1. D ECISION M AKING http://blog.potterzot.com/wp-content/uploads/2007/09/decision-making.jpg

2. I MPORTANT ASPECTS OF DECISION MAKING

3. B ASIC CONCEPTS OF PROBABILITY Probability 0 (no probability) – 1 (definitely will happen) Most people overestimate

4. B ASIC CONCEPTS OF PROBABILITY Probability

5. P HASES OF DECISION MAKING Rationality

6. Heuristics Ex. “take the best” Biases (Cognitive Illusions) C OGNITIVE ILLUSIONS

7. Availability C OGNITIVE ILLUSIONS

8. Representativeness Conjunction fallacy Linda is a bank teller. Linda is a bank teller and is active in the feminist movement. C OGNITIVE ILLUSIONS

9. Representativeness Law of small numbers Gambler’s Fallacy “hot hand” “man who” arguments C OGNITIVE ILLUSIONS http://www.lincolnshirecoastalcasino.co.uk/_media/_images/roulette_wheel.jpg

10. Framing Effect C OGNITIVE ILLUSIONS

11. Anchoring C OGNITIVE ILLUSIONS 8x7x6x5x4x3x2x1 1x2x3x4x5x6x7x8

12. Sunk Cost Effects C OGNITIVE ILLUSIONS

13. Illusory Correlation Under stress Not under stress Hair-twister 2010 Not a hair- twister 8040 C OGNITIVE ILLUSIONS

14. Hindsight Bias C OGNITIVE ILLUSIONS

15. Confirmation Bias C OGNITIVE ILLUSIONS

16. Overconfidence Questionnaire examples What magazine had the largest circulation in 1978? A) TimeB) Reader’s Digest Who began the profession of nursing? A) NightingaleB) Barton C OGNITIVE ILLUSIONS

17. E XAMPLE OF A CALIBRATION CURVE. Overconfidence C OGNITIVE ILLUSIONS

18. T YPES OF D ECISION MODELS Normative models Prescriptive models Descriptive models

19. Expected Utility Theory Lottery A #1 = 10% of winning $10 # 2-4 = 10% of winning $5 # 5-10 = no money (.1 X $10) + (.3 X $5) + (.6 X $0) + $1.60 U TILITY MODELS

20. Expected Utility Theory Lottery A #1 = 10% of winning $10 # 2-4 = 10% of winning $5 # 5-10 = no money Lottery B #1 = 10% of winning $100 # 2-4 = 10% of winning $1 # 5-10 = no money (.1 X $10) + (.3 X $5) + (.6 X $0) + $1.60 (.1 X $100) + (.3 X $1) + (.6 X $0) + $10.30 U TILITY MODELS

21. D ESCRIPTIVE M ODELS Recognition-Primed Decision Making

22. W HAT ARE SOME WAYS TO AVOID POOR DECISIONS ? Be wary of over-confidence Intuition vs. equations/computers