Report on “The Psychology of Judgment

and Decision Making”

MIS 696a

November 6, 2002

Order of Business

•Introduction

•Section I: Perception, Memory, and Context

•Section II: How Questions Affect Answers

•Section III: Models and Decision Making

•Section IV: Heuristics and Biases

•Section V: The Social Side of Judgment and Decision Making

•Section VI: Common Traps

•Conclusion

Introduction

Whether we work individually, or in groups...

Whether we are considering:

Perception, Memory, Context,

The Phrasing of Questions,

or The Making of Decisions...

We use Heuristics, have our Biases,

are subject to Social and Group Influences,

and can fall prey to many, many Traps and Pitfalls.......

“There is no such thing as context-free decision making, All judgments and decisions rest on the way we interpret the world......” Scott Plous

Section I:

Perception, Memory, and Context

“We do not first see, then define, we define first and then see.”

Walter Lippmann

We all Experience Selective Perception at Some Time

We Generally See what we Expect to See• Perceptual Denial Dominant Reaction

• Compromise Part Right, Part Not

• Disruption Rare, Little or No Perception

• Recognition Incongruity may be misinterpreted

We Generally Experience what we Expect to Experience• If told we are drinking, many of us will act like it!

And Selective Perception can be Significant Research Trap

When conducting research, if we expect to see, or are motivated to see specific results, we are very likely to see those results!• You should understand your motivations and

expectations going into a research project, and control for their possible influence on your interpretation of results.• Assume you are biased, at least a bit.

• Ask yourself how you would have interpreted the data if you didn’t have the motivations and expectations.

• Consult with peers who don’t share your motivations and expectations.

We Also can Suffer From Cognitive Dissonance

When do people experience “Cognitive Dissonance”?

- when they simultaneously hold 2 thoughts that are psychologically inconsistent …

Cognitive Dissonance Theory

Proposed by Leon Festinger (1950)

A “Motivational Theory”

People try to justify the inconsistency between 2 conflicting thoughts … Natural Motivation

Self-Perception Theory Daryl Bem (mid ’60s)

Explains how people infer the causes of their behavior

Based on 2 main premises: People discover their attitudes, emotions & other internal

states by watching themselves behave in various situations

To the extent that internal cues are weak, ambiguous, or uninterpretable, people are in much the same position as an outside observer when making these inferences.

Predecisional & Postdecisional Dissonance

Predecisional - Dissonance (or the prospect of dissonance) influences the decisions people make

• Become more “liberated” after “been there - done that”

Postdecisional - Dissonance (or the prospect of dissonance) follows a choice that has been already made

• Once you “commit” the decisions become more “correct”

If you want someone to form more positive attitudes toward an object, get him/her to commit himself to own that object

If you want someone to soften his/her moral attitude toward some misdeed, tempt him/her so that he/she performs that deed; conversely, if you want someone to harden his moral attitudes toward a misdeed, tempt him/her – but not enough to induce him/her to commit the deed

Aronson suggests …

What do we learn?

Changes in behavior can also lead to changes in attitude !!

Cognitive Dissonance can be helpful in managing resources – people Getting them to commit to the work will result in increased dedication & effort

Memory

Memories are not fixed in storage, but re-constructed at the time of remembrance

Memories are inter-linked – its difficult to remember every detail separately, but easy to remember a general scenario

Hindsight

Hindsight Bias

“I-knew-it-all-along” effect

Tendency to view what has already happened as relatively inevitable and obvious – without realizing that retrospective knowledge of the outcome is influencing one’s judgment

Reducing Hindsight Bias

Explicitly consider how past events might have turned out differently

If one only considers the reasons why something turned out as it did, he/she runs a good risk of overestimating how inevitable that outcome was and how likely similar outcomes are in the future

What do we learn?

It is very crucial to ask relevant and exhaustive questions, considering different alternatives, to reduce “Hindsight Bias” in research work

It is equally necessary to maintain careful notes and records of past events (meetings, important conversations, etc.), in order to avoid biases in memory

Context Dependence

Memory, by its very nature, highly dependent upon contextual factors

Decision makers interpret new information in light of past experience and the context in which the material occurs

The Contrast Effect

Contrast Effect only occurs when the contrasted stimuli are similar to one another

e.g. a 5’10” sports announcer looks very short when interviewing a team of basketball players, but looks very tall when interviewing race horse jockeys

The Primacy & Recency Effects General Relationship between the position an entry

occupies and the effect it has on judgments

First Impression counts• Assumption: First piece of information is more

important

If there is a time lag between the first piece of information and the last, last one leaves a lasting impression• Short-term memory overrides the long-term memory

Halo Effects

We all have a number of general assumptions about what personality traits go together.

The likelihood is that we like to see positive characteristics going along with other positive ones and vice versa

Particularly powerful when we know relatively little about the person.

What do we learn?

Any comprehensive analysis of judgment & decision making must take context effects into account

Keep an objective outlook towards your research – well grounded methodologies will help

Understand people’s subjectivity while conducting experiments

Don’t be a victim of Halo effects or do not try bank on the same as well…they are temporary

Section 2: How Questions Affect Answers

Effect of question framing and wording Factors that affect an answers Inconsistencies about attitude Implications for research

Factors affecting answers

Order of questions Context in which question appeared Question format, open or closed Presence of filters Presence of catch phrases

Factors affecting answers

Range of response alternatives Order of response alternatives Presence of middle categories Framing in terms of gains or losses

Attitude Inconsistency

Attitude-Attitude inconsistency• Abstract attitude unrelated to specific cases

Attitude-Behavior inconsistency• Attitude not usually related to behavior

Implications for research

Aware of factors that effect results Compare results from multiple

procedures Measure behavior than attitude

Section III: Models and Decision Making

Expected Utility TheoryDescribes How People Would

Behave if they Thought Rationally

Jon Von Neumann, Oskar Morgenstern (1947)

The Rational Decision Making Model

Rational D Model

Ordering AlternativesDominanceCancellationTransitivityContinuityInvariance

Reality

Actual EventsActual Events

Compare

Feedback - Modify

It’s Wrong

What’s Wrong With The Rational Decision Making Model

?

Paradoxes in Decision Making

Allais ParadoxAlternative A: $1 Million For Sure

Alternative B: 10% - $2.5 Million | 89% - $1 Million | 1% - $0

Alternative A: 11% - $1 Million | 89% - $0

Alternative B: 10% - $2.5 Million | 90% - $0

1

2

RDM Predicts: 1- A then 2-A

Reality: 1-A, 2- B

Violates the RDM Cancellation Principle

Prospect Theory

Losses Gains

Value

-$500

+$500

Prospect Theory

Value Function

Adapted from Kahneman and Tversky

Descriptive Models

Satisficing

Certainty Effect

Pseudocertainty

Regret Theory

Multi Attribute Choice

Non-Compensatory

Strategies The More Important

Dimension

Descriptive Decision Making Models

Lessons Learned

Lesson Learned

Section IV: HEURISTIC AND BIASES

How do people come to their decisions?

Normative theories

Heuristic

Answer

Decision Making

Representativeness Heuristic

Advantage:• It reduces time and effort required for decision

making.

Disadvantage:• It might lead to systematic biases.

Conjunction fallacy

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 antinuclear demonstrations. Please check off the most likely alternative.

Linda is a bank teller.

Linda is a bank teller and is active in the feminist movement.

Conjunction fallacy

“Specific scenarios appear more likely than general ones because they are more representative of how we imagine particular events.”

Banktellers

Feminists

Feminist bank tellers

Gambler’s fallacy

The belief that a successful outcome is due after a run of bad luck

Hot hand

A player has a better successful chance after having successful shots than after having missed a shot

Neglecting base rates

A reliance on representativeness leads people to ignore “base rate” information

Nonregressive prediction

Extreme performances tend to be followed by more average performances

“Sports Illustrated Jinx”

Availability Heuristic

Most people estimate the frequency of an event by how easy it is to bring instances of the event to mind

Imaginative prediction

#8 in Reader Survey about causes of death

• diabetes or homicide

• tornado or lightning

• car accident or stomach cancer

Imaginative prediction

Overestimate-easy to visualize

-vividness

Underestimate-hard to imagine

-horrifying imagine

Conclusion

Don’t be misled by highly detailed scenarios Whenever possible, pay attention to base rates Remember that chance is not self-correcting Don’t misinterpret regression toward the mean Beware of wishful thinking

Chapter 12: Probability and Risk

Confusion of inverseExample: Were the chances of cancer given a

positive test result roughly equals to the chances of a positive test result given cancer? No.

How to avoid• Bayes theorem

• Prior probability

Probability

Positive outcomes vs. negative outcomes Compound events

• Conjunctive: A and B

• Disjunctive: A or B

• The tendency: overestimate vs. underestimate

ConservatismSlowness to revise prior probability estimates

Risk

Highly subjective• “voluntary” risk: from smoking, skiing

• “involuntary” risk: from electric power generation

Biased in the direction of preexisting views• Technology supporters vs. opponents

Implications for MIS

Avoid negative biases• Maintain accurate records

• minimize primacy and recency effects, availability biases

• Beware of wishful thinking

• Break compound events into simple events• System design

Chapter 13: Anchoring and Adjustment

What?• Insufficient adjustment up or down from an

original starting value, or “anchor”

Effects of arbitrary anchors• Estimates on the performance at problem-

solving task

• Stake out extreme initial position

Anchoring

Examples:How thick would a piece of paper be if it were folded in on itself 100 times, given an initial sheet of paper 0.1 millimeter thick?

• Most people give estimates less than a few yard.

• The correct answer is 1.27×1023 kilometers

Reason: adjust upward insufficiently

Implications for MIS

Anchor values in our research• Previous results that are unusually high or low

How to avoid• Generate an alternative anchor value in the

opposite direction

• Consider multiple anchors

Section V

The Social Side of Judgment And Decision Making

By Jason J. Li

Chapter 17: Social Influences

People are social by nature, so their judgments and decisions are subject to social influences.

How are personal decision makings affected by social factors?

What shall we learn?

Social Facilitation

The presence of onlookers tends to• enhance the performance of simple responses.

• but impair the performance of complex skills.

Hey! Watch this. It’s only a piece of cake!

Please leave me alone! I can’t focus!* Choose an appropriate

environment according to the complexity of task.

Social Loafing

People do not work as hard in groups as they work alone. Diffusion of responsibility can have a powerful influence

on judgment and decision making.

Don’t look at me!

Someone else will do it. It’s none of my business!

I don’t have to work as hard as before.

* Clarify everyone’s responsibility in a research group.

Social comparison theory

People have a need to evaluate their ability levels and the appropriateness of their opinions.

• In the absence of objective nonsocial standards, people compare themselves with others, especially with those who are similar to them.

* Benchmark with others’ research work.

* Difference: Metrics are necessary!

How do people think in groups?

People tend to succumb the pressure of conformity. When groups are cohesive and relatively insulated

from the influence of outsiders, group loyalty and pressures to conform can lead to “Groupthink”.

* Keep our brain clear and rational!

* Resist the tend of Conformity & Groupthink.

Chapter 18: Group Judgments And Decisions

Will a group make better judgments and decisions than an individual would?

Do groups operate wit the same heuristics and biases as individuals?

How to exert the potential of a group?

Group Errors & Biases

Many individual-level heuristics and biases appear to operate with equal force in groups.

Group discussion often amplifies preexisting tendencies.

* Be careful of the individual-level biases in group judgment and decision making.

Are N heads better than 1? Groups usually perform somewhat better than

average individuals; the best member of a group outperforms the group.

Average(Xi) < ΣXi < Max(Xi)

* Communication + Cooperation + Collaboration

* Encourages all group members to express an opinion.

* Use “Dictator Technique” in group research.

The Perception of Randomness

Recognize the difference between the probability of a particular event occurring in a particular situation, and the probability of some similar event occurring in some similar situationBe careful not to see patterns where they do not exist. Seeing a ‘hot hand’ may get you in ‘hot water’.

Correlation, Causation, and Control

“People often have difficulty assessing the covariation between two events, and they tend to rely heavily on positive occurrences of both events.” p. 163

Both and

are dangerous

Illusory CorrelationsInvisible Correlations

Avoid ‘Causalation’

“Just as correlation need not imply a causal connection, causation

need not imply a strong correlation”

=

CCC Guidelines

Focus not only on positive, confirming cases, but also on cases lacking these characteristics

Is the perceived relationship based on observations or expectations?

Carefully distinguish between correlation and causation. Remember correlation does not always mean causation

Attribution Theory

Attribution is based on three sources of information:• Consensus: Do others behave similarly?

• Distinctiveness: Does the situation make a difference?

• Consistency: Does the same thing happen every time?

The Fundamental Attribution Error

John Joe

Joe has trouble reading

directionsThis is a really complex gizmo

JoeJohn

John couldn’t put together a

sandwich

There must be parts missing…

Other Attribution Errors

Self-Serving Bias

Egocentric Bias• Co-authoring!

Positivity Bias

I invented the Internet!!!

I contributed much more than my colleagues

I couldn’t have done it alone…well, maybe…

Could the economy be any worse?

Avoiding Attribution Pitfalls

Don’t ignore consensus informationAsk “How would I have behaved?”Be sure to look for hidden causes,

not just the most salient ones

Section VI: Common Traps

Common problems that beset decision makers

Examples of Overconfidence

Chernobyl Nuclear Disaster (April 25th -26th, 1986 Ukraine)

Challenger Accident (January 28th , 1986 )

Attack on Pearl Harbor (Dec. 7th, 1941 Oahu Hawaii)

No problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence

P[ meltdown of the reactor ] <=1/10,000

P[ catastrophic launch failure ] <=1/100,000

Confidence & Accuracy Confidence increased with the amount of information subjects

read, but accuracy did not

0

10

20

30

40

50

60

1 2 3 4

Amount of case study read by subj ects

Perc

enta

ge o

f qu

esti

ons

corr

ect

True accuracyEsti mated accuracy

Overconfidence in research

Overconfidence in literature review

What you have read is far from enough

Overconfidence in doctoral dissertation management

Just Do It !

Confirmation Bias

E

4 7

K

“If a card has a vowel on one side, then it has an even number on the other side”

Which of the cards would you need to turn over in order to decide whether the person is lying?

If a card has a odd number on one side, then it has a consonant on the other side

Def: Confirmation bias refers to a preference for information that is consistent with a rule rather than information which opposes it

Confirmation Bias in research

Hypothesis Testing

Positive test strategy VS. Negative test strategy

Confirmation Bias Better Result

Behavioral traps

Time delay traps Ignorance traps Investment traps Deterioration traps Collective traps

(Gross and Guyer, 1980)

Examples of behavioral traps Time delay traps: Euphoria of drinking vs. Next

day’s hangover

Ignorance traps: Smoking vs. Lung Cancer

Investment traps: “Sunk cost effect”

Deterioration traps: Heroin addiction

Collective traps: Rush-hour traffic

Behavioral traps in research

Behavioral traps almost happen everyday

Traps are not always bad: intentionally trapping ourselves in an active and healthy research life

Conclusion

There is no silver bullet to solve the fundamental problem: We are all human and rely on an extremely

complex tool, our mind, which has evolved over millions of years to perform many functions in such a

fashion that it facilitates individual and group survival, which does not necessarily equate to

scientific consistency and/or accuracy!

Lets face it, we are all human!

Conclusion

There is one conciliation, the inherent biases our brain uses to rapidly form opinions and judgments can be held in check by actively examining them, by asking

what-if questions, by questioning our work and seeking other explanations.

We must shoulder the burden of having to hold our biases in check at all times. We can never tire of that burden, for when we cease to shoulder it then we are no longer scientists.

Conclusion

Generally Unbiased Q & A