Outline

1
9/8/2014

• Outline
• Decisions
• The representativeness heuristic
• The availability heuristic
• Anchoring and adjustment
• The simulation heuristic
• Undoing and hindsight biases
• Limited domain knowledge
• Processing resources
• The Framing Effect
• Limitations in reasoning
• Naïve Physics
• Limitations in resources

Study Question. Compare and contrast the
representativeness and the availability
heuristics. Describe the framing effect. What
is loss aversion? When do we tend to become risk
takers when maker decisions?
2
Decisions

• Algorithms and Heuristics
• Reasoning under uncertainty Inductive reasoning
• Algorithms A specific rule or solution procedure
  that is guaranteed to furnish the correct answer
  if it is followed.
• E.g., finding a forgotten phone number
• Heuristics A strategy or approach that works
  under some circumstances, but is not guaranteed
  to produce the correct answer.
• Kahneman and Tverskys work
• Behavioural decision work
• Ups and downs of heuristics
• Cf. Visual illusions

3
Decisions

• Algorithms and Heuristics
• The representiveness heuristic
• E.g., Flip a coin 6 times, which is more likely
• HHHHHH or HHTHTT
• Which lottery ticket is most likely to win the
  next 6-49?
• 04-11-19-29-33-39 or 01-02-03-04-05-06
• The representativeness heuristic - samples are
  like the populations that they are pulled from.
• The representativeness heuristic leads to a
  number of decision biases

4
Decisions

• The representiveness heuristic
• The law of small numbers
• Who is more likely to have days where more than
  60 of the births are male? St. Marthas or the
  IWK?
• Ignoring base rates
• John Truck driver or classics professor at
  Dalhousie?
• The Gamblers fallacy
• The hot hand in basketball

5
Decisions

• The Representativeness Heuristic, revisited
• The birthday bet
• If you bet against the birthday bet, what is
  P(winning)?
• Person 2 -gt 364/365 .99
• Person 3 cannot have the same birthday as 1 or 2
• Person 2 cannot have the same birthday as 1
• Multiplicative Rule The joint probability of two
  independent events is the product of their
  individual probabilities
• Person 3 -gt 363/365 X .99 .99
• Person 4 -gt 362/365 X .99 .98
• Person 5 -gt 361/365 X .98 .97
• Person 6 -gt 360/365 X .97 .95

6
Decisions

• The Representativeness Heuristic, revisited
• The birthday bet
• Person 10 -gt 356/365 X .90 .88
• Person 15 -gt 351/365 X .77 .75
• Person 20 -gt 346/365 X .62 .59
• Person 25 -gt 341/365 X .46 .43
• Person 30 -gt 336/365 X .32 .29
• Person 35 -gt 331/365 X .21 .19
• Person 40 -gt 326/365 X .12 .11
• Person 45 -gt 321/365 X .07 .06
• Person 50 -gt 316/365 X .03 .03

7
Decisions

• The Availability Heuristic
• Our estimates of how often things occurs or are
  influenced by the ease with which relevent
  examples can be remember
• This leads to a number of biases
• E.g. Listen to this list of names
• E.g., Answer the following
• 1) Which is a more likely cause of death in the
  United States being killed by falling airplane
  parts or being killed by a shark?
• In the United States, the chance of dying from
  falling airplane parts is 30 times greater than
  dying from a shark attack.
• 2) Do more Americans die from a) homicide and car
  accidents, or b) diabetes and stomach cancer?
• More Americans die from diabetes and stomach
  cancer than from homicide and car accidents, by a
  ratio of nearly 21.
• 3) Which claims more lives in the United States
  lightning or tornadoes?
• Lightning

8
Decisions

• The Availability Heuristic
• Important factors
• Vividness and Saliency
• E.g., the full moon
• Repetition effects
• Anything that makes recollection easier
• Role of the media

9
Decisions

• The simulation heuristic
• Forecasting how some event might have turned out
  under another set of circumstances
• E.g., Mr. Tees and Mr. Crane
• E.g.,Medvec et al. (1995)
• Examined tapes of 41 athletes from 92 Games
• Judges rated athletes on scales from agony to
  ecstasy
• Bronze medalists happier than silver medalists
• Counterfactual thinking
• Undoing heuristic

10
Decisions

• The hindsight bias
• I-knew-it-all-along phenomenon
• Anchoring and adjustment
• Determine the following

8 X 7 X 6 X 5 X 4 X 3 X 2 X 1
1 X 2 X 3 X 4 X 5 X 6 X 7 X 8
Kahneman and Tversky found 1) 2.250 2)
512 (Actually 10,320)
11
Decisions

• A large city is on the verge of a rare asian bird
  flu outbreak and it is expected that 600 people
  will be infected. Two alternative programs have
  been proposed to fight the disease. Assume that
  these are the exact scientific estimates of the
  two programs
• If Program A is adopted, 200 people will be
  saved.
• If Program B is adopted, there is a one-third
  possibility that 600 people will be saved, and a
  two-thirds probability that no people will be
  saved.
• Which program would you favour?

12
Decisions

• The framing effect (Kahneman Tversky)
• The wording of question in conjunction with the
  background context can influence the decision.
• Both of the previous plans were rejected,
  consider the following
• If Plan C is adopted, 400 people will die.
• If Plan D is adopted, there is one-third
  probability that nobody will die, and a
  two-thirds probability that 600 people die.
• Kahneman Tverskys results

13
Decisions

• The framing effect (Kahneman Tversky)
• Risk seeking and avoidance
• When questions are framed in terms of gains we
  avoid risk (Prefer A over B)
• When framed in terms of losses we are
  risk-seekers (Prefer D
  over C)
• Other findings relating to the Framing Effect
• It is unrelated to statistical sophistication
• It is not eliminated when the contradiction is
  pointed out

14
Decisions

• The framing effect (Kahneman Tversky)
• You buy an advance ticket for 20 to see the
  Harlem Globetrotters play at the Oland Centre.
  When you get to the game, you discover that you
  have lost your ticket. Do you shell out 20 for
  another?
• The Framing effect has been demonstrated in a
  number of contexts
• Vaccinations
• Treating lung cancer
• Genetic counseling
• Gambling choices
• Buying refridgerators

15
Decisions

• The framing effect (Kahneman Tversky)
• You go to the Oland Centre to see the Harlem
  Globetrotters play. Tickets cost 20. When you
  get to the ticket booth, you discover that you
  have lost twenty bucks. Do you buy a ticket
  anyway?
• T Ks results (theatre ticket for 10)
• Lose ticket - 46 buy another ticket
• Lose 10 - 88 buy another ticket
• The framing effect works for background
  information as well wording

16
Decisions

• The framing effect (Kahneman Tversky)
• Implications for the legal system
• You are to decide an only-child sole-custody case.

Parent A Average income Average health Average
working hours Reasonable report with the
child Relatively stable social life
Parent B Above average income Very close
relationship with child Extremely active social
life Lots of work-related travel Minor health
problems
To whom do you award sole custody? -gt 64 Chose
Parent B To whom would you deny sole custody? -gt
55 Chose Parent B.
17
Decisions

• The framing effect (Kahneman Tversky)
• You have decided to leave your current job,
  because it is an 80 min commute each way even
  though you like the pleasant social interaction
  with your co-workers. You have two options for a
  new job
• Job A Limited contact with others 20 min commute
• Job B Moderately social 60 min commute
• Loss aversion
• We are far more sensitive to losses than to gains
• K T Receive 20 for a heads, pay 10 for a
  tails

18
Decisions

• The framing effect (Kahneman Tversky)
• You have decided to leave your current job,
  because it leaves you isolated from your
  co-workers even though you like the 10 min
  commute in each direction. You have two options
  for a new job
• Job A Limited contact with others 20 min commute
• Job B Moderately social 60 min commute
• Loss aversion
• Scenario (1) - 67 chose Job B
• Scenario (2) - 70 chose Job A

19
Decisions

• The framing effect (Kahneman Tversky)
• Some weeks ago, you saw an add in the newspaper
  for a reduced rate for a week-end at a nearby
  resort. You sent in a 100 nonrefundable
  deposit. When the weekend arrives you set off
  with your partner. Both of you are extremely
  tired and somewhat ill and about half way to the
  resort you both realize that you would probably
  have a more pleasurable weekend at home.
• Do you turn back?
• The sunk-cost effect A tendency toward taking
  extravagant steps to ensure that a previous
  expense was not in vain.

20
Decisions

• Limitations in reasoning
• Limited domain knowledge
• Our cognitive representation of the situation
  (AKA mental model) often has incomplete
  information.
• Thermostats do not work like water faucets
• Hitting the elevator button 5 times is not faster
  than hitting it once
• 20 C is not twice as warm as 10 C
• Quasi-magical behaviour

21
Decisions

• Limitations in reasoning
• Limited domain knowledge
• Our cognitive representation of the situation
  (AKA mental model) often has incomplete
  information.

22
Decisions

• Limitations in reasoning
• Naïve Physics and Mental Models (McCloskey et al.)

23
Decisions

• Limitations in reasoning
• Results (A B)

24
Decisions

• Limitations in reasoning
• Results (C)

25
Decisions

• Limitations in reasoning
• Domain of knowledge
• Our domain of knowledge concerning physics is
  poor.
• Impetus theory a pre-Newtonian and incorrect
  concept concerning curvature momentum
• Linda is 31 years old, single outspoken, and
  very bright. She majored in philosophy. As a
  student she was deeply concerned with the issues
  of discrimination and social justice, and also
  participated in anti-globalization
  demonstrations.
• Rank the following in terms of their likelihood
  of describing Linda
• Linda is a teacher at a local elementary school
• Linda is a bank teller and is active in the
  feminist movement
• Linda is an insurance agent
• Linda is psychiatric social worker
• Linda is a bank teller

26
Decisions

• Limitations in reasoning
• Conjunction fallacy Judging the probability of a
  conjunction to be greater than the probability of
  a constituent event.
• Representativeness heuristic

27
Decisions

• Limitations in reasoning
• Limitations in processing resources
• Waltz et al.
• Tested temporal lobe injured, prefrontal lobe
  injured, and normals
• Two tests
• TransitiveiInference problems
• E.g., John is taller than Sam Sam is taller than
  Tim (2 propositions)
• Raven Standard Progressive Matrices test

28
Decisions

• Limitations in reasoning
• Limitations in processing resources
• Waltz et al.

29
Problems for upcoming lecture

• Complete the following Sequence
• O, T, T, F, F, S, S, E, N, .
• A Buddhist Monk leaves for a retreat atop a
  nearby mountain. He leaves at 600 AM and follows
  the only path that leads up the mountain. He
  travels quickly some of the way, he travels
  slowly, he stops for breaks. He arrives at the
  top of the mountain at 600 PM. The next morning,
  at 600 AM, he descends the mountain, again
  travelling at varying paces and with breaks. He
  arrives at 600 PM
• Is there a point on the trail that the monk
  would have passed at exactly the same time of day
  on the way up and on the way down the trail?
• Three hobbits and three orcs need to cross a
  river. There is only one boat, and it can only
  hold two creatures at a time. This presents a
  problem Orcs are vicious and whenever there are
  more orcs than hobbits they immediately attack
  and eat the hobbits. Thus, you can never let orcs
  outnumber hobbits on either side of the river.
• Can you schedule a series of crossing that will
  get everyone safely across the river?

30
Problems for upcoming lecture

• Connect these nine dots with four connected
  straight lines.

Three people play a card game. Each player has
money in front of them (their ante). One each
hand of this game, one player loses and the other
two players win. The rules state that the loser
must use the money in front of them to double
the amount of money in front of each of the other
two players. They stake their antes and play
three hands. Each of them loses once and no one
goes bust. The each finish with 8.00. What were
the original antes (Hint it is not 2 each).
A landscaper has been instructed to plant four
new trees such that each one is exactly the same
distance away from each of the other trees. Is
this possible?