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The Psychology of Judgment and Decision Making. CH1: Selective Perception.

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1 The Psychology of Judgment and Decision Making

2 CH1: Selective Perception

3 What is selective perception People selectively perceived what they expect and hope to see. Cognitive factors: prior belief expectations Motivational factors: hope desire emotional attachments

4 Calling a spade a spade Present people with five playing cards on a tachistoscope. One of the cards is actually a black three of hearts. (Bruner & Postman, 1949) Most reactions to incongruity: Dominance: three of hearts or spades Compromise: mixed Disruption: neither Recognition: something wrong Conclusion: expectation can strongly influence perception.

5 Potent Expectation Alcohol research: Believed Vodka+tonic -> higher heart rate Believed Tonic -> lower heart rate (Wilson & Abrams, 1977) Conclusion: heart rate were not significantly affected by whether subject had been given alcohol to drink; they were affected by whether subjects believed they had been given alcohol to drink. High sensation seekerLow sensation seeker Alcohol (belief)AggressiveCautious Non-alcohol (belief)Normal

6 Football team case Dartmouth and Princeton football team got conflict in a game. After watching the video, Dartmouth students see more infractions on Princeton team, while Princeton student see more infractions on Dartmouth team. The “game” actually was many different games. The “thing” different people see is different. (Hastorf & Cantril)

7 The hostile media effect Most people believe the media coverage of candidate who they support are biased. Similar biases in perception might arise in the context of mediation, arbitration, or other situations in which two sides are heavily committed to prior positions. Perceptions are selective. Decision makers should be careful of biases in perception.

8 CH2: Cognitive Dissonance

9 What is cognitive dissonance After selective perception, Leon Festinger (1957) proposed the theory of “cognitive dissonance.” People are usually motivated to reduce or avoid psychological inconsistencies.

10 Boredom can be fun in the experiment, subjects were asked to do boring tasks and to tell others the task was interesting. Some got 1$ and some got 20$. After the experiment, more subjects who got 20$ reported the task was boring than who got 1$. 1$ subjects suffered from cognitive dissonance, so they changed their options to avoid it. 20$ subjects got the payoff for telling a lie, no cognitive dissonance.

11 Self-perception theory Another way to account for what Festinger found Dissonance findings have to do with how people infer their beliefs from watching themselves behave. Two main premises: 1. people discover themselves by watching their behaviors. 2. internal cues are weak, ambiguous, or uninterpretable.

12 Predicisional dissonance People tends to behave more “liberated” (try to show they are not sexist) after noticing that they have sex-role stereotypes. (Sherman & Gorkin, 1980) Heavy users of electricity cut their consumption significantly when they were informed of their heavy use and reminded of an earlier conservation endorsement they had made. (Kantola et al., 1984) Customer “adaptation levels” and the need to avoid dissonance. (Doob, 1969)

13 Postdecisional dissonance After placing a bet on horse racing, the bettors tend to believe horses they support are more likely to win. Voting a candidate increase your confidence that the candidate will win the election.

14 conclusion Cognitive dissonance is applicable to many situations. (political campaigns, retailing) Both cognitive dissonance theory and self- perception theory can explain cognitive dissonance phenomena. Change in attitude->change in behavior But, change in behavior->change in attitude

15 Chapter 3: Memory and Hindsight Biases

16 Memory IS NOT – What exactly happened in the past, or authentic copies of past experiences IS – Something constructed at the time we are recalling – Something that people fill in missing details with logical inferences and associated memories

17 Interesting Example When people viewed accident film clips, their estimates of car speed varied based on how the question was worded (How fast were the cars going when they “hit” verses “smashed” each other?) People who were asked about the cars “smashing” each other also remembered seeing broken glass (but there was no broken glass) “ Smash ” =>

18 Hindsight Bias “Is the inclination to see events that have occurred as being more predictable than they were before they took place.” People are subject to hindsight bias (I knew it all along) How to avoid hindsight bias – Besides the real outcome, try to find all the other outcomes as well as the factors cause this outcome

19 Lesson learned Don’t fully believe everything we remember, and using memory cautiously when we are making decision and judgment Record important details for the future reference

20 Chapter 4: Context Dependence

21 Context Dependence Effects Four types of context dependence effects: 1.The Contrast Effect - Comparison of objects to other similar objects influences our perception 2.The Primacy Effect - First impressions affect our judgments more than later impressions 3.The Recency Effect - Our judgments can be more affected by things we heard or saw recently 4.The Halo Effect - Favorable impressions of one trait result in increased impressions of other traits

22 Example Contrast Effect : – Put your hand into water with different temperature – Height of sports announcer

23 Example Primacy effect – When people were given a list of characteristics of someone, the items early in the list affected their judgment of the person more than the items later in the list “He is Warmhearted, Kind, introverted, selfish …” This guy most likely will be marked as “Warmhearted”

24 Example Recency Effect : – When subjects were presented at court, their judgments reflected a recency effect when there was a delay between hearing the two sides of the case Choose a better time slot to present idea TimeSlot1Primacy effectTimeSlot2DelayResponse TimeSlot1Recency effect TimeSlot2 DelayResponse

25 Example Halo effect: – Flight commanders showed a correlation between ratings of subordinates’ intelligence and physique

26 Lesson learned Our judgments and decisions are not context-free Take advantage of context effect (such as how to select good time to present idea)

27 Plasticity Chapter 5 and Chapter 6

28 Guideline Plasticity Pseudo Opinion Inconsistency

29 Plasticity Response Context Wording Order

30 wording A. A 100% chance of losing $50 B. A 25% chance of losing $200, 75% chance of losing nothing. $50 to buy an insurance ?

31 Pseudo Opinion opinion on a topic about which people actually have no real opinions. Sometime it matters!

32 Inconsistency Attitude-attitude inconsistency – Discrepancy between two related attitudes attitude behaviour inconsistency – Discrepancy between attitude and corresponding behaviour

33 Conclusion Attitudes, opinions and choices are very plastic. Measuring an attitude, opinion or preference is not simple. It is worth paying attention to the structure and context of questions.

34 The effects of question wording and framing

35 Guideline Examples of different way to ask questions. Framing Conclusion

36 Middle category Keep SlowerFaster SlowerFaster

37 Open vs closed question Structured and closed response alternatives are never perfectly neutral.

38 Social desirability People tend to answer in the way that is more socially desirable.

39 'Allow' vs 'Forbid' Do you think US should allow anti-democratic speech? 62% said No Do you think US should forbid anti-democratic speech? 46% said Yes

40 Framing A decision frame is the decision maker's conception of the acts, outcomes and contingencies associated with a particular choice.

41 Conclusion Question wording and framing often make a substantial difference in answers. Thus it pays to be aware of the effects. Safest way is to elicit answers in different ways, and then compare the results.

42 Question Which is true about framing ? A. A frame is the decision maker's conception of styles and alternatives associated with a choice B. Both choices and outcomes can be framed C. In most cases, frames are dominated by norms and habits of the decision maker. D. All of above

43 Section 3: Models of Decision Making Chapter 7 Expected Utility Theory

44 St. Petersburg Paradox An unbiased coin appears first tail atOddsMoney earned 1 st toss1/2$2 2 nd toss1/4$4 3 rd toss1/8$8 … Expected Value ( ) = : How much would you pay to play the game? Nicolas Bernoulli

45 Marginal Utility Classic Utility Theory Expected Utility Theory

46 Principles of Rational Decision Making – Ordering of alternatives: Prefer one alternative or indifference – Dominance: Comparison of different attributes Weak vs. Strong – Cancellation: Common factors contribute nothing – Transitivity : If (A > B) & (B > C), then (A > C) – Continuity: Given L ≤ M ≤ H, ∃ p: M ≤ pL + (1-p)H – Invariance: Toss one coin twice is the same as toss two coins once Extensions ( Expected Utility Theory is a family of theories ) – Subjective expected utility theory: For unprecedented evens – Stochastic models of choice: For random evens

47 Chapter 8 Paradoxes in rationality

48 The Allais Paradox A1 = Certainty of $1 Million 1/100 Chance of $0 A2 = 89/100 Chance of $1 Million 10/100 Chance of $5 Million 90/100 Chance of $0 B2 = 10/100 Chance of $5 Million 89/100 Chance of $0 B1 = 11/100 Chance of $1 Million 10891 10891 $1M $5M$1M$0M 10891 10891 $1M$0M$1M $5M$0M

49 Ellsberg’s Paradox Let’s draw balls again! Betting Alternatives 30 Balls60 Balls RedBlackBlue A1: a red ball$100$0 A2: a black ball$0$100$0 Betting Alternatives 30 Balls60 Balls RedBlackBlue B1: a red ball$100$0$100 B2: a black or blue ball$0$100

50 Intransitivity If (A > B) & (B > C), then (A > C) What if: GambleProbability of a WinPayoff, $EV, $ A7/245.001.46 B8/244.751.58 C9/244.501.69 D10/244.251.77 E11/244.001.83 Case 1: Case 2: DIMENSIONS Intelligence (IQ)Experience, Years APPLICANTS A1201 B1102 C1003 *Decision Rule* If the difference in IQ between any two applicants is greater than 10 points, choose the more intelligent one. If the difference between applicants is equal to or less than 10 points, choose the one with more experience.

51 Preference Reversals Lottery A: – 9/10 chance of winning $100 and 1/10 chance of losing $10 Lottery B: – 1/10 chance of winning $1000 and 9/10 chance of losing $100 Findings from several studies: When people are asked to choose between the two bets, they pay particular attention to the probability of winning, but when they are asked to set a price of how valuable the bet is, they look as how large the potential payoffs are.

52 You might ask… Are violations of expected utility theory truly irrational? (Almost) certainly…no. – Why? Because we have no information about the cost of people’s errors compared with the cost of following the principles.

53 Chapter 9. Descriptive Models of Decision Making

54 Are we economically RATIONAL? People “satisfice” rather than “optimize” when they make decisions. Price Locati- on Space Safety

55 Prospect theory Daniel Kahneman Amos Tversky UtilityValue

56 Example $1,000 $2,000 Alt. AA 50% chance of gaining $1,000 Alt. BA sure gain of $500 Alt. CA 50% chance of losing $1,000 Alt. DA sure loss of $500 84 percent (70 respondents) 70 percent (68 respondents)

57 Extending…. Certainty Effect Prospect Theory Pseudo- certainty Effect Regret Theory Regret Refers to the tendency to give greater weight to certain outcomes than to uncertain outcomes. Refers to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. People compare the quality of their decision in terms of ‘ ’ and ‘ ’.

58 Example of Pseudocertainty Effect Probabilistic protection A vaccine that protected half the recipients from a disease that was expected to afflict 20 percent of the population Pseudo- certainty A vaccine that complete protection against one of two mutually exclusive and equally probable strains of the disease, each of which was expected to afflict 10 percent of the population. 40 % 57 %

59 Lessons learned There are biases and interpretive strategies that shape people’s choices in the face of uncertain outcomes. Prospect theory helps to interpret experimental results that demonstrate individuals often make divergent choices in situations that are basically identical but framed in different ways.

60 Section 4: Heuristics and Biases

61 Chapter 10,11,12,13

62 Heuristics and Biases Complicated decisions -> rules of thumb Some biases & inconsistencies -> predictable

63 Representativeness Heuristic Number of bank tellers > Number of feminist bank tellers

64 Nonregression Prediction Student PercentileAchievement TestGPA Top 10%> 750> 3.7 Top 20%> 700> 3.5 Top 30%> 650> 3.2 Top 40%> 600> 2.9 Top 50%> 500> 2.5

65 Conclusion Don’t be mislead by highly detailed scenarios Pay attention to base rates Chance is not self-correcting Watch for regression toward the mean

66 Availability Heuristic Availability can lead to bias

67 Power of Vividness ConditionRecommended CourseNon-Recommended Courses Face-to-face4.730.50 No evaluation (control)3.331.39 Base rate4.110.94 The Legal Significance of Guacamole On his way out the door, Sanders [the defendant] staggered against a table, knocking a bowl on the floor. On his way out the door, Sanders [the defendant] staggered against a table, knocking a bowl of guacamole dip to the floor and splattering guacamole on the white shag carpet. The Power of Vivid Testimonials

68 Confusion of the Inverse Car is in door:You choose:Host opens:You switch to:Result: 112 or 3 Lose 1231Win 1321 2132 221 or 3 Lose 2312Win 3123 3213 331 or 2 Lose Switching doors is a better strategy! Right Monty?

69 Compound Events People prefer compound bets over simple bets

70 It’ll Never Happen to Me Students rate themselves against their peers: 42% more likely for a better salary 58% less likely for drinking problem

71 Pro vs. Anti Subjects “Several serious human and technological breakdowns have taken place without leading to nuclear war. Do such breakdowns give you greater confidence that inadvertent nuclear war will occur, less confidence, or neither?”

72 Recommendations Watch for availability, vividness, inverses Beware of wishful thinking Break compound events into simple events

73 Anchoring Listing Price, $Reasonable Purchase Price, $ 120,000111,000 130,000123,000 140,000125,000 150,000127,000

74 Chapter 14,15,16

75 Coincidence Cases – George D. Bryson : You’ve got mail – Intel and infringement – German Mother: WW II Is it an Act of God????

76 Perhaps or Perhaps Not….. What can be empirically investigated, are the answers to two questions 1.Do people tend to see meaningful patterns in random arrangements of stimuli? 2.Can people behave randomly?

77 Luck and Superstition 40% of Americans believer that some numbers are especially lucky for some people Claims to be lucky in future - Superstition Experiment by Harold Hake and Ray Hyman (1953) People perceive an ambiguous series of events as being more structured that it already is

78 Randomness William Wagenaar’s study on people seeing patterns in randomness People have difficulty generating random sequences Learning to act randomly

79 Lesson Learned Practical implications of research on perceived randomness - Tendency to over interpret chance events Easy to see patterns in random outcomes Decision makers should resist viewing the short runs of same outcome as meaningful

80 Co-variation Assessment Assessment of whether two variables are correlated Does God answer prayers? Event Happened Event Did not Happen Pray Didn’t Pray

81 Illusory and Invisible Correlation Illusory - The mistaken impression that two unrelated variables are correlated Draw-A-Person Example Invisible - Failing to see correlation between two variables, due to absence of expectation

82 Causalation Misinterpreting correlation as causation Causalation – Belief that causation implies correlation “Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing look over there”

83 Lesson Learned Correlation assessments are simply generalizations based on previously established relationships Decision maker must weigh new and conflicting factors in information to arrive at a fresh assessment. Focus more, What did not take place is equally significant as what did Distinguish between correlation and causation

84 Attribution Theory A psychological theory about how people make "causal attributions" or explanations for the causes of actions and outcomes.

85 Expressing behavior Person Entity/Stimulus Circumstance Consensus, Distinctiveness, Consistency

86 Predictions from Attribution Theory Predicted Attribution PATTERN OF INFORMATION ConsensusDistinctivenessConsistency PersonLow High Stimulus (Entity)High CircumstanceLowHighLow Adapted from an article by Bruce Orvis, John Cunningham, and Harold Kelly (1975)

87 Salience Information that is salient, available, or vivid tends to have more impact than information which is not.

88 Attribution Biases People disregarding consensus information – following dispositional factors Self Serving Bias – People are more likely to accept responsibility for successes than for failures Egocentric Biases – People accept more responsibility for joint outcomes than other contributors attribute to them Positivity Effect – Tendency to attribute positive behaviors to dispositional factors and negative behavior to situational factors

89 Fundamental Attribution Error Over readiness to explain behavior in terms of dispositional factors ↓ Most salient feature during a social setting is actor’s behavior and not the situation Actors attribute their actions to situational requirements

90 Lessons Learned Avoid Attributional Bias Ask how you would have behaved if in the same circumstance Look for hidden causes

91 Section V – Social Side of Judgement and Decision Making Ch 17: Social Influences Ch 18: Group Judgements and Decisions

92 Chapter 17: Social Influences Social factors play pivotal role in judgment and decision making Phillip Tedlock (1985b)

93 Social Facilitation Simple, well-learned tasks are enhanced by on- lookers Complex, unmastered tasks are impaired – Robert Zajonc (1965) Example-College Pool Hall – Michaels, Blombel, Brocato, Linkous & Rowe (1982)

94 Social Loafing People don’t work as hard in groups as they do alone – Walther Moede (1927) Example-Noise from clapping and shouting – Latane, Williams and Harkins (1979)

95 Bystander Intervention Bystanders witnessing a problem are less likely to act when other bystanders are around. Example- Reporting Smoke pouring from vents – Latane and Darley (1969, 1970)

96 Social Comparison Theory People… …will evaluate their opinions and abilities …compare themselves to others when objective information is unavailable …prefer comparisons with others who are close to them in opinions and abilities Festinger (1954) Example-Lost Wallet Hornstein, Fisch, Holmes (1968)

97 Social Conformity Many people will conform to objectively wrong belief if enough people around agree Example- Size of Lines Asch (1951) Lone dissenters can cut conformity to ¼ of previous levels

98 Minority Influence A consistent minority group members can influence the majority Example- Blue/Green Study Moscovici, Lage, & Naffrechoux (1969)

99 Group Think “a deterioration of mental efficiency, reality testing and moral judgment that results from in-group pressures” Janis (1982) 8 Symptoms of GroupThink: Illusion of invulnerability Rationalize or discount warnings Unquestioned group morality Stereotypes of adversaries Pressure on dissenters Illusion of unanimity Self-censor deviations from group consensus “Mindguards” protect from new information

100 Chapter 18 Group Judgments and Decisions

101 Chapter Outline Group Errors and Biases Group Polarization Horse Sense Are Several Heads Better Than One? The Benefits of Dictatorship

102 Group Errors and Biases Stupid Human Tricks Group Attribution Error – Dispositional Attributions Group Serving Bias – Situational Attributions Outgroup Homogeneity Bias

103 Group Polarization Choice Shift Wisdom of Crowds - Riots

104 Horse Sense A man bought a horse for $60 and sold it for $70. Then he bought it back for $80 and sold it for $90. How much did the man make? Individuals – 45% correct Inactive leader – 72% Permissive leader – 84% (Voice) 63 of 67 groups contained 1 individual with the correct answer

105 Are Several Heads Better Than One? Quantities and Magnitude – Groups Win (23-32% more accurate) Brain teasers and individuals – Best individual outperforms group General Knowledge Questions – Best individual outperforms group Wisdom of Crowds – Uncertain Situations Hill Brainstorming as Individuals

106 The Benefits of Dictatorship Consensus, Dialectic, Dictator, and Delphi Outperform Collective Decisions The Dictator technique reduced absolute percent error by three times more than that of any other technique Wisdom of Crowds – This is an uncertain decision


108 Stuart Oskamp (1965)

109 Lichtenstein & Fischhoff (1977) Confidence Level

110 Money Incentive Task Importance Expertise Can overconfidence be overcome? Life

111 Stop & Think

112 Chapter 20 Self-Fulfilling Prophecies “The self-fulfilling prophecy is, in the beginning, a false definition of the situation evoking a new behavior which makes the originally false conception come true.” Robert Merton, 1948

113 #1 - Card Experiment (Wason & Johnson-Laird, 1972): Vowel on one side  Even Number on Opposing Side EK 47 #2 - Guess Again (Wason 1960): Prove 2, 4, 6 rather than disconfirm 6, 4, 2

114 #3 – Self-Perpetuating Social Beliefs (Snyder & Cantor, 1979): “…spoke freely with strangers while jogging…” “…shy and timid at the supermarket…” Will Jane be more suitable for a job in real estate sales or a job at the library?

115 #4 – The Pygmalion Effect (Rosenthal & Jacobson, 1968): The results of this study have contributed to 400 or more similar experiments, 100 of which analyzed the Pygmalion Effect in a learning environment.


117 #5 - In The Minds of Men – (Snyder, Tanke & Berscheid, 1977): Study Men and women instructed to call participants of the opposite sex. Pictures were taken of each participant, however, these pictures were not actually given to their phone partner.

118 Experiment

119 #6 - Self-Fulfilling Racial Stereotypes (Word, Zanna & Cooper, 1974): ***People reveal attitudes through nonverbal behavior. Purpose: Is there a difference in the way that white interviewers treat white and black interviewees? Measures Interview Length Errors Committed Chair Distance

120 Results White interviewers… – …spent 35% more time with white interviewees – …committed 50% more speech errors – …and…

121 Follow-up Study White interviewers were then tasked with interviewing 50% of interviewees as if they were black, and 50% as if they were white. Interviewees treated as if they were black felt… – poorly about their interviews – had an increased rate of speech errors – thought that the interviewer was less friendly A legitimate self-fulfilling prophecy!

122 Conclusions People have the tendency to seek confirming evidence. Confirmation biases are difficult to eliminate. – (Subjects received directions to confirm, disconfirm, or test a phenomenon. 70% still attempted to confirm it.) We can change this behavior by introducing new motivating factors. Frame questions in a way that encourages disconfirming answers.

123 Behavioral Traps Chapter 21

124 Time Delay Traps

125 Ignorance Traps Hard to avoid, because you don’t know the consequences at the beginning

126 Investment Traps What if you got the tickets for free?

127 Deterioration Traps Initial benefits turn into costs – Drug addiction – Pesticide

128 Collective Traps Pursuit of individual self-interest results in worse outcomes for all involved Two types – Tragedy of the commons – Prisoner’s Dilemma

129 Tragedy of the Commons

130 Prisoner’s Dilemma

131 Escaping the Traps Take a step back and try to take an objective look at the situation Ignore the effects of sunk costs

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