1. These slides are preview slides
These slides are preview slides. The slides that are used in lecture may be slightly different, e.g., they may contain revisions, corrections of errors or additional slides.
1st: Representativeness Heuristic and Conjunction Errors 2nd: Risk Attitude and Framing Effects
Psychology 355: Cognitive Psychology Instructor: John Miyamoto 05/30/2018: Lecture 10-3
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2. Outline The Representativeness Heuristic
Conjunction errors - one consequence of people's use of the representativeness heuristic.
Risk attitude
Framing effects - the Asian Disease Problem
Psych 355, Miyamoto, Spr '18
Definition of the Representativeness Heuristic

3. Representativeness Heuristic
Event A is more representative than Event B
Event A is more probable than Event B
"more representative"
means
"more similar to a stereotype of a class or to a typical member of a class."
Representativeness Heuristic: Judge the probability of an event E by the representativeness of the event E.
Psych 355, Miyamoto, Spr '18
Why Does the Representativeness Heuristic Cause Reasoning Errors?

4. Representativeness Heuristic (cont.)
Event A is more representative than Event B
Event A is more probable than Event B
Representativeness Heuristic: Judge the probability of an event E by the representativeness of the event E.
Why does this cause reasoning errors?
People make reasoning errors when they focus only on similarity, and overlook other factors that are also relevant to the probability of an event.
Example: Base rate neglect as demonstrated in the lawyer/engineer problem.
People focus on the similarity of the description of Jack to the stereotypes of a lawyer and of an engineer. They fail to take into account the base rate of lawyers and engineers (30/70 or 70/30).
Psych 355, Miyamoto, Spr '18
Conjunction Fallacies - The Linda Problem

5. Conjunction Fallacies – The Famous Linda Problem
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 anti-nuclear demonstrations.
F: Judge the probability that Linda is a feminist.
T: Judge the probability that Linda is a bank teller.
F & T: Judge the probability that Linda is a feminist and a bank teller.
Probability Theory: P(F) ≥ P(F & T), P(T) ≥ P(F & T)
Typical Judgment: P(F) > P(F & T) > P(T) This is the typical pattern of a conjunction fallacy.
Psych 355, Miyamoto, Spr '18
Why Are Conjunction Fallacies Psychologically Interesting?

6. Why Conjunction Fallacies Are Psychologically Interesting?
Conjunction fallacies strongly support the claim: Human reasoning with uncertainty violates principles of probability theory.
Conjunction fallacies also support the claim that people make conjunction errors because they use the representativeness heuristic to judge the probabilities of propositions, F, T and F&T.
(Need to provide evidence for these two claims in the following slides)
Two Question Regarding Conjunction Fallacies:
What is wrong with the judgment pattern: P(F) > P(F & T) > P(T)?
How does use of the representativeness heuristic cause people to make conjunction errors?
Psych 355, Miyamoto, Spr '18
Probability & the Set Inclusion Principle

7. Probability and the Set Inclusion Principle
Sample Space (set of all possibilities)
If set B is a subset of set A, then the probability of B must be equal or less than the probability of A.
B  A  P(B) < P(A)
Rationale: When B occurs, A also occurs, so the probability of B cannot exceed the probability of A.
Psych 355, Miyamoto, Spr '18
Interpretation of Linda Problem in terms of Set Inclusion

8. Conjunction Fallacy F F & T T
Sample Space F
F & T T
Linda Problem: 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 anti-nuclear demonstrations.
F: Judge the probability that Linda is a feminist.
T: Judge the probability that Linda is a bank teller.
F & T: Judge the probability that Linda is a feminist and a bank teller.
Probability Theory: P(F) ≥ P(F & T), P(T) ≥ P(F & T)
Typical Judgment: P(F) > P(F & T) > P(T)
Conjunction Fallacy
Psych 355, Miyamoto, Spr '18
Same Slide - No Annotation

9. Conjunction Fallacy F F & T T
Sample Space F
F & T T
Linda Problem: 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 anti-nuclear demonstrations.
F: Judge the probability that Linda is a feminist.
T: Judge the probability that Linda is a bank teller.
F & T: Judge the probability that Linda is a feminist and a bank teller.
Probability Theory: P(F) ≥ P(F & T), P(T) ≥ P(F & T)
Typical Judgment: P(F) > P(F & T) > P(T)
Psych 355, Miyamoto, Spr '18
Why Do People Make Conjunction Errors?

10. Why Do People Make Conjunction Errors?
Remember: The representativeness heuristic predicts that people judge the probability based on how similar the individual case is to a typical member (stereotype) of a group.
The description of Linda sounds more similar to someone who is a feminist and a bank teller, than to someone who is only a bank teller.
stronger similarity
Description of Linda
Bank Teller Prototype
Feminist Bank Teller Prototype
weaker similarity
Psych 355, Miyamoto, Spr '18
Criticisms of the Representativeness Explanation of Conjunction Fallacies

11. Criticisms of This Interpretation
Criticism: The Linda problem is just one problem. Reply: Same pattern is found with many similar problems.
Criticism: Maybe people think “bank teller” means someone who is a bank teller and not a feminist.
Criticism: Conjunction errors can be eliminated by stating the question in terms of frequencies instead of probabilities.
Psych 355, Miyamoto, Spr '18
Summary re Representativeness Heuristic

12. Summary re Representativeness Heuristic
There is nothing wrong with using similarity as a factor in judging a probability.
The problem is that attention to similarity causes people to ignore other factors, like base rates, regression effects and set inclusion, that are also relevant to judging probability.
Consequences of the Use of the Representativeness Heuristic
Base rate neglect - overlooking relevance of base rate to prediction of outcomes.
Conjunction errors - overlooking relevance of set relations to judgments of probabiltiy.
Overlooking the importance of sample size to reliability of statistics.
Overlooking regression effects in predictions of outcomes.
Psych 355, Miyamoto, Spr '18
Two Major Issues in the Psych of Decision Making - Probability & Value

13. Two Major Issues in Psychology of Decision Making
Judgments of likelihood
What outcomes are likely? Which are unlikely?
How likely? Slightly possible? Almost certain? Etc.
Judgments of preference & making choices
How strongly do you like or dislike different possible outcomes?
How risky are different choices? What risks are worth taking? When should you avoid a risk?
We’ve been talking briefly about this topic.
Next topic.
Psych 355, Miyamoto, Spr '18
Digression re Risk Attitude

14. Risk Attitude
Risk Aversion: A choice is risk averse if a person chooses a sure-thing X over a gamble G where X is less than the expected value of G.
Example of a Risk Averse Decision
Prefer a sure win of $500 over a gamble for $1,010 or $ (Note: Expected value of gamble = $505)
Risk Seeking: A choice is risk seeking if a person chooses a gamble G over a sure thing X where the expected value of G is less than X.
Example of a Risk Seeking Decision
Prefer a gamble for $1000 or $0 over a sure win of $ (Note: Expected value of gamble = +$500)
Psych 355, Miyamoto, Spr '18
Same Slide With All Content Displayed

15. Risk Attitude
Risk Aversion: A choice is risk averse if a person chooses a sure-thing X over a gamble G where X is less than the expected value of G.
Example of a Risk Averse Decision
Prefer a sure win of $500 over a gamble for $1,010 or $ (Note: Expected value of gamble = $505)
Risk Seeking: A choice is risk seeking if a person chooses a gamble G over a sure thing X where the expected value of G is less than X.
Example of a Risk Seeking Decision
Prefer a gamble for $1000 or $0 over a sure win of $ (Note: Expected value of gamble = +$500)
Psych 355, Miyamoto, Spr '18
Examples of Risk Aversion & Risk Seeking

16. Examples of Risk Aversion & Risk Seeking
Whenever you buy insurance, you are acting in a risk averse way.
The cost of car insurance is a sure loss that is a bigger loss than the expected value of the gamble of driving an uninsured car.
Whenever you gamble at a professional casino or in state lottery, you are acting in a risk seeking way.
The cost of the lottery ticket is greater than the expected value of the lottery ticket.
In a casino, all of the mechanical gambles (roulette or slot machine) have a negative expected gamble.
Psych 355, Miyamoto, Spr '18
Is It More Rational to be Risk Averse or Risk Seeking?

17. Is It More Rational to be Risk Averse or Risk Seeking?
There is no rational requirement to be risk averse. It is equally rational to be generally risk averse or generally risk seeking.
It is also rational to be risk seeking for some money quantities, e.g., small amounts of money, and risk averse for other money quantities, e.g., large amounts of money.
It is also rational to be risk averse in some domains, e.g., gambles for the health of your children, and risk seeking in other domains, e.g., gambles for business profit and loss.
Before the work of Kahneman & Tversky, many theorists thought that people were generally risk averse.
Next slide: Reflection effect shows that people are risk averse for some kinds of gambles, and risk seeking for other types of gambles.
Psych 355, Miyamoto, Spr '18
Reflection Effect Example

18. Reflection Effect – Example
Choice 1: Which would you prefer?
Option A: .80 chance to win $4,000; chance to win $0
Option B: chance to win $3,000.
Choice 2: Which would you prefer?
Option C: .80 chance to lose $4,000; chance to lose $0
Option D: 1.0 chance to lose $3,000.
People are typically risk averse for gains and risk seeking for losses. This pattern is called the reflection effect.
Typical preference  when gambling for gains
Example: Bettors at at horse track bet on long shots at the end of the day (many bettors are in a state of trying to recoup losses at the end of the day).
 Typical preference when gambling for losses
Psych 355, Miyamoto, Spr '18
Reflection Effect - Definition

19. Reflection Effect (not a framing effect)
Reflection Effect: People are generally risk averse for gains and risk seeking for losses.
(This statement is generally true, although there are exceptions to it.)
Example: Bettors at horse track bet on long shots at the end of the day (many are in a state of trying to recoup losses).
By itself, reflection effect is not a framing effect (to be defined next), but it plays a role in preferences that exhibit framing effects.
When the reflection effect is combined with changes in the framing of a choice (examples to be described next), it is possible to produce paradoxical patterns of preference that are called framing effects.
Psych 355, Miyamoto, Spr '18
Framing Effects

20. Framing Effects
Definition: A framing effect has occurred if people’s preferences change when:
the description of the choice problem is changed, and ...
the content of the choice problem is not changed
By “content” I mean the logical structure of the problem. If two problems are logically equivalent, they have the same content.
The content is the same if different versions of the problem have the same probabilities and the same outcomes – only the wording or "framing" of the problem changes.
Basic Principle of Rational Choice: The framing of a problem should not affect the decisions of a rational agent (preference should not change as a function of problem description).
When a framing effect is found, it is a violation of this principle of rational choice.
Psych 355, Miyamoto, Spr '18
Comment on Goldstein's Definition of Framing Effects

21. Comment on Goldstein's Definition of "Framing Effects"
Definition: A framing effect has occurred if people’s preferences change when:
the description of the choice problem is changed, and ...
the content of the choice problem is not changed
Goldstein (p. 384) defines a framing effect only in terms of condition (a); he omitted any mention of condition (b).
This omission is a mistake, i.e., my definition in terms of conditions (a) and (b) is better on theoretical grounds and it is closer to the usage of this term, "framing effect", in the literature of judgment and decision making.
Psych 355, Miyamoto, Spr '18
Reflection Effects and Framing Effects

22. Reflection Effects and Framing Effects
By itself, a reflection effect is not a framing effect, but ....
reflection effects can be part of what causes a framing effect.
How to create a framing effect:
Change the wording of the choices to emphasize gains or to emphasize losses.
Emphasize gains in the options Become more risk averse
Emphasize losses in the options Become more risk seeking
Psych 355, Miyamoto, Spr '18
Asian Disease Problem - Gain Frame

23. Asian Disease Problem: Gain Frame
Problem 1: Imagine that the US is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed.
If Program A is adopted, 200 people will be saved.
If Program B is adopted, there is 1/3 probability that 600 people will be saved, and /3 probability that no people will be saved.
Which of the two programs would you favor?
Psych 355, Miyamoto, Spr '18
Asian Disease Problem – Loss Frame

24. Asian Disease Problem: Loss Frame
Problem 2: Imagine that the US is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed.
If Program C is adopted 400 people will die.
If Program D is adopted there is 1/3 probability that nobody will die, and /3 probability that 600 people will die.
Which of the two programs would you favor?
Psych 355, Miyamoto, Spr '18
Results – Asian Disease Problem

25. Asian Disease Problem: Results
Problem 1 [N = 152]: (Gain Frame  Risk Averse Choice)
If Program A is adopted, 200 people will be saved. [72 %]
If Program B is adopted, there is 1/3 probability [28 %] that 600 people will be saved, and 2/3 probability that no people will be saved.
Problem 2 [N = 155]: (Loss Frame  Risk Seeking Choice)
If Program C is adopted 400 people will die. [22 %]
If Program D is adopted there is 1/3 probability [78 % ] that nobody will die, and 2/3 probability that people will die.
Psych 355, Miyamoto, Spr '18
The Asian Disease Problem Is an Example of a Framing Effect

26. The Asian Disease Problem Is an Example of a Framing Effect
A framing effects is a change in preference that is due only to the way that the options are described.
The logical structure of the choice remains the same in the different frames.
In the Asian disease problem:
The gain frame and loss frame versions of the problem are logically identical but ...
People have different preferences depending on whether the outcomes are described as potential gains or potential losses.
An emphasis on gains elicits risk averse behavior. An emphasis on losses elicits risk seeking behavior. (Remember: People tend to risk averse for gains and risk seeking for losses.)
This shows that the Asian Disease Problem is an example of a framing effect.
Psych 355, Miyamoto, Spr '18
Comment on the Name "Asian Disease Problem"

27. Comment on the Name: "The Asian Disease Problem"
Goldstein discusses the Asian Disease Problem, but the textbook does not refer to this problem by this name.
Goldstein discusses a health policy decision on p Experimental results are presented in Figure 13.7 (p. 385).
The "health policy decision" is actually the Asian Disease Problem, but the textbook does not refer to it that name.
The most common name for this problem in the cog psych literature is the "Asian Disease Problem."
Psych 355, Miyamoto, Spr '18
Why Are Preference Anomalies Important? - END

28. Why Are Preference Anomalies Important?
To make better decisions, we need to understand what influences our decisions.
Preference anomalies are situations where people's preferences systematically violate norms for rational decisions.
Preference anomalies are found in the decisions of policy makers, medical professionals, financial analysts, and other people with important decision making roles.
Cog psych experiments have demonstrated that decisions are influenced by:
..... emphasis on gains or emphasis on losses.
..... mental accounting – the way that the costs & payoffs are presented loss aversion – the inordinate pain of relinquishing a possession sunk costs – over-commitment to previous investments.
Not discussed in Psych 355; not on the final exam
Psych 355, Miyamoto, Spr '18
END

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Psych 355, Miyamoto, Spr ‘18