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How we decide

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The process by which we make decisions

The process by which we make decisions

Published in: Economy & Finance, Business

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  • 1. How we decide
  • 2. Who knows what I want to do? Who knows what anyone wants to do? How can you be sure about something like that? Isn't it all a question of brain chemistry, signals going back and forth, electrical energy in the cortex? How do you know whether something is really what you want to do or just some kind of nerve impulse in the brain? Some minor little activity takes place somewhere in this unimportant place in one of the brain hemispheres and suddenly I want to go to Montana or I don't want to go to Montana. — DON D E L I L L O , White Noise
  • 3. Overview
    • The brain has two "halves", the rational left hemisphere and intuitive, emotional right hemisphere
    • Good decision making requires judicious use of both
    • Use Emotional brain when no time to make a decision (or if there are too many variables)
    • Use Rational brain when faced with completely unfamiliar situation
  • 4. Plato’s horses Reason Emotion Plato – Successful person – Reason horse is more in control
  • 5. Do we need emotions
    • Plato - Emotions not required
    • Descartes - Human beings are rational
    • David Hume -Scottish philosopher - Reason is the slave to passions - is right
    • Seat of emotion - Orbitofrontal cortex 
    • (orbito=eye socket in latin)
    • Antonio Damasio - – Elliots Tumour When OFC is removed, people cannot make simple decisions (parking car, what to eat, use blue or black pen)
  • 6. Emotions in decision making
    • Making quick decisions
    • Pilot with engine on fire, Quarter back in american football
    • Reason for flight simulator training is to train in lot of situations
    • Too many variables in decisions
    • Making daily soaps - no luxury of retakes 
    • Most important decision - casting
    • Deciding on a house
    • When the mind makes a choice (good food, romantic prospect etc) it has already considered the alternatives - the analysis takes place outside conscious awareness
    • Consciousness is a small part of the brain, it is slave to everything that works underneath
  • 7. Feelings and behavior
    • Charlie track scenario – kill 1 or 5
      • Two scenarios
      • Why does one feel very wrong ?
    • Feeling drives moral behavior
  • 8. Emotions and Dopamine
    • Gulf war - Commander had to decide whether radar blip was friendly jet or Iraqi silkworm missile
    • Olds and Milner – 1954 – discovery of dopamine
    • Nucleus Accumbens – generates pleasurable feelings
    • Experiment- Electrodes in NaCC - Too much pleasure - excess dopamine - fatal to rats – can die of overhappiness
  • 9. Role of Dopamine
    • Wolfram Schultz - Neuroscientist
    • Gave monkeys apple juice, dopamine neurons fire
    • More apple juice, dopamine neurons started to fire less
      • Same with ipad, ipod etc, after a week the dopamine doesn’t fire (maybe little longer for a house)
    • Prediction neurons (if juice not given, error correction – learning)
    • Brain learns by making mistakes
  • 10. Dopamine neurons fire here O-shit circuit, alerts to some abnormal thing
  • 11. Learning and the ACC
    • Experiment – Monkeys with Joystick - Lifting or turning would provide reward - switched after every move.
    • Monkeys with ACC removed had problems learning from their mistakes.
    • People with genetic defect that reduces dopamine receptors in ACC are less likely to learn from negative sequences, more addicted to drugs/alcohol
    • ACC - has spindle neuron - long and slender - other neurons are short and bushy - for communicating effects of dopamine quickly to the rest of the brain
  • 12. Emotions versus logic
    • Iowa gambling task - four card decks, each card told player whether he had won or lost money. Two were rigged (reward 100, penalty 1250), the other had lower reward (50) but no penalty. It took about 80 cards to learn the logic of drawing from the second pack but after 10 cards, the emotions detected the wrong packs
    • Logic is slow
    • Neurologically impaired people who could not feel emotions were never able to learn the rules.
    • Stocks you feel good about - emotional brain can identify the best stocks
  • 13. Fooled by feeling
    • Parkinsons disease - of dopamine system - neurons start to die in part of brain that controls body movements
    • Treatment - requip - increases effectiveness of remaining neurons to transmitting dopamine - lead to gambling
  • 14. Metacognition
    • Cant remember a name but we know that we know it (tip of tongue)
    • Aware of being aware
  • 15. Dopamine and overconfidence
    • Hot hand in baseball
    • T-shaped maze - food with 60% probability at left, rats discovered this and always went to left of maze, got accuracy of 60%. Yale undergraduates got 50% on the same experiment
    • Dopamine can make random processes seem like patterns (e.g. stock market successes can lead to feeling of infallibility)
    • Regret can induce wrong decisions (overcompensate for a bad past decision)
  • 16. Loss aversion
    • Kahnemann and Tversky
    • $1.75 to $2 for a bet of $1
    • For every critical thing you say to someone (e.g. spouse) you have to say 5 nice things to make up for it
      • Nice things don’t last that long in memory
    • People more likely to sell a stock that has gone up
      • The brain doesn’t want to take a loss
      • Leads to a portfolio of loss making stocks
  • 17. Deal or no Deal
    • Briefcases with various amounts ($1, $10000, $500000)
    • Participants made offers by banker
    • Best strategy – accept anything above mean of the remaining money
  • 18. Pre-frontal cortex – The seat of reason Damage to PFC – People are driven entirely by emotions Cannot contain self-destructive behavior
  • 19. The uses of reason
    • Firefighting incident
    • DC-10 with stabilizer gone (UA flight 232)
    • Need to keep emotions in check sometimes
  • 20. Framing problem
    • Brain avoids something framed as loss
      • Example – Rs 100000
    • Surgery
      • 80% chance of surviving instead of 20% dying
  • 21. Delayed gratification
    • Marshmallow test - 4 year olds
      • Students who could delay gratification did better academically (12 years later)
    • Adolescents are less rational
      • Engage in more risky and impulsive behavior
      • Max number of car accidents in teen groups
    Marshmallows
  • 22. Stroop task Green Red Blue Purple Blue Purple
  • 23. Stroop test Blue Purple Red Green Purple Green
  • 24. Choking on thought
    • Opera singers, Golf players - Thinking about performance degrades the performance at the expert level
    • Jam test – when asked to explain why they preferred jams, students did badly
      • Thinking too much leads us to focus on all sorts of variables and degrades decision making
  • 25. Choking on thought
    • Baba Shiv - Stanford - Energy drink - one at 30% discount, people who drank the discounted drink solved fewer puzzles than the ones who paid full price.
    • Cake vs fruit salad - people who were asked to remember seven digits chose cake and people who were asked to choose two digits chose fruit salad, a mind trying to remember lots of information is less able to exert control over impulses
    • Last two numbers of social security number- those with higher last two digits bid more
    • Stocks - people who saw only the prices made better decisions
  • 26. Functional magnetic resonance imaging
    • Tool for brain research
    • Enables visualization of blood flow (closely linked to neural activity)
    • For a typical fMRI scan, the 3D volume of the subject's head is imaged every one or two seconds, producing a few hundred to a few thousand complete images per scanning session
  • 27. Final takeaways
    • Brain is “buggy”, evolution has had less time to shape rational decision making
    • There is a “swiss army of tools” in the brain
    • Good decisions need to make use of these tools (emotion, reason, meta-cognition)
      • How we think depends on what we are thinking upon