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The Wiley Blackwell Handbook of Judgment and Decision Making

The Wiley Blackwell Handbook of Judgment and

Decision MakingVolume I

Edited by

Gideon Keren and George Wu

This edition first published 2015copy 2015 John Wiley amp Sons Ltd

Registered OfficeJohn Wiley amp Sons Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ UK

Editorial Offices350 Main Street Malden MA 02148‐5020 USA9600 Garsington Road Oxford OX4 2DQ UKThe Atrium Southern Gate Chichester West Sussex PO19 8SQ UK

For details of our global editorial offices for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at wwwwileycomwiley‐blackwell

The right of Gideon Keren and George Wu to be identified as the authors of the editorial material in this work has been asserted in accordance with the UK Copyright Designs and Patents Act 1988

All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise except as permitted by the UK Copyright Designs and Patents Act 1988 without the prior permission of the publisher

Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names service marks trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book

Limit of LiabilityDisclaimer of Warranty While the publisher and authors have used their best efforts in preparing this book they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required the services of a competent professional should be sought

Library of Congress Cataloging‐in‐Publication Data

The Wiley Blackwell handbook of judgment and decision making edited by Gideon Keren George Wu volumes cm Includes bibliographical references and index ISBN 978-1-118-46839-5 (hardback)1 Decision making 2 Judgment I Keren Gideon II Wu George BF448W55 2015 1534ʹ6ndashdc23 2015002776

A catalogue record for this book is available from the British Library

Set in 10125pt Galliard by SPi Global Pondicherry India

1 2015

Contents

Contributors vii

1 A Birdrsquos-Eye View of the History of Judgment and Decision Making 1Gideon Keren and George Wu

Part I The Multiple Facets of Judgment and Decision Making Traditional Themes 41

2 Decision Under Risk From the Field to the Laboratory and Back 43Craig R Fox Carsten Erner and Daniel J Walters

3 Ambiguity Attitudes 89Stefan T Trautmann and Gijs van de Kuilen

4 Multialternative Choice Models 117Douglas H Wedell

5 The Psychology of Intertemporal Preferences 141Oleg Urminsky and Gal Zauberman

6 Overprecision in Judgment 182Don A Moore Elizabeth R Tenney and Uriel Haran

Part II Relatively New Themes in Judgment and Decision Making 211

7 Joint versus Separate Modes of Evaluation Theory and Practice 213Jiao Zhang

8 Decisions from Experience 239Ralph Hertwig

9 Neurosciences Contribution to Judgment and Decision Making Opportunities and Limitations 268Alan G Sanfey and Mirre Stallen

10 Utility Anticipated Experienced and Remembered 295Carey K Morewedge

vi Contents

Part III New Psychological Takes on Judgment and Decision Making 331

11 Under the Influence and Unaware Unconscious Processing During Encoding Retrieval and Weighting in Judgment 333Emily Balcetis and Yael Granot

12 Metacognition Decision‐making Processes in Self‐monitoring and Self‐regulation 356Asher Koriat

13 Information Sampling and Reasoning Biases Implications for Research in Judgment and Decision Making 380Klaus Fiedler and Florian Kutzner

14 On the Psychology of Near and Far A Construal Level Theoretic Approach 404Kentaro Fujita Yaacov Trope and Nira Liberman

15 Optimism Biases Types and Causes 431Paul D Windschitl and Jillian OrsquoRourke Stuart

16 Culture and Judgment and Decision Making 456Krishna Savani Jaee Cho Sooyun Baik and Michael W Morris

17 Moral Judgment and Decision Making 478Daniel M Bartels Christopher W Bauman Fiery A Cushman David A Pizarro and A Peter McGraw

Contributors

Sooyun Baik Organisational Behaviour Area London Business School UK

Emily Balcetis Department of Psychology New York University USA

Daniel M Bartels University of Chicago Booth School of Business USA

Christopher W Bauman University of California-Irvine Paul Merage School of Business USA

Lehman Benson III Department of Management and Organizations University of Arizona USA

Colin F Camerer Division of the Humanities and Social Sciences Caltech USA

Jaee Cho Graduate School of Business Columbia University USA

Fiery A Cushman Harvard University Department of Psychology USA

Marieke de Vries Tilburg University the Netherlands

Carsten Erner Anderson School of Management University of CaliforniandashLos Angeles USA

Daniel C Feiler Tuck School of Business Dartmouth College USA

Klaus Fiedler Department of Psychology University of Heidelberg Germany

Craig R Fox Anderson School of Management University of CaliforniandashLos Angeles USA

Erin Frey Harvard Business School USA

Kentaro Fujita Department of Psychology The Ohio State University USA

Yael Granot Department of Psychology New York University USA

Uriel Haran Guilford Glazer Faculty of Business and Management Ben‐Gurion University of the Negev Israel

Reid Hastie University of Chicago Booth Graduate School of Business USA

viii Contributors

Ralph Hertwig Center for Adaptive Rationality (ARC) Max Planck Institute for Human Development Germany

Robin M Hogarth Department of Economics and Business Universitat Pompeu Fabra Spain

Candice H Huynh College of Business Administration California State Polytechnic University Pomona USA

L Robin Keller Paul Merage School of Business University of CaliforniandashIrvine USA

Gideon Keren Department of Psychology Tilburg University the Netherlands

Katharina Kluwe Department of Psychology Loyola University Chicago USA

Jonathan J Koehler Northwestern University School of Law USA

Asher Koriat Department of Psychology University of Haifa Israel

Laura J Kray Haas School of Business University of CaliforniandashBerkeley USA

Florian Kutzner Warwick Business School University of Warwick UK

Richard P Larrick Fuqua School of Business Duke University USA

Nira Liberman Department of Psychology Tel‐Aviv University Israel

Graham Loomes Warwick Business School University of Warwick UK

Mary Frances Luce Fuqua School of Business Duke University USA

A Peter McGraw University of Colorado Boulder Leeds School of Business USA

John Meixner Northwestern University School of Law USA

Katherine L Milkman The Wharton School University of Pennsylvania USA

Don A Moore Haas School of Business University of CaliforniandashBerkeley USA

Carey K Morewedge Questrom School of Business Boston University USA

Michael W Morris Graduate School of Business Columbia University USA

Lisa D Ordoacutentildeez Department of Management and Organizations University of Arizona USA

Jillian OrsquoRourke Stuart Department of Psychology University of Iowa USA

John W Payne Fuqua School of Business Duke University USA

Andrea Pittarello Department of Psychology Ben-Gurion University of the Negev Israel

David A Pizarro Cornell University Department of Psychology USA

Timothy J Pleskac Center for Adaptive Rationality Max Planck Institute for Human Development Germany

Devin G Pope University of Chicago Booth School of Business USA

Contributors ix

Todd Rogers Harvard Kennedy School USA

Alan G Sanfey Donders Institute for Brain Cognition and Behaviour Radboud University the Netherlands

Krishna Savani Division of Strategy Management and Organisation Nanyang Business School Singapore

Laura Scherer Psychological Sciences University of Missouri USA

Jay Simon Defense Resources Management Institute Naval Postgraduate School USA

Jack B Soll Fuqua School of Business Duke University USA

Mirre Stallen Donders Institute for Brain Cognition and Behaviour Radboud University the Netherlands

Anne M Stiggelbout Leiden University Medical Center the Netherlands

Justin R Sydnor School of Business University of Wisconsin USA

Karl Halvor Teigen Department of Psychology University of Oslo Norway

Elizabeth R Tenney David Eccles School of Business University of Utah USA

R Scott Tindale Department of Psychology Loyola University Chicago USA

Stefan T Trautmann Alfred‐Weber‐Institute for Economics Heidelberg University Germany

Yaacov Trope Department of Psychology New York University USA

Oleg Urminsky University of Chicago Booth School of Business USA

Gijs van de Kuilen Tilburg University the Netherlands

Alex B Van Zant Haas School of Business University of CaliforniandashBerkeley USA

Daniel J Walters Anderson School of Management University of CaliforniandashLos Angeles USA

Douglas H Wedell Department of Psychology University of South Carolina USA

Paul D Windschitl Department of Psychology University of Iowa USA

George Wu University of Chicago Booth School of Business USA

Gal Zauberman Yale University Yale School of Management USA

Jiao Zhang Lundquist College of Business University of Oregon USA

The Wiley Blackwell Handbook of Judgment and Decision Making First Edition Edited by Gideon Keren and George Wu copy 2015 John Wiley amp Sons Ltd Published 2015 by John Wiley amp Sons Ltd

A Birdrsquos-Eye View of the History of Judgment and

Decision MakingGideon Keren

Any historical account has a subjective element in it and is thus vulnerable to the benefit of hindsight (Fischhoff 1975 Roese amp Vohs 2012) This historical review of 60 years of judgment and decision making (JDM) research is of course no exception Our attempt to sketch the major developments of the field since its inception is further colored by the interests and knowledge of the two authors and thus surely reflects any number of egocentric biases (Dunning amp Hayes 1996 Ross Greene amp House 1977) Notwithstanding we feel that there is a high level of agreement among JDM researchers as to the main developments that have shaped the field This chapter is an attempt to document this consensus and trace the impact of these developments on the field

The present handbook is the successor to the Blackwell Handbook of Judgment and Decision Making that appeared in 2004 That handbook edited by Derek Koehler and Nigel Harvey was the first handbook of judgment and decision making Our overview of the field is prompted by the following plausible counterfactual What if one or more JDM handbooks had appeared prior to 20041 Handbooks might (and should) alter the course of a field by making useful content accessible providing organizing frameworks and posing important questions (Farr 1991) Although we recognize these important roles our chapter is motivated by one other function of a handbook a handbookrsquos editors serve as curators of that fieldrsquos ideas and thus identify which research streams are important and energetic (and presumably most worth pursuing) and which ones are not This chapter thus provides an overview of the field by considering what we would include in two hypothetical JDM handbooks one published in 1974 and one published in 1988 We attempt to identify which topics were viewed as the major questions and main developments at the time of those

1

George WuUniversity of Chicago Booth School of Business USA

Department of Psychology Tilburg University the Netherlands

2 Gideon Keren and George Wu

handbooks In so doing we reveal how the field has evolved identifying research areas that have more or less always been central to the field as well as those that have declined in importance For the latter topics we speculate about reasons for their decreased prominence

Our chapterrsquos organization complements more traditional historical accounts of the field Many reviews of this sort have appeared over the years in Annual Review of Psychology (eg Becker amp McClintock 1967 Edwards 1961 Einhorn amp Hogarth 1981 Gigerenzer amp Gaissmaier 2011 Hastie 2001 Lerner Li Valdesolo amp Kassam 2015 Lopes 1994 Mellers Schwartz amp Cooke 1998 Oppenheimer amp Kelso 2015 Payne Bettman amp Johnson 1992 Pitz amp Sachs 1984 Rapoport amp Wallsten 1972 Shafir amp LeBoeuf 2002 Slovic Fischhoff amp Lichtenstein 1977 E U Weber amp Johnson 2009) In addition excellent reviews appear as chapters in various non‐JDM handbooks (Abelson amp Levi 1985 Ajzen 1996 Dawes 1998 Fischhoff 1988 Gilovich amp Griffin 2010 Markman amp Medin 2002 Payne Bettman amp Luce 1998 Russo amp Carlson 2002 Slovic Lichtenstein amp Fischhoff 1988 Stevenson Busemeyer amp Naylor 1990) in W M Goldstein and Hogarthrsquos (1997) excellent historical introduction to their collection of research papers and in textbooks such as Bazerman and Moore (2012) Hastie and Dawes (2010) Hogarth (1987) Plous (1993) von Winterfeldt and Edwards (1986 pp 560ndash574) and Yates (1990)

We have divided 60 years of JDM research into four Handbook periods 1954ndash1972 1972ndash1986 1986ndash2002 and 2002ndash2014 The first period (1954ndash1972) marks the initiation of several systematic research lines of JDM many of which are still central to this day Most notably Edwards introduced microeconomic theory to psychologists and thus set up a dichotomy between the normative and descriptive perspectives on decision making This dichotomy remains at the heart of much of JDM research The second period (1972ndash1986) is characterized by several new developments the most significant ones being the launching of the heuristics and biases research program (Kahneman Slovic amp Tversky 1982) and the introduction of prospect theory (Kahneman amp Tversky 1979) In the third period (1986ndash2002) we see the infusion of influences such as emotion motivation and culture from other areas of psychology into JDM research as well as the rapid spread of JDM ideas into areas such as eco-nomics marketing and social psychology This period was covered by Koehler and Harveyrsquos (2004) handbook In the last period (2002ndash2014) JDM has continued to develop as a multidisciplinary field in ways that are at least partially reflected by the increased application of JDM research to domains such as business medicine law and public policy

The present introductory chapter is organized as follows We first discuss some important early milestones in the field This discussion attempts to identify the under-lying scholarly threads that broadly define the field and thus situates the selection of topics for our four periods In the next two sections we outline the contents of two editions of the hypothetical ldquoHandbook of Judgment and Decision Makingrdquo one published roughly in 1974 (to cover 1954ndash1972) and one published roughly in 1988 (to cover 1972ndash1986)2 As noted the period from 1986ndash2002 is covered in Koehler and Harveyrsquos 2004 handbook and the last period is roughly covered in the present two vol-umes We also discuss these two periods and comment on how the contents of these two handbooks reflect the field in 2004 and 2015 respectively In the final section we

A Birdrsquos-Eye View of the History of Judgment and Decision Making 3

conclude with some broader thoughts about how the field has changed over the last 60 years Speculations about what future directions the field might take are briefly presented in the final chapter

Some Early Historical Milestones

Several points in time could be considered as marking the inception of judgment and decision making One possible starting point may be Pascalrsquos wager the French phi-losopher Blaise Pascalrsquos formulation of the decision problem in which humans bet on whether to believe in Godrsquos existence (Pascal 1670) This proposal can be thought of as the first attempt to perform an expected utility (hereafter throughout the hand-book EU) analysis on an existential problem and to employ probabilistic reasoning in an uncertain context Two other natural candidates are Bernoullirsquos (17381954) famous paper ldquoExposition of a New Theory of Measurement of Riskrdquo which intro-duced the notion of diminishing marginal utility and Benthamrsquos (1879) book An Introduction to the Principles of Morals and Legislation which proposed some dimen-sions of pleasure and pain two major sources of utility (see Stigler 1950) Because neither of these works had much explicit psychological discussion (but see Kahneman Wakker amp Sarin 1997 which discusses some of Benthamrsquos psychological insights) a more natural starting point is the publication of Ward Edwardsrsquos (1954) seminal article ldquoThe Theory of Decision Makingrdquo in Psychological Bulletin which can be viewed as an introduction to microeconomic theory written for psychologists The topics of that influential paper included riskless choice (ie consumer theory) risky choice subjective probability and the theory of games with the discussion of these topics interspersed with a series of psychological comments The articlersquos most essential exhortation is encapsulated in the paperrsquos final sentence ldquoall these topics represent a new and rich field for psychologists in which a theoretical structure has already been elaborately worked out and in which many experiments need to be per-formedrdquo (p 411) Edwards followed up this article in 1961 with the publication of ldquoBehavioral Decision Theoryrdquo in the Annual Review of Psychology That paper should be seen as a successor to the 1954 article as well as evidence for the earlier paperrsquos enormous influence ldquoThis review covers the same subject matter for the period 1954 through April 1960rdquo (p 473) The tremendous volume of empirical and theoretical research on decision making in those six years speaks to the remarkable growth of the emerging field of judgment and decision making

Two other important publications also marked the introduction of JDM Savagersquos (1954) The Foundations of Statistics and Luce and Raiffarsquos (1957) Games and Decisions These two books cover the three major theories that dominated the field at its incep-tion utility theory probability theory and game theory A major query regarding each of the three theories concerned the extent to which they had a normative (what should people do) or a descriptive (what do people actually do) orientation All three theories were originally conceived as normative in that they contained recommenda-tions for the best possible decisions a view that reflected a tacit endorsement that human decision making is undertaken by homo economicus an individual who strictly follows the rational rules dictated by logic and mathematics (Mill 1836)3 Deviations


were thought to be incidental (ie errors of performance) rather than systematic (eg errors of comprehension)

Edwards (1954) made clear that actual behavior might depart from the normative standard and inspired a generation of scholars to question the descriptive validity of these theories Indeed one of the hallmarks of the newborn discipline of judgment and decision making was the conceptual and empirical interplay between the norma-tive and the descriptive facets of various judgment and decision making theories This interplay played an essential role in the development of the field and remains central to the field to this day

Both probability and utility theory (and to some extent game theory see eg Nash 1950) are founded on axiomatic systems An axiomatic system is a set of conditions (ie axioms) that are necessary and sufficient for a particular theory As such they are useful for normative purposes (individuals can reflect on whether an axiom is a reasonable principle see Raiffa 1968 Slovic amp Tversky 1974) as well as descriptive purposes (an axiom often provides a clear recipe for testing a theory see the discussion of the Allais Paradox later in this chapter) Luce and Raiffa (1957) identified some gaps between the normative and descriptive facets of EU theory For each of von Neumann and Morgensternrsquos (1947) axioms they provided some critical comments questioning the validity of that axiom and examining its behavioral applicability to real-life situations For instance the discussion of the ldquoreduction of compound lot-teriesrdquo axiom foreshadowed later experimental research that established systematic violations of that axiom (Bar‐Hillel 1973 Ronen 1971) Similarly doubts about the transitivity axiom anticipated research that demonstrated that preferences can cycle (eg Tversky 1969) These reservations were small in force relative to the more fundamental critique levied by Maurice Allaisrsquo famous counterexample to the descrip-tive validity of EU theory (Allais 1953) The Allais Paradox along with the Ellsberg (1961) Paradox continues to spawn research in the JDM literature (see Chapters 2 and 3 of the present handbook)

Somewhat later a stream of research with a similar spirit explored whether subjective probability assessments differed from the probabilities dictated by the axioms of probability theory The research in the early 1960s much of it conducted by Edwards and his colleagues was devoted to probability judgments and their assessments Edwards Lindman and Savage (1963) introduced the field of psychology to Bayesian reasoning and indeed a great deal of that research examined whether humans were Bayesian in assessing probabilities A number of early papers suggested that the answer was generally no (Peterson amp Miller 1965 Phillips amp Edwards 1966 Phillips Hays amp Edwards 1966) Descendants of this work are still at the center of JDM (see Chapter 6 in this handbook)

The study of discrepancies between formal normative models and actual human behavior marked the beginning of the field and has served as a tempting target for empirical work Indeed according to Phillips and von Winterfeldt (2007) 139 papers testing the empirical validity of EU theory appeared between 1954 and 1961 Although the contrast between normative and descriptive remains a major theme underlying JDM research today most JDM researchers strive to go beyond documenting a discrepancy to providing a psychological explanation for that phenomenon Simon (1956) provided one early and influential set of ideas that have


shaped the fieldrsquos theorizing about psychological mechanisms He proposed that humans satisfice or adapt to their environment by seeking a satisfactory rather than optimal decision This adaptive notion anticipated several research programs including Kahneman and Tverskyrsquos influential heuristics and biases program (Kahneman amp Tversky 1974)

It is also worth noting that the field was an interdisciplinary one from the beginning Edwards had a visible role in this development by bringing economic theory and models to psychology a favor that psychologists would return years later in the development of the field of behavioral economics The interdisciplinary nature of the field was also reflected in monographs such as Decision Making An Experimental Approach (1957) a collaboration between the philosopher Donald Davidson the philosopher and math-ematician Patrick Suppes and the psychologist Sidney Siegel The clear ubiquity and importance of decision making also meant that the application of JDM ideas included fields ranging from business and law to medicine and meteorology

We next turn to the contents of our four handbooks two hypothetical and two actual Although these handbooks illustrate the growth and development of the field over the last 60 years we also see throughout the interplay between the normative standard and descriptive reality as well as the interdisciplinary nature of the field

The Initial Period 1954ndash1972 (Handbook of Judgment and Decision Making 1974)

The period from 1954 to 1972 can be viewed as the one in which the discipline of behavioral decision making went through its initial development As we will see many of the questions posed during that period continue to shape research today By 1972 the field had an identity with many scholars describing themselves as judgment and decision making researchers In 1969 a ldquoResearch Conference on Subjective Probability and Related Fieldsrdquo took place in Hamburg Germany In 1971 that conference in its third iteration had changed its name to the ldquoResearch Conference on Subjective Probability Utility and Decision Makingrdquo (or SPUDM for short) hence broadening the scope of that organization and reflecting in some respects the maturation of the field SPUDM has taken place every second year since that date (see Vlek 1999 for a history of SPUDM)4

Suppose in retrospect that we were transported back in time to 1972 or so and tasked with preparing a handbook of judgment and decision making How would such a volume be structured and how does the current volume differ from such a hypothetical volume Figure 11 contains a list of contents of such a volume retrospectively assembled by the two of us In preparing this list we have assumed the role of hypothetical curators with the caveat that other researchers would likely have constructed a different list5

As the previous section indicated three major themes have attracted the attention of JDM researchers since the inception of the field and continue to serve as the backbones of the field to varying extents even today uncertainty and probability theory decision under risk and utility theory and strategic decision making and game theory Accordingly three sections in Figure 11 correspond to these three major pillars of the field


Our first hypothetical volume contains an introductory chapter (Chapter 1 1974) that presents an overview of the normative versus descriptive distinction a distinction that had been central to the field since its inception (We denote the chapters with the publication date of that hypothetical or actual handbook because we at times will refer to earlier or later handbooks references to the hypothetical works are given in bold) The Handbook then consists of four parts

bullemsp Uncertaintybullemsp Choice behaviorbullemsp Game theory and its applicationsbullemsp Other topics

Hundreds of volumes have been written on the topic of uncertainty For physicists and philosophers the major question is whether uncertainty is inherent in nature

Handbook of Judgment and Decision Making (1974) 1954ndash1972

I Perspectives on Decision Making

1 Descriptive and Normative Concerns of Decision Making

II Uncertainty

2 Probability Theory Objective vs Subjective Perspectives

3 Man as an Intuitive Bayesian in Belief Revision

4 Statistical vs Clinical Objective vs Subjective perspectives

5 Probability Learning and Matching

6 Estimation Methods of Subjective Probability

III Choice Behavior

7 Utility Theory

8 Violations of Utility Theory The Allais and Ellsberg Paradoxes

9 Preference Reversals

IV Game Theory and its Applications

13 Cooperative vs Competitive Behavior Theory and Experiments

14 The Prisonerrsquos Dilemma

V Other Topics

15 Signal Detection Theory

16 Information Theory and its Applications

17 Decision Analysis

18 Logic Thinking and the Psychology of Reasoning

10 Measurement theory

11 Psychophysics Underlying Choice Behavior

12 Social Choice Theory and Group Decision Making

Figure 11 Contents of a hypothetical JDM handbook for the period 1954ndash1972


The development of the normative treatment of uncertainty as in modern probability theory is described in Hackingrsquos (1975) stimulating book Researchers in JDM however assume that uncertainty is a reflection of the human mind and hence subjective Accordingly the second part of our imaginary volume is devoted to the assessment of uncertainty

Chapter 2 (1974) serves as an introduction to this part and contrasts objective or frequentist notions of probability with subjective or personalistic probabilities In a series of studies John Cohen and his colleagues (J Cohen 1964 1972 J Cohen amp Hansel 1956) studied the relationship between subjective probability and gambling behavior They found violations of the basic principles of probability such as evidence of the gamblerrsquos fallacy Indeed Cohenrsquos work anticipated Kahneman and Tverskyrsquos heuristics and biases research program (see Chapter 3 1988)

Bayesian reasoning a major research program initiated by Edwards (1962) (see also Edwards Lindman amp Savage 1963) is the topic of Chapter 3 (1974) This program was motivated by understanding whether peoplersquos estimates and intui-tions are compatible with the Bayesian model as well as whether the Bayesian model can serve as a satisfactory descriptive model for human probabilistic reasoning (Edwards 1968) Using what has become known as the ldquobookbag and poker chiprdquo paradigm Edwards and his colleagues (eg Peterson Schneider amp Miller 1965 Phillips amp Edwards 1966) ran dozens of studies on how humans revise their opinions in light of new information This research inspired Peterson and Beach (1967) to describe ldquoman as an intuitive statisticianrdquo and argue that by and large ldquostatistics can be used as the basis for psychological models that integrate and account for human performance in a wide range of inferential tasksrdquo (p 29) However Edwards (1968) also pointed out that subjects were ldquoconservativerdquo in their updating ldquoopinion change is very orderly hellip but it is insufficient in amount hellip [and] takes anywhere from two to five observations to do one observationrsquos worth of workrdquo (p 18) The notion of ldquoman as an intuitive statisticianrdquo was soon taken on by Kahneman and Tverskyrsquos work on ldquoheuristics and biasesrdquo and the ten-dency toward conservatism was later challenged by Griffin and Tversky (1992) (see also Massey amp Wu 2005)

Chapter 4 (1974) covers the distinction between clinical and statistical modes of probabilistic reasoning In this terminology ldquoclinicalrdquo refers to case studies that are used to generate subjective estimates while ldquostatisticalrdquo reflects some actuarial ana-lytical model In a seminal book which influences the field to this day Meehl (1954 see also Dawes Faust amp Meehl 1989) found that clinical predictions were typically much less accurate than actuarial or statistical predictions As noted by Einhorn (1986) the statistical models were more advantageous because they ldquoaccepted error to make less errorrdquo Dawes Faust and Meehl (1993) reviewed 10 diverse areas of application that demonstrated the superiority of the statistical models relative to human judgment

Chapter 5 (1974) is devoted to the issue of probability learning (eg Estes 1976) A typical probability-learning study involves a long series of trials in which subjects choose one of two actions on each trial Each action has a different unknown proba-bility of generating a reward This topic was extensively studied in the 1950s and the 1960s (for an elaborate review see Lee 1971 Chapter 6) Researchers discovered that subjects tended toward probability matching (Grant Hake amp Hornseth 1951) the


frequency with which a particular action is chosen matches the assessed probability that action is the preferred choice This phenomenon has been repeatedly replicated (eg Gaissmaier amp Schooler 2008) and is noteworthy because human behavior is inconsis-tent with the optimal strategy of choosing the action with the highest probability of generating a reward

Chapter 6 (1974) covers estimation methods of subjective probability Although this topic was still in its infancy the emergence of decision analysis (see Chapter 19 1974) emphasized the need to develop and test methods for eliciting probabilities Some of the early work in that area was conducted by Alpert and Raiffa (1982 study conducted in 1968) Murphy and Winkler (1970) Savage (1971) Staeumll von Holstein (1970 1971) and Winkler (1967a 1967b) More comprehensive overviews of elici-tation methods are found in later reviews such as Spetzler and Staeumll von Holstein (1975) and Wallsten and Budescu (1983)

The subsequent part of our imaginary handbook is devoted to utility theories for decision under risk and uncertainty (Chapter 7 1974) Already anticipated by Bernoulli (17381954) EU theory was formalized in an axiomatic system by von Neumann and Morgenstern (1947) This theory considers decision under risk or gam-bles with objective probabilities such as winning $100 if a fair coin comes up heads A later development by Savage (1954) subjective expected utility (hereafter thoughout the handbook SEU) theory extended EU to more natural gambles such as winning $100 if General Electricrsquos stock price were to increase by over 1 in a given month Savagersquos framework thus covered decision under uncertainty using subjective probabil-ities rather than the objective probabilities provided by the experimenter Some of the early research in utility theory was an attempt to eliminate the gap between the norma-tive and the descriptive For example Friedman and Savage (1948) famously attempted to explain the simultaneous purchase of lottery tickets (a risk‐seeking activity) and insurance (a risk‐averse activity) by positing a utility function with many inflection points Many years later the lottery-ticket‐purchasing gambler would be a motivation for Kahneman and Tverskyrsquos (1979) prospect theory an explicitly descriptive account of how individuals choose among risky gambles (see also Tversky amp Kahneman 1992)

This line of research embraced what has become known as the gambling metaphor or the gambling paradigm Research participants were posed with a set of (usually two) hypothetical gambles to choose between The gambles were generally described by well‐defined probabilities of receiving well‐defined (and generally) monetary out-comes The gambling metaphor presumed that most real-world risky decisions reflected a balance between likelihood and value and that hypothetical choices of the sort ldquoWould you prefer $100 for sure or a 50ndash50 chance at getting $250 or nothingrdquo offered insight into the psychological processes people employed when faced with risky decisions The strengths and limitations of the gambling paradigm are discussed in the concluding chapter of this handbook

Savagersquos sure‐thing principle and EU theoryrsquos independence axiom constitute the cornerstones of SEU and EU respectively The most well‐known violations of these axioms and hence counter examples to the descriptive validity of these theories were formulated by Allais (1953) and Ellsberg (1961) and first demonstrated in careful experiments by MacCrimmon (1968) The Allais and Ellsberg Paradoxes are described in Chapter 8 (1974) as well as other early empirical investigations of


EU theory (eg Mosteller amp Nogee 1951 Preston amp Baratta 1948) Decision under risk and decision under uncertainty continue to be mainstream JDM topics and appear in this handbook as Chapter 2 (2015) and Chapter 3 (2015)

Chapter 9 (1974) discusses preference reversals Lichtenstein and Slovic (1971) documented a fascinating pattern in which individuals preferred gamble A to gamble B but nevertheless priced B higher than A This demonstration was an affront to nor-mative utility theories because it demonstrated that preferences might depend on the procedure used to elicit them More fundamentally this demonstration was a severe blow to the notion that individuals have well‐defined preferences (Grether amp Plott 1969) and anticipated Kahneman and Tverskyrsquos (1979) more systematic attack on procedural invariance (see Chapters 11 and 12 1988) It also set the stage for the-orizing on how context can affect attribute weights (Tversky Sattath amp Slovic 1988) as well as an identification of a broader class of preference reversals such as those involving joint and separate evaluation (eg Chapter 18 2004 Chapter 7 2015) and conflict and choice (eg Chapter 17 2004)

Chapter 10 (1974) surveys measurement theory (eg Krantz Luce Suppes amp Tversky 1971 Suppes Krantz Luce amp Tversky 1989) in particular the measurement of utility The methodological and conceptual difficulties associated with the assessment of utility were recognized at an early stage and attracted the attention of many researchers (eg Coombs amp Bezembinder 1967 Davidson Suppes amp Siegel 1957 Mosteller amp Nogee 1951) Different attempts at developing a theory of measurement have taken the form of functional (Anderson 1970) and conjoint (Krantz amp Tversky 1971) measurement Although measurement theory received much attention by leading researchers in psychology (eg Coombs Dawes amp Tversky 1970 Krantz Luce Suppes amp Tversky 1971) the interest in these issues has declined over the years for reasons that remain unclear (eg Cliff 1992) Nevertheless we believe that measurement is still an essential issue for JDM research and hope that these topics will again receive their due attention6

The topic of Chapter 11 (1974) is psychophysics The initial developments of psychophysical laws are commonly attributed to Gustav Theodor Fechner and Ernst Heinrich Weber (Luce 1959) The most fundamental psychophysical prin-ciple diminishing sensitivity is that increased stimulation is associated with a decreasing impact The origins of this law can be traced to Bernoullirsquos (17381954) original exposition of utility theory and is reflected in the familiar economic notion of diminishing marginal utility in which successive additions of money (or any other commodity) yield smaller and smaller increases in value Psychophysical research has also identified a number of other stimulus and response mode biases that influence sensory judgments (Poulton 1979) and these biases as well as the psychophysical principle of diminishing sensitivity have shaped how JDM researchers have thought about the measurement of numerical quantities whether the quantities be utility values or probabilities (von Winterfeldt amp Edwards 1986 351ndash354)

The closing Chapter 12 (1974) of this part goes beyond individual decision making and examines social choice theory (Arrow 1954) and group decision making Arrowrsquos famous Impossibility Theorem showed that there exists no method to aggregate individual preferences into a collective or group preference that satisfies


some basic and appealing criterion This work along with others also motivated some experimental investigation of group decision making processes One of the first research endeavors in this area Siegel and Fouraker (1960) involved a collaboration between a psychologist (Sidney Siegel) and an economist (Lawrence Fouraker) again reflecting the interdisciplinary nature of the field Group decision making is covered in subsequent handbooks Chapter 23 (2004) and Chapter 30 (2015)

The next part of our first fictional handbook covers game theory (von Neumann amp Morgenstern 1947) and its applications Luce and Raiffa (1957) introduced the central ideas of game theory to social scientists and made what were previously regarded as abstract mathematical ideas accessible to non mathematicians (Dodge 2006) The same year also marked the appearance of the Journal of Conflict Resolution a journal that became a major outlet for applications of game theory to the social sci-ences In the 1950s and 1960s game theory was seen as having enormous potential for modeling and understanding conflict resolution (eg Schelling 1958 1960)

Schelling (1958) introduced the distinction between (a) pure‐conflict (or zero sum) games in which any gain of one party is the loss of the other party (b) mixed motives (or non‐zero‐sum) games which involve conflict though one sidersquos gain does not necessarily constitute a loss for the other and (c) cooperation games in which the parties involved share exactly the same goals Chapter 13 (1974) presents the empirical research for each of these three types of games conducted in the pertinent period Merrill Flood a management scientist conducted some of the earliest exper-imental studies (Flood 1954 1958) Social psychologists studied various versions of these games in the 1960s and 1970s (eg Messick amp McClintock 1968) Rapoport and Orwant (1962) provided a review of some of the first generation of experiments (see Rapoport Guyer amp Gordon 1976 for a later review)

The prisonerrsquos dilemma has received more attention than any other game with the possible recent exception of the ultimatum game probably because of its transparent applications to many real‐life situations Chapter 14 (1974) surveys experimental research on the prisonerrsquos dilemma Flood (1954) conducted perhaps the earliest study of that game and Rapoport and Chammah (1965) and Gallo and McClintock (1965) presented a comprehensive discussion of the game and some experiments conducted to date See also Chapter 24 (2004) and Chapter 19 (2015) as well as the large body of work on social dilemmas (eg Dawes 1980)

The final part of the handbook is devoted to several broader topics that are not unique to JDM but were seen as useful tools for understanding judgment and decision making Chapter 15 (1974) reviews Signal Detection Theory (Swets 1961 Swets Tanner amp Birdsall 1961 Green amp Swets 1966) The theory was originally applied mainly to psychophysics as an attempt to reflect the old concept of sensory thresholds with response thresholds Swets (1961) was included in one of the earliest collection of decision making articles (Edwards amp Tversky 1967) an indication of the belief that signal detection theory would have many important applications in judgment and decision making research

Information theory (Shannon 1948 Shannon amp Weaver 1949) is the topic of Chapter 16 (1974) In the second half of the twentieth century information theory made invaluable contributions to the technological developments in fields such as engineering and computer science As Miller (1953) noted there was ldquoconsiderable


fuss over something called lsquoinformation theoryrsquordquo in particular because it was presumed to be useful in understanding judgment and decision processes under uncertainty The great hopes of Miller and others did not materialize and after 1970 the theory was hardly cited in the social sciences (see however Garner 1974 for a classic psychological application of information theory) Luce (2003) discusses possible reasons for the decline of information theory in psychology

Chapter 17 (1974) describes decision analysis Decision analysis defined as a set of tools and techniques designed to help individuals and corporations structure and ana-lyze their decisions emerged in the 1960s (Howard 1964 1968 Raiffa 1968 see von Winterfeldt amp Edwards 1986 566ndash574 for a brief history of decision analysis) Decision analysis was soon a required course in many business schools (Schlaifer 1969) and the promise of the field to influence decision making is reflected in the fol-lowing quotation from Brown (1989) ldquoIn the sixties decision aiding was dominated by normative developments hellip It was widely assumed that a sound normative struc-ture would lead to prescriptively useful proceduresrdquo (p 468) This chapter presents an overview of decision‐aiding tools such as decision trees and sensitivity analysis as well as topics that interface more directly with JDM research such as probability encoding (Spetzler amp Staeumll von Holstein 1975 see also Chapter 6 1974) and multiattribute utility theory (Keeney amp Raiffa 1976 Raiffa 1969 see also Chapter 14 1988)

The last chapter (Chapter 18 1974) of this first handbook covers thinking and reasoning which is included although the link with JDM had not been fully articulated in the early 1970s when our hypothetical handbook appears The chapter discusses confirmation bias (Wason 1960 1968) and reasoning with negation (Wason 1959) as well as the question of whether people are invariably logical unless they ldquofailed to accept the logical taskrdquo (Henle 1962) In some respects Henlersquos paper anticipated the question of rationality (eg L J Cohen 1981 see Chapter 2 1988) as well as research on hypothesis testing (Chapter 17 1988 Chapter 10 2004)

Before moving on to the next period we make several remarks about the field in the early 1970s Although JDM has always been an interdisciplinary field and was certainly one in this early period the orientation of the field was demonstrably more mathematical in nature centered on normative criteria and closer to cognitive psychology than it is today This orientation partially reflects the topics that consumed the field at this point and the requisite comparison of empirical results with mathematical models But another part reflects a sense at that time of the useful inter-play between mathematical models and empirical research (eg Coombs Raiffa amp Thrall 1954) For a number of reasons many of the more technical of these ideas (eg information theory measurement theory and signal detection theory) have decreased in popularity since that time Although these topics were seen as promising in the early 1970s they do not appear in our subsequent handbooks

Game theory along with utility theory and probability theory was one of the three major theories Edwards (1954) offered up to psychologists for empirical investiga-tion However game theory has never been nearly as central to JDM as the study of risky decision making or probabilistic judgment Chapter 19 (2015) argues that this may be partially because of conventional game theoryrsquos focus on equilibrium concepts The chapter proposes an alternative framework for studying strategic interactions that might be more palatable to JDM researchers (see also Camerer 2003 for a more


general synthesis of psychological principles and game‐theoretic reasoning under the umbrella ldquobehavioral game theoryrdquo)

Finally there was great hope in the early 1970s that decision‐aiding tools such as decision analysis could lead individuals to make better decisions Decision analysis has probably fallen short of that promise partly because of the difficulty of defining what constitutes a good decision (see Chapter 34 2015 Frisch amp Clemen 1994) and partly because of the inherent subjectivity of inputs into decision models (see Chapter 32 2015 Clemen 2008) Although the connection between decision analysis and judgment decision making has become more tenuous since the mid-1980s it nevertheless remains an important topic for the JDM community and is covered in Chapter 32 (2015)78

The Second Period (1972ndash1986) (Handbook of Judgment and Decision Making 1988)

Our second imaginary handbook covers approximately the period 1972ndash1986 This period reflects several new research programs that are still at the heart of the field today The maturation of the field is also captured by the initial spread of the field to areas such as economics marketing and social psychology Figure 12 contains a table of contents for this hypothetical handbook

Chapter 1 (1988) introduces a third category to the normative versus descriptive dichotomy prescriptive Keeney and Raiffa (1976) and Bell Raiffa and Tversky (1988) suggested that while normative is equated with ldquooughtrdquo and descriptive is equated with ldquoisrdquo the prescriptive addresses the following question ldquoHow can real people ndash as opposed to imaginary super‐rational people without psyches ndash make better choices in a way that does not do violence to their deep cognitive concernsrdquo (p 9) This approach has several implications in particular that violations of EU as in the Allais Paradox might actually reflect some hidden ldquocarrier of valuerdquo such as regret disappointment or anxiety (eg Bell 1982 1985 Wu 1999) and thus might not necessarily constitute unreasonable behavior It also anticipates later attempts to use psychological insights to change peoplersquos decisions (Chapter 25 2015)

Chapter 2 (1988) addresses the debate about the rationality of human decision mak-ing In a provocative article L J Cohen (1981) questioned whether human irrationality can be experimentally demonstrated That article appeared in Behavioral and Brain Sciences and spawned a vigorous and heated interchange between Cohen and many scholars including a number of prominent JDM researchers This chapter discusses the distinction between being ldquorationalrdquo and being ldquoreasonablerdquo where rationality for JDM researchers often constitutes coherence with logical laws or the axioms underlying utility theory and reasonable is a looser term that reflects intuition and common sense The conversation on rationality continues in Chapter 1 (2004) (see also Lopes 1991)

The first major innovation during this period was the heuristics and biases research program (Kahneman amp Tversky 1974) This program was inspired by the cognitive revolution and summarized in a collection of papers edited by Kahneman Slovic and Tversky (1982) Because of the importance of this program the work on heuris-tics and biases warrants a special part in our second handbook The first chapter of this part (Chapter 3 1988) provides a high-level summary of this research with


emphasis on representativeness (Kahneman amp Tversky 1972) availability (Tversky amp Kahneman 1972) and anchoring and adjustment (Kahneman amp Tversky 1974) A more recent overview on how heuristics and biases developed since then is provided by Chapter 5 (2004) as well as by several articles in Gilovich Griffin and Kahnemanrsquos (2002) edited collection



1 Descriptive Prescriptive and Normative Perspectives on Decision Making

2 Rationality and Bounded Rationality

II Probabilistic Judgments Heuristics and Biases

3 Heuristics and Biases An Overview

4 Overconfidence

5 Hindsight Bias

6 Debiasing and Training

7 Learning from experience

8 Linear Models

9 Heuristics and Biases in Social Judgments

III Decisions

11 Prospect Theory and Descriptive Alternatives to Expected Utility Theory

12 Framing and Mental Accounting

13 Emotional Carriers of Value

14 Measures of Risk

15 Multiattribute Decision Making

16 Intertemporal Choice

IV Approaches

17 Hypothesis Testing

18 Algebraic Models

19 Brunswikian Approaches

20 The Adaptive Decision Maker

21 Process Tracing Methods

V Applications

22 Medical Decision Making

23 Negotiation

24 Behavioral Economics

24 Risk Perception

10 Expertise



It is important to note that the heuristics and biases approach has been criticized by some researchers (eg L J Cohen 1981) Gigerenzer and his colleagues (Gigerenzer 1991 Gigerenzer Todd and The ABC Research Group 1999) proposed that heuris-tics may be adaptive tools adjusted to the structure of the relevant environment This view refrains from employing the strict logicalndashmathematical rules as a benchmark and centers more on descriptive and prescriptive (rather than normative) facets A more detailed exposition to this approach can be found in Chapters 4 and 5 of the 2004 handbook

Chapter 4 (1988) addresses calibration and overconfidence of probability judg-ments (eg Lichtenstein amp Fischhoff 1977 May 1986) Probability judgments are well calibrated if for example 70 of the propositions assigned a probability of 07 actually occur Individuals are usually not well calibrated with typical studies finding that events assigned a probability of 07 occur about 60 of the time (see eg Lichtenstein Fischhoff amp Phillips 1982 Figure 2) Overconfidence of this sort is a robust phenomenon documented in a wide variety of domains using different methods and a variety of events and with both novices and experts This topic con-tinues to be of major interest to JDM researchers (eg Brenner Koehler Liberman amp Tversky 1996 Keren 1991 Klayman Soll Gonzalez‐Vallejo amp Barlas 1999) and is examined in Chapter 11 of Koehler and Harvey (2004) and Chapter 6 (2015) Overconfidence also features prominently in managerial texts of decision making (eg Bazerman amp Moore 2012)

Chapter 5 (1988) is devoted to the hindsight bias (Fischhoff 1975 Fischhoff amp Beyth 1975) An event that has actually occurred seems inevitable even though in foresight it might have been difficult to anticipate Hindsight bias has broad and important implications in different domains of daily life in particular for learning from experience (Chapter 7 1988) and for evaluating the judgments and decisions of others (Hogarth 1987) Indeed in retrospect or in hindsight the topic has attracted wide interest and has been discussed in more than 800 scholarly papers (Roese amp Vohs 2012) and is a topic of the 2004 handbook (Chapter 13 2004)

Chapter 6 (1988) addresses the important question of whether the cognitive biases documented in the heuristics and biases program can be mitigated or even eliminated The question of debiasing has been addressed by several researchers (eg Fischhoff 1982 see also Keren 1990) with many concluding that the ability to overcome cognitive biases is limited However some researchers have argued otherwise For example Nisbett Krantz Jepson and Kunda (1983) conducted some studies on training of statistical reasoning and concluded that ldquotraining increases both the likelihood that people will take a statistical approach to a given problem and the quality of the statistical solutionsrdquo (p 339) This topic continues to be of interest to the JDM community as represented by its appearance in the two subsequent hand-books Chapter 16 (2004) and Chapter 33 (2015)

The topic of Chapter 7 (1988) is learning from experience A common assump-tion is that the judgmental biases surveyed in the previous chapters will disappear if decision makers gain experience and hence learn from their experience Contrary to this belief Goldberg (1959) found that experienced clinical psychologists were no better at diagnosing brain damage than hospital secretaries Since that paper many studies have identified reasons that learning from experience is difficult including faulty hypothesis testing (Chapter 17 1988) hindsight bias (Chapter 5 1988)


memory biases and the nature and quality of feedback (see Brehmer 1980 Einhorn amp Hogarth 1978) In spite of its clear relevance learning from experience has never been a completely mainstream JDM topic Indeed the learning discussed in Chapter 22 (2015) has a different focus than the learning from experience research reviewed in the 1988 handbook

Chapter 8 (1988) is devoted to the general linear model (eg Dawes 1979 Dawes amp Corrigan 1974) Chapter 4 (1974) reviewed a large body of research demonstrating the advantage of statistical prediction models over clinical or intuitive judgments These statistical models generally use linear regression to predict a target variable from a set of predictors Although the best improvement over clinical judg-ments is obtained by using the optimal weights obtained through regression Dawes and his collaborators found that it is important to identify the two or three most essential variables and the weights do not matter much once this is done that is unit or even random weights still generally outperform human judgment Importantly these researchers also showed that people fail to appreciate the benefits of statistical models over more intuitive approaches

Chapter 9 (1988) is devoted to the implications of the heuristics and biases program for social judgments In 1980 Nisbett and Ross wrote an influential book entitled Human Inference Strategies and Shortcomings of Social Judgment Much as Edwards (1954) made microeconomic theory accessible to psychologists Nisbett and Ross introduced the findings of the heuristics and biases research program to social psychologists In doing so Nisbett and Ross spelled out the implications of these biases for a number of social psychological phenomena including stereotyping attri-bution and the correspondence bias Judgment and decision making plays an enor-mous role in social psychological research today In their history of social psychology chapter in the Handbook of Social Psychology Ross Lepper and Ward (2010) write

the work of two Israeli psychologists Daniel Kahneman and Amos Tversky on lsquoheu-ristics of judgmentsrsquo hellip began to make its influence felt Within a decade their papers in the judgment and decision making tradition were among the most frequently cited by social psychologists and their indirect influence on the content and direction of our field was ever greater than could be discerned from any citation index (p 16)

Gilovich and Griffin (2010) document more systematically the role both JDM and social psychology have played in shaping the research of the other field

Expertise is the topic of Chapter 10 (1988) Although it is typically presumed that experts are more accurate than novices Goldberg (1959) as described in Chapter 7 (1988) found no difference in performance between experienced clinical psycholo-gists and novices A substantial literature has found that Goldbergrsquos findings are not unique Experts show little or no increase in judgmental accuracy (eg Kundell amp LaFollette 1972) In terms of calibration (Chapter 4 1988) experts are sometimes better calibrated (Keren 1991) but sometimes not (Wagenaar amp Keren 1985) See Shanteau and Stewart (1992) and Camerer and Johnson (1991) for thorough reviews on the effects of expertise on human judgment Expertise is also covered in the subsequent two handbooks Chapter 15 (2004) and Chapter 24 (2015)

The next part is devoted to choice The topic of Chapter 11 (1988) is prospect theory (Kahneman amp Tversky 1979) one of the most cited papers in both


economics and psychology and a paper that has had a remarkable impact on many areas of social science (Coupe 2003 E R Goldstein 2011) Prospect theory was put forth as a descriptive alternative to EU theory built around a series of new vio-lations of EU including the common‐consequence common‐ratio and reflection effects as well as framing demonstrations in which some normatively irrelevant aspect of presentation had a major impact on the choices Kahneman and Tversky organized these violations by proposing two functions a value function that cap-tures how outcomes relative to the reference point are evaluated and exhibits loss aversion and a probability weighting function which reflects how individuals dis-tort probabilities in making their choices This chapter also discusses a number of other alternative models that were proposed (see Machina 1987 for an overview of some of these models) but prospect theory remains the most descriptively viable account of how individuals make risky choices (but see Birnbaum 2008) as dis-cussed in chapters in the two subsequent handbooks Chapter 20 (2004) and Chapter 2 (2015)

Chapter 12 (1988) covers the themes of framing and mental accounting One of the most important contributions of prospect theory is the idea that decisions might depend on how particular options are framed In Tversky and Kahnemanrsquos (1981) famous Asian Disease Problem the majority of subjects are risk averse when the out-comes are framed as gains (lives saved) The pattern reverses when outcomes are framed as losses (lives lost) These two patterns are reflected in the classic S‐shape of prospect theoryrsquos value function Thaler (1985) extended the value function to risk-less situations in proposing a theory of mental accounting defined as ldquothe set of cognitive operations used by individuals and households to organize evaluate and keep track of financial activitiesrdquo (Thaler 1999) These cognitive operations define how individuals categorize an activity as well as the relevant reference point with pre-dictions derived from using properties of the prospect theory value function Mental accounting continues to influence applications in economics and marketing (eg Chapter 19 2004 Benartzi amp Thaler 1995 Hastings amp Shapiro 2013) and is most likely to remain a topic of interest for JDM researchers in the coming years The main difficulty with framing is that the research on the topic is fragmented and there is cur-rently no unifying theory that can conjoin the different types of framing effects (Keren 2011)

Chapter 13 (1988) discusses models that incorporate a decision makerrsquos potential affective reactions The affective reaction in regret theory (Bell 1982 Loomes amp Sugden 1982) is a between‐gamble comparison resulting from comparing a realized outcome with what outcome would have been if another option were chosen In contrast disappointment theory (Bell 1985 Loomes amp Sugden 1986) invokes a within‐gamble comparison in which a realized outcome is compared with other out-comes that were also possible for that option Although the two theories in particular regret theory initiated extensive research on the psychological underpinnings of these emotions (eg Connolly amp Zeelenberg 2002 Mellers Schwartz Ho amp Ritov 1997) these models are generally not considered serious candidates as a descriptive model for risky decision making (see Kahneman 2011 p 288 for an explanation) A broader discussion of the role of affective reactions in decision making is found in Chapter 22 (2004)


Risk measures are the topic of Chapter 14 (1988) Coombs proposed that the value of the gamble reflects its expected value and its perceived risk (Coombs amp Huang 1970) Many risk measures including variance (Pollatsek amp Tversky 1970) have been proposed and studied (eg Luce 1980) However despite the intuitive appeal of Coombsrsquos proposition attempts to relate measures of perceived risk empir-ically with descriptive or normative utility have at best yielded mixed results (eg E U Weber 1988 E U Weber amp Milliman 1997)

Multiattribute decision making is the topic of Chapter 15 (1988) Many important decisions have multiple dimensions and thus the choice requires balancing and priori-tizing a number of conflicting objectives Multiattribute utility models have been used in important real‐world decision analytic applications such as the siting of Mexico City Airport (Keeney amp Raiffa 1976) Early empirical research on multiattribute decision making is summarized in Huumlber (1974) von Winterfeldt and Fischer (1975) and von Winterfeldt and Edwards (1986 Chapter 10) Some of these studies found correla-tions between intuitive valuations of multiattributed options and valuations resulting from an elicited utility model in the 07 to 09 range (von Winterfeldt amp Fischer 1975) Other studies examined whether subjects obey the axioms underlying these models These studies documented a number of biases including violations of some independence conditions (von Winterfeldt 1980) as well as response-mode effects in which the elicited weights depend on the mode of elicitation (see a summary of some of these results in M Weber amp Borcherding 1993 as well as in Chapter 17 2004)

Chapter 16 (1988) addresses intertemporal choice In a standard intertemporal-choice problem an individual must choose among outcomes of different sizes that can be received at different periods of time (see also Mischel amp Grusec 1967) A typ-ical example is a choice between $10 today and $11 tomorrow The utility of a delayed $11 is some fraction of the utility of an immediate $11 with the discount because that outcome is received tomorrow The classical model in economics discounted utility (Koopmans 1960) imposes constant discounting (the discount for delaying one day is the same for today or tomorrow as it is for one year and one year plus a day) Contrary to that model impatience tends to decline over time a pattern that is often summarized as hyperbolic discounting (Ainslie 1975 Thaler 1981) While the field has to a large extent accepted that discounting is best represented by a hyperbolic function this tenet has been challenged recently in a stimulating paper by Read Frederick and Airoldi (2012) Loewenstein (1992) offers an excellent account of the history of intertemporal choice Intertemporal choice remains a central topic in JDM research and is covered by Chapter 22 (2004) and Chapter 5 (2015)

The next part covers different approaches to judgment and decision making The topic of Chapter 17 (1988) is hypothesis testing Hypothesis testing has implications for a number of areas of judgment and decision making including learning from experience (Chapter 7 1988) tests of Bayesian reasoning (Chapter 3 1974) and option generation Fischhoff and Beyth‐Marom (1983) proposed that hypothesis testing could be compared to a Bayesian normative standard This framework has implications for a number of stages of hypothesis testing generation testing (ie information collection) and evaluation JDM researchers have documented biases in each of the stages including showing that individuals generate an insufficient number of hypotheses (Fischhoff Slovic amp Lichtenstein 1978) and use confirmatory test


strategies (see Chapter 18 1974 Klayman amp Ha 1987 Mynatt Doherty amp Tweney 1978) Other conceptual and empirical issues related to hypothesis testing are discussed in Chapter 10 (2004)

Chapter 18 (1988) covers algebraic decision models such as information integration theory (Anderson 1981) Algebraic models of these sorts use a linear combination rule to integrate cues to form a judgment and were put forth as theoretical frame-works for understanding human judgment The promise of Andersonrsquos cognitive algebra was that it could help unpack some aspects of cognitive process such as the role of different sources of information or the impact of various context effects (eg Birnbaum amp Stegner 1979)

Chapter 19 (1988) covers the Brunswikian approach Hammond (1955) adapted Brunswikrsquos (1952) theory of perception to judgmental processes For Brunswik understanding perception required examining the interaction between an organism and its environment and understanding how the organism made sense of ambiguous sensory information Hammond (1955) extended Brunswikrsquos ideas to clinical judg-ment in his case a clinician estimating a patientrsquos IQ from the results of a Rorschach test Hammondrsquos version of the Brunswikrsquos lens model related a criterion say IQ with some proximal cues say the results of the Rorschach test and the clinicianrsquos judgment (see also Brehmer 1976 Hammond et al 1975) The Brunswikian view as spelled out in Hammond et alrsquos (1975) social judgment theory has played a role in JDM research in emphasizing representative design ecological validity and more generally the adaptive nature of human judgment (see Chapter 3 2004)

The topic of Chapter 20 (1988) is the adaptive decision maker Payne (1982) pro-posed that the decision process an individual uses is contingent on aspects of the decision task Though pieces of this idea were found in Beach and Mitchell (1978) Russo and Dosher (1983) and Einhorn and Hogarth (1981) Paynersquos proposal is fundamentally built on a proposition put forth by Simon (1955) ldquothe task is to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms including manrdquo (p 99) Payne surveyed a number of task dimensions that influence which decision process is adopted including task com-plexity response modes information display and aspects of the choice set Johnson and Payne (1985) further developed this idea by suggesting that decision makers trade off effort and accuracy and proposed an accounting system for testing this idea Research on the adaptive decision maker is summarized in Payne Bettman and Johnson (1993) and Chapter 10 (2004)

Chapter 21 (1988) reviews process‐tracing methods designed for understanding the processes underlying judgment and decision making Many mathematical models of judgment and decision making are paramorphic in the sense that they cannot distinguish between different underlying psychological mechanisms (Hoffman 1960) Cognitive psychologists have introduced a set of process‐tracing methods that provide insight into how individuals process information (Newell amp Simon 1972) Ericsson and Simon (1984) developed methods for studying verbal protocols The value of these methods was questioned in an influential study by Nisbett and Wilson (1977) who argued that subjects do not always have access to the reasons underlying their judgments and decisions JDM researchers have employed other

The Wiley Blackwell Handbook of Judgment and Decision Making



Edited by















1 2015

Contents

Contributors vii













vi Contents









Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise

































Edited by















1 2015

Contents

Contributors vii













vi Contents









Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise












































1 2015

Contents

Contributors vii













vi Contents









Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































Contents

Contributors vii













vi Contents









Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































vi Contents









Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































Contributors



















viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































viii Contributors




























Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































Contributors ix





























1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise




































1


































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise






























































II Uncertainty






III Choice Behavior

7 Utility Theory






V Other Topics
























































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise














































































4 Overconfidence

5 Hindsight Bias



8 Linear Models


III Decisions




14 Measures of Risk



IV Approaches


18 Algebraic Models




V Applications


23 Negotiation


24 Risk Perception

10 Expertise































thumbnail - download.e-bookshelf.de · contributors ix todd rogers harvard kennedy school, usa alan...

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