics » The Availability Heuristic ◊ Our estimates of how often things occurs or are influenced by the ease with which relevent examples can be remember – This leads to a number of biases 1) Which is a more likely cause of death in the United States: being killed by falling airplane parts or being killed by a shark? 2) Do more Americans die from a) homicide and car accidents, or b) diabetes and stomach cancer? 3) Which claims more lives in the United States: lightning or tornadoes?

Decisions • Algorithms and Heuristics » The Availability Heuristic ◊ Important factors affecting saliency – Factors that effect the ease of remembering Vividness, recency, familiarity Saliency ‘Contaminants’ • Vividness • Recency • Familiarity True Frequency Availability Estimated Frequency

Decisions • Algorithms and Heuristics » The Availability Heuristic ◊� Vividness – E. g. , Gardening and the full moon. – Repetition Mac. Leod & Campbell (1992) • Recall happy/sad events from one’s past • Higher estimates of happy events in the future for ‘happy’ group – Imagining Kahneman & Tversky (1973) • Imagining Jimmy Carter or Gerald Ford as President

Decisions • Algorithms and Heuristics » The Availability Heuristic ◊� Recency – Pauker & Kopelman (1992) New England Journal of Medicine • Physician reluctant to perform a procedure because of a recent complication

Decisions • Algorithms and Heuristics » The Availability Heuristic ◊ Familiarity – Physicians ratings of likelihood of fatality of various diseases Correlated with number of articles published about the disease …. Regardless of what the article said about the disease – Role of media Population estimate of El Salvadore -> 12 million (5 actual) Population estimate of Indonesia -> 19. 5 million (180 actual) Who has a larger population, Afghanistan or Iraq?

Decisions • Algorithms and Heuristics » The simulation heuristic ◊ Forecasting how some event might have turned out under another set of circumstances – Mr. Tees and Mr. Crane – E. g. , Medvec et al. (1995) Examined tapes of 41 athletes from ‘ 92 Games Judges rated athletes on scales from “agony” to “ecstasy” Bronze medalists happier than silver medalists ◊ Counterfactual thinking – Undoing heuristic

Decisions • Algorithms and Heuristics » The hindsight bias ◊ I-knew-it-all-along phenomenon » Anchoring and adjustment ◊ Determine the following: 8 X 7 X 6 X 5 X 4 X 3 X 2 X 1 1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 Kahneman and Tversky found 1) 2, 250 2) 512 (Actually: 10, 320)

Decisions Government cutbacks are about take a hit on students. It is expected that 600 people will lose their bursaries. The student union has proposed two alternative programs to fight the cutbacks: ◊ If Program A is adopted, 200 students will have their bursaries saved. ◊ If Program B is adopted (a legal option), there is a one-third probability that 600 students will have their bursaries saved, and a two-thirds probability that no students will have their bursaries saved. » Which program would you favour?

Decisions • The framing effect (Kahneman & Tversky) » The wording of question in conjunction with the background context can influence the decision. » Both of the previous plans were rejected, consider the following: ◊ If Plan C is adopted, 400 people will lose their bursaries. ◊ If Plan D is adopted, there is one-third probability that nobody will lose their bursary, but a two-thirds probability that 600 people will lose their bursary. » Kahneman & Tversky’s results (disease outbreak) Plan A 1/3 Saved Plan B P=1/3 Saved Plan C 2/3 Die Plan D P=2/3 Die 72% 28 % 22% 78 %

Decisions • The framing effect (Kahneman & Tversky) » Risk seeking and avoidance ◊ When questions are framed in terms of gains we avoid risk (Prefer A over B) ◊ When framed in terms of losses we are risk-seekers (Prefer D over C) » Other findings relating to the Framing Effect ◊ It is unrelated to statistical sophistication ◊ It is not eliminated when the contradiction is pointed out

Decisions • The framing effect (Kahneman & Tversky) » You buy an advance ticket for $ 20 to see the Harlem Globetrotters play at the Oland Centre. When you get to the game, you discover that you have lost your ticket. Do you shell out $ 20 for another? » You go to the Oland Centre to see the Harlem Globetrotters play. Tickets cost $20. When you get to the ticket booth, you discover that you have lost twenty bucks. Do you buy a ticket anyway?

Decisions • The framing effect (Kahneman & Tversky) » T & K’s results (theatre ticket for $10) ◊ Lose ticket -: 46 % buy another ticket ◊ Lose $10 - 88 % buy another ticket » The Framing effect has been demonstrated in a number of contexts: ◊ Vaccinations ◊ Treating lung cancer ◊ Genetic counseling ◊ Gambling choices ◊ Buying refrigerators

Decisions • The framing effect (Kahneman & Tversky) » Loss aversion ◊ Receive a mug for participating in an experiment – What price would you sell this mug for? – What price would you pay for his mug? Sell: $7. 12, Buy: $2. 87 » Combining Framing effects and loss aversion

Decisions • The framing effect (Kahneman & Tversky) » (1) You have decided to leave your current job, because it is an 80 min commute each way even though you like the pleasant social interaction with your co-workers. You have two options for a new job ◊ Job A ◊ Job B Limited contact with others; 20 min commute Moderately social; 60 min commute » Loss aversion ◊ We are far more sensitive to losses than to gains ◊ K & T: Receive $ 20 for a heads, pay $ 10 for a tails:

Decisions • The framing effect (Kahneman & Tversky) » (2) You have decided to leave your current job, because it leaves you isolated from your co-workers even though you like the 10 min commute in each direction. You have two options for a new job ◊ Job A ◊ Job B Limited contact with others; 20 min commute Moderately social; 60 min commute » Loss aversion ◊ Scenario (1) - 67 % chose Job B ◊ Scenario (2) - 70 % chose Job A

Decisions • The framing effect (Kahneman & Tversky) » Some weeks ago, you saw an add in the newspaper for a reduced rate for a week-end at a nearby resort. You sent in a $ 100 nonrefundable deposit. When the weekend arrives you set off with your partner. Both of you are extremely tired and somewhat ill and about half way to the resort you both realize that you would probably have a more pleasurable weekend at home. ◊ Do you turn back? » The sunk-cost effect: A tendency toward taking extravagant steps to ensure that a previous expense was “not in vain”.

Decisions • The framing effect (Kahneman & Tversky) » Implications for the legal system » You are to decide an only-child sole-custody case. Parent A Average income Average health Average working hours Reasonable report with the child Relatively stable social life Parent B Above average income Very close relationship with child Extremely active social life Lots of work-related travel Minor health problems To whom do you award sole custody? -> 64 % Chose Parent B To whom would you deny sole custody? -> 55 % Chose Parent B.

Decisions • The Fundamental Attribution Error » The self-serving bias -> Actor-observer discrepancy which holds for negative behaviour ◊ I did well on the exam because I work hard ◊ I did poorly on the exam because the professor is unfair – After a college or pro sports game: Winners: 80% make internal attributions Losers: 53 % make internal attributions

Social Cognition • The Fundamental Attribution Error » Above Average Effect ◊ People see themselves as better than average – e. g. , driving ability, social skills, common sense, attractiveness 90 % of business managers think they are better than their average peer In Australia, only 1 % of people rate their job performance as below average In one survey of 829, 000 high school seniors, zero percent rated themselves as below average in their ability to get along with others! Most people think they are better than average at not rating themselves better than average

• Outline » Decisions ◊ Domain knowledge ◊ Illusory correlation » Problems for next chapter Study Questions. • What are illusory correlations? 9/9/2021

Decisions • Limitations in reasoning » Limited domain knowledge ◊ Our cognitive representation of the situation (AKA mental model) often has incomplete information. – Thermostats do not work like water faucets – Hitting the elevator button 5 times is not faster than hitting it once – 20° C is not twice as warm as 10 °C – Quasi-magical behaviour

Decisions • Limitations in reasoning

Decisions ◊ National science foundation surveys

Decisions ◊ National science foundation surveys

Decisions ◊ National science foundation surveys

Decisions • Limitations in reasoning » Naïve Physics and Mental Models (Mc. Closkey et al. )

Decisions • Limitations in reasoning » Results (A & B)

Decisions • Limitations in reasoning » Results (C)

Decisions • Limitations in reasoning » Domain of knowledge ◊ Our domain of knowledge concerning physics is poor. – Impetus theory: a pre-Newtonian and incorrect concept concerning “curvature momentum” Linda is 31 years old, single outspoken, and very bright. She majored in philosophy. As a student she was deeply concerned with the issues of discrimination and social justice, and also participated in anti-globalization demonstrations. – Rank the following in terms of their likelihood of describing Linda is a teacher at a local elementary school Linda is a bank teller and is active in the feminist movement Linda is an insurance agent Linda is psychiatric social worker Linda is a bank teller

Decisions • Limitations in reasoning » Conjunction fallacy: Judging the probability of a conjunction to be greater than the probability of a constituent event. ◊ Chapman & Chapman studies Likelihood ratio Very Unlikely 6 5 4 3 Very Likely Statiscally Naive Intermediate Statistically Sophisticated

Decisions • Limitations in reasoning » Limitations in processing resources ◊ Waltz et al. – Tested temporal lobe injured, prefrontal lobe injured, and normals – Two tests Transitive Inference problems E. g. , John is taller than Sam; Sam is taller than Tim (2 propositions) – Raven Standard Progressive Matrices test

Decisions • Limitations in reasoning » Limitations in processing resources ◊ Waltz et al. Transitive inference Dashed = Controls Dotted = Temporal lobe Solid = Prefrontal lobe Raven’s Matrices

Problems for upcoming lecture • Complete the following Sequence: O, T, T, F, F, S, S, E, N, …. • A Buddhist Monk leaves for a retreat atop a nearby mountain. He leaves at 6: 00 AM and follows the only path that leads up the mountain. He travels quickly some of the way, he travels slowly, he stops for breaks. He arrives at the top of the mountain at 6: 00 PM. The next morning, at 6: 00 AM, he descends the mountain, again travelling at varying paces and with breaks. He arrives at 6: 00 PM Is there a point on the trail that the monk would have passed at exactly the same time of day on the way up and on the way down the trail? • Three hobbits and three orcs need to cross a river. There is only one boat, and it can only hold two creatures at a time. This presents a problem: Orcs are vicious and whenever there are more orcs than hobbits they immediately attack and eat the hobbits. Thus, you can never let orcs outnumber hobbits on either side of the river. Can you schedule a series of crossing that will get everyone safely across the river?

Problems for upcoming lecture • Connect these nine dots with four connected straight lines. • Three people play a card game. Each player has money in front of them (their ante). One each hand of this game, one player loses and the other two players win. The rules state that the loser must use the money in front of them to double the amount of money in front of each of the other two players. They stake their antes and play three hands. Each of them loses once and no one goes bust. The each finish with $8. 00. What were the original antes (Hint: it is not $2 each). • A landscaper has been instructed to plant four new trees such that each one is exactly the same distance away from each of the other trees. Is this possible?

Problems for upcoming lecture Two flagpoles are standing, each 20 meters tall. A 30 meter rope is strung from the top of one of the flagpoles to the top of the other and hangs freely between them. The lowest point of the rope is 5 meters above the ground. How far apart are the two flagpoles? 20 m 5 m ?

Problems for upcoming lecture • You wish to make a bracelet out of 4 chain pieces. It costs $1 to open a link, and $2 to close a link. Can you make a bracelet for under $10?