Participants appear to anchor on a recent pattern of orders and inventory levels.Participants believe they are at the mercy of forces beyond their control, believing that customer demand was oscillatory.
Bonaccio & Dalal (2006). Egocentric advice discounting – judges overweight their own opinion relative to that of advisers and only shift their position a token amount towards the adviser’s recommendation.People give more weight to advice from experts, older people, and those perceived to have greater life experience and wisdom.People weight advice more if they paid for it.
Judgment and decision making
Judgment and Decision Making: Psychological Perspectives Dr David Hardman London Metropolitan University
Lecture overview• General approach taken to judgment & decision making by psychologists• Heuristics & biases• Dynamic decision making• Decisions in groups and teams• Taking advice
General psychological approach• Limited capacity information processors• Bounded rationality (Simon, 1955; 1956)• Use of heuristics (Kahneman, Slovic, & Tversky, 1982), often associated with biases• Ecological vs. normative rationality (Gigerenzer, Czerlinski, & Martignon, 2002)• Intuitive vs. Reflective thinking
Heuristic processes in judgment• Anchoring and adjustment• When was George Washington elected president of the USA?(Epley & Gilovich, 2001)
Clinical versus actuarial prediction• Linear models are better predictors than human judges• E.g. Einhorn (1972), predicting survival time following a diagnosis of Hodgkin’s Disease• Interviews are poor predictors of future performance (e.g. DeVaul et al, 1987)
Clinical versus actuarial predictionWhy are statistical models better?• Always applied consistently (e.g. people experience fatigue or boredom)• People sometimes focus on information that has little or no relevance• People may select appropriate information but weight it inappropriately• When given additional information people often identify individual cases as exceptions to the rule• People may be exposed to skewed samples• People are subject to the fundamental attribution error in interview situations• Prompt accurate feedback is not always available to people• People may be unduly influenced by recent experience or irrelevant variations in task description
Biases in decision making• Framing effects (e.g. Tversky & Kahneman, 1981)• Sunk costs (e.g. Arkes & Blumer, 1985)(There are many other biases!)
Framing effectsImagine that the US is preparing for the outbreak of anunusual Asian disease that is expected to kill 600 people. Twoalternative programs to combat the disease have beenproposed. Assume that the exact scientific consequences ofthe programs are as follows.Program A. If Program A is adopted 200 people will be saved.[72%]Program B. If Program B is adopted there is a 1/3 probabilitythat 600 people will be saved and a 2/3 probability that nopeople will be saved. [28%]Which of the two programs would you favour?
Framing effectsImagine that the US is preparing for the outbreak of anunusual Asian disease that is expected to kill 600 people. Twoalternative programs to combat the disease have beenproposed. Assume that the exact scientific consequences ofthe programs are as follows.Program C. If Program C is adopted 400 people will die. [22%]Program D. If Program D is adopted there is a 1/3 probabilitythat nobody will die and a 2/3 probability that 600 people willdie. [78%]Which of the two programs would you favour?
Sunk cost effects• Ohio University Theatre study (Arkes & Blumer (1985)• Season tickets randomly sold at $15, $13, and $8
Dynamic DecisionsThe Beer Distribution Game(Sterman, 1989)• Four players: manufacturer, distributor, wholesaler, retailer. Each begins the game with 12 cases of beer.1. Retailer turns over “demand card”, places order with wholesaler.2. Wholesaler orders from distributor.3. Distributor orders from manufacturer.
Complicating factors in the Beer DistributionGame:• Time delay between ordering and receiving beer.• There is a charge of $0.50 for each case of beer held in inventory.• If a player runs out of beer there is a $1 fine for each case currently being demanded.
Pattern of ordering in the Beer DistributionGame:• The first four weeks (trials) are practice only.• In the first three weeks everyone is directed to order four cases. From week four they can order what they like.• In week 5 the retailer’s demand card jumps to eight cases and remains there for the rest of the game.
Behaviour in the Beer Distribution Game• Oscillatory patterns between over-ordering and under-ordering. Costly cycles of boom and bust.
“Many participants are quiteshocked when the actualpattern of customer orders isrevealed; some voice strongdisbelief. Few ever suggestthat their own decisions werethe cause of the behaviourthey experienced. Fewer stillexplain the pattern ofoscillation in terms of thefeedback structure, timedelays, or stock and flowstructure of the game”(Sterman, 1989, p.336)
Dynamic Decisions• On other tasks, • Longer feedback delays performance is typically are associated with sub-optimal (though worse performance not necessarily a cyclical (Diehl & Sterman, 1995) pattern)• Learning tends to be implicit (Berry & Broadbent, 1984)• Learning tends to be local
Individual differences in dynamic decision makingIntelligence Decision styles• In DDM higher cognitive • Evidence is rather weak ability is associated with (a) • Different studies claim to less use of heuristics and (b) identify different styles better performance (e.g. • Though intuition vs Gonzalez, 2004) reflection are often• IQ is a better predictor of identified job performance than any • Can “styles” be other known factor distinguished from• Though see also Stanovich “ability”? & West (2008) • Few studies investigate real- world performance (but see Scott & Bruce, 1995)
Groups, Teams, and LeadershipSocially cohesive teams Diverse teams• More willing to share • More unique knowledge unique information held by members• But have less unique • But may be less willing to information to share share it (problem of hidden profiles)
Decisions in Groups and TeamsSome problems of group decision making:• Conformity to majority opinion (a problem if the majority is wrong)• Obedience to authority• Group polarisation• Groupthink
Possible techniques for improving group processes• Brainstorming? Ineffective.• Electronic brainstorming. Effective.• Decision rules: - averaging (in the absence of discussion) works well for numerical estimates - majority rule for decisions appears superior (Hastie & Kameda, 2005)• Systematic procedures: Delphi technique; Decision conferencing.
Taking advice• One of the most robust findings is egocentric advice discounting (Bonaccio & Dalal, 2006)• People weight advice more heavily if they’ve paid for it• Some advisers have more influence than others• What should you do if two advisers provide conflicting forecasts?• People often rely on a confidence heuristic (Price & Stone, 2004)• People experiencing feelings of power discount advice from both novices and experts (Tost et al, 2012) and are more overconfident in their decisions (Fast et al, 2012)
Summary• People are imperfect, inconsistent decision makers• Susceptible to various influences, e.g. framing, sunk costs• Suboptimal performance on dynamic decisions; implicit learning• Group decision making isn’t a cure• Egocentric advice discounting
ReferencesKey reading:Hardman, D. (2009). Judgment and decision making psychological perspectives.Chichester, UK: BPS-Blackwell. [see especially chapters 11 and 13]Selected papers:Bonaccio, S., & Dalal, R.S. (2006). Advice taking and decision-making:An integrativeliterature review, and implications for the organizational sciences. OrganizationalBehavior and Human Decision Processes, 101, 127-151.Diehl, E., & Sterman, J.D. (1995). Effects of feedback complexity on dynamic decisionmaking. Organizational Behavior and Human Decision Processes, 62 (2), 198-215.Gonzalez, C. (2004). Learning to make decisions in dynamic environments: Effects oftime constraints and cognitive abilities. Human Factors, 46 (3), 449-460.Hastie, R., & Kameda, T. (2005). The robust beauty of majority rules in group decisions.Psychological Review, 112 (2), 494-508.Sterman, J.D. (1989). Modeling managerial behavior: Misperceptions of feedback in adynamic decision making experiment. Management Science, 35 (3), 321-339.