Decision_making_final

Reasoning and Emotions - How do
People Make their Choices?
Main concepts: decision making,
uncertainty, probability, and risk
08/31/15 Baltic Psychology and Management University College (Riga) Dr.biol. I.Kalva 1

Everyday people solve tasks, make choices and
(or) make decisions under uncertainty
• Investors buy stocks
• Engineers design bridges
• Entrepreneurs run their business
• Judges give verdict of guilt
• Doctors diagnose the disease
• Doctors prescribe treatment
• Officials calculate the costs of scientific
research

Decision making as making a choice
• All the choices could be divided into 3 main
groups:
• Informational decision (to recognize what
happened?)
• Operative decision (how to act, what to do?)
• Organizational decisions (whom to shorten,
whom to vote?)

Choices in everyday life and personal life
Crossing the street at the unregulated
crossroad
The use of products of dubious origin
Repair electric wiring
Unprotected sex
Child without supervision
Entering a college

Were you making a
risky choice this
morning?
Is it good to make
risky decisions?
What says a voice
of people?
Risk is the potential that a chosen action or
activity (including the choice of inaction) will
lead to a loss (an undesirable outcome)(Wiki)

Sayings and proverbs with a positive assessment
of the risk
• Risk - a noble cause
• Without risk there is no business
• A big risk - a big benefit
• Nothing ventured, nothing gained

Expressions implying a negative assessment of
the risk
• A risky move
• Play for safety
• To reduce the risk to a minimum
• Look before you leap
• Unreasonable risk
• A rash decision

08/31/15
Baltic Psychology and Management
University College (Riga) Dr.biol.
I.Kalva
8

Avoidance of decision making – is an incorrect
decision.
A hypothetical situation
wherein an ass that is
equally hungry and thirsty
is placed precisely midway
between a stack of hay
and a pail of water: it will
die of both hunger and
thirst since it cannot make
any rational decision to
choose one over the other

Is it possible to improve our ability of
making decisions?
• Can people be taught to improve their reasoning and
problem solving/making decision abilities?
• Whom to entrust a process of decision instead of
ourselves?
• To get know this, we need to consider all the components
relevant to the term of “decision making”, both
separately and together in their interaction:
• u n c e r t a I n t y
• p r o b a b I l I t y
• r I s k

How do we make decisions?
• If you ask the person whether he could
describe how he makes decisions, he (she)
likely will answer: “I think”.
• Researchers usually compare the actions of
people in decision-making: compare what
people actually do (1), with that they would
have to do (2).
• (1) - is a descriptive process (describing), and
(2) – prescriptive process.

• Prescriptive theories teach us the rules.
• If we follow the rules, we think rationally and
logically .
• In practice we do not always think in this way:
in some cases we make decisions
irrationally.

“The perfect is enemy of the good”
Two styles of decision making.
“Satisficers look until they find something
good enough, then stop.” (S.Aamodt, S.Wang)
Maximizers can not recognize when an
alternative is good enough, spend lot of time
seeking the best.

Satisficing
• “The rational course is to stop looking for a
better solution to a problem when the cost of
continuing to search for it becomes greater
than the potential benefits of finding it.”
(B.Giles)
• The idea behind satisficing was introduced by
economist and psychologist H.A.Simon.08/31/15 Baltic Psychology and Management University College (Riga) Dr.biol. I.Kalva 14

Uncertainty and probability
• The majority of our decisions deal with
probabilities.
• The term “probability” has various meanings.
• Probability – is a measure of frequency of
some event appearance during enough long
time period.
• If the event happens frequently, a probability
of it’s appearance is high.

Objective probability
• If you toss a coin,
there is possible two
outcomes: heads or
tails.
• Eeach of them has a
probability 50%.
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Baltic Psychology and Management University College (Riga) Dr.biol. I.Kalva16

Objective probability
• If you roll a die, the chances of it coming up on
any number are 1 in 6 (roughly 0.17, or 17%).
Each of die numbers is considering as separate
event. A probability of this event is 0.17, or
17%.

How we had got this figure (0.17)?
• It was gained as the ratio of the number of
ways leading to definite outcome (1) to the
number of possible outcomes (6).
• That was a rational, prescriptive, based on
mathematical statistics problem solving
approach under uncertainty.

0 < P < 1
• Probabilities are expressed as numbers
between zero and one.
• Numbers bigger than 0.5 mean higher
probability.
• Numbers smaller than 0.5 mean lower
probabilities and refer to unlikely events.
• A sum of probabilities of all alternatives must
be equal with 1 (heads – 0.5 and tails -0.5).

Tree of probability
• If we feel some difficulties with evaluating of
probability of several outcomes, or events, the
tree of probabilities would be helpful for us.
•
http://www.youtube.com/watch?v=mkDzmI7YOx0
• tree of probability

Subjective probability
• A term “probability” sometimes is used to
express an extent of personal confidence
about appearing of some outcome.
• For example, if you apply a new job, and are
confident about successfully passed interview,
you can assess you chances to get this job as
80%.
• That meaning of probability was not gained
through mathematical calculation.

• Subjective probability means a personal
evaluation of likelyhood/ probability of some
event.
• Psychologists revealed human judgements
about probability to be wrong enough
frequently, nevertheless people use them as
guidance (rely on them in many situations)
very often.

• The Bayesian interpretation of probability can
be seen as an extension of logic that enables
reasoning with propositions whose truth or
falsity is uncertain.
• To evaluate the probability of a hypothesis,
the Bayesian probability specifies some prior
probability, which is then updated in the light
of new, relevant data.
• (Wiki)

A thirst of certainty is rooted very deeply in our
brain
• Humans as biological bodies feel good with
concrete practical information and become
stressed in uncertain circumstances.
• Instinctive behavior is a strongly determined
choice (just a lack of choice), caused by
heredity.
• If animal has not no ready program how to
response, it must think!

Finding of regularities in randomness
• Therefore human brain strives to decrease
uncertainty and just prefers a bad explanation
to lack of explanation.
• Investigators have argued that humans try to
ﬁnd patterns in sequences of events even
when told the sequences are random.

Reasons of “subjectivity”
• It is difficult for men to understand a nature of
randomness (an example with student , whom fall an
examination question No 13 or 21)
• Except of some cases with outcome
probability 0% or 100%, we are not able to
predict preciously what will happen at each
concrete moment.
• This means our possibilities to make good long
term forecasts, and bad short time forecasts.

Common mistakes
• As Diana Halpern claims, just well educated
professionals are likely to make wrong
decisions. But their incorrect decisions are
predictable.
• Despite of long education years, professionals
make the same mistakes that people without
a special education.

Misconceptions
• Misconception- that is a mistake, or bias in the
thinking process.
• You can find impressive list of cognitive biases
(including mistakes of perception, memory,
probability, decision making, social
interactions) on this site:
• http://
en.wikipedia.org/wiki/List_of_cognitive_biase
s

Some examples of cognitive biases
• Tendency for confirmation. Tendency to select
the information that is in line with our views.
• Overconfidence
• Heuristics
• Optimism
• Trap
• Psychological reactivity
• Emotional states

Monty Hall TV show – you can win a car – guess
where is it?

Monty Hall TV show – do you want now to
change your choice?

• http://www.youtube.com/watch?
v=mhlc7peGlGg
• Monty Hall paradox

An example from D.Kahneman and
A.Tversky studies
• There is a common rule to account a
probability of appearance of two events
together- a conjunction rule.
• If you wish to calculate such a probability you
have to multiply both of probabilities (do you
remember a tree of probabilities?)
• People usually don’t remember…

Heuristics : “+” or “-”?
• The disadvantage of heuristics is that in some
circumstances a heuristic may lead to the
wrong decision.
• (The availability heuristic played the role in
the test about the most likely causes of death
carried out by psychologists).

Optimism bias as overestimation of
desirable outcome

Оptimists
Optimists expect an
appearance of
important events –
overestimate
probability of positive
outcomes
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Pessimists
Pessimists
underestimate
existing possibilities
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What do you choose?
A B
With a probability 0.5 you can get
1000 $
Or with probability 0.5 you can get
nothing
For certain you can get
500 $

What do you choose?
C D
With a probability 0.5 you can
lose 1000 $
Or with probability 0.5 you can
lose nothing
For certain you can
lose
500 $

From D.Kahneman and A.Tversky studies
Reasoning biases were illustrated above:
choice dependence of that how is the
information represented: in terms of gain or loss.
Conclusion: people are more prepared to take
risks to prevent losses than to make gains.
In practice this phenomena takes place broadly
in concern with consumers/purchasing behavior.

Loss aversion as risk aversion
• Loss aversion means that the loss of some
quantity (say, $100) makes people more
unhappy than a gain of $100 makes them
happy. (A cap, prize…)

The increase in “utility” for person as a function of
“wealth” (the amount of money he or she gains)

Money and happiness
• So, happiness increases more slowly as the
amount of money gained increases.
• Twice as much money makes us happier than
we were before, but not twice as happy.
(Remember loss averse!)
• (Example with TV set and DVD player/ discounts. Better if
each of them have 100$ discount as they together have one
discount $200).

Some conclusions
There are two ways of decision making:
1) Logical, rational, analytical, conscious,
(reasonable, based on calculations) ;
2) Irrational, unconscious, intuitive?,
(emotional, based on experience).
(Variances in terminology are existing)

Some conclusions
• Irrational decisions are made due to feeling that they
were correct, out of consideration all options with their
advantages and disadvantages.
• Advantage of the irrational one : it is fast made and
under conditions of insufficient/implicit information.
• Disadvantage of the analytical one - it is more easily
disrupted by outside stimuli, such as stress.

How do emotions manage our behavior?
• Basic biological emotions are used by the
brain to organize animal behavior with
expediency (with a purpose):
• To safeguard of dangerous predators (fear)
• To safeguard of spoiled food (disgust)
• To control our valuable resources (malice,
anger)
• To seek good food and partners (pleasure)
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Baltic Psychology and Management University College (Riga) Dr.biol. I.Kalva
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• Accordingly to the need-informational theory
of emotions (Simonov P.V.), an emotion
origins as a response to expected changes of
environment and is a function of two major
factors:
• (1) power and quality of actual need (or drive,
or motivation) and
• (2) estimation of probability (possibility) of
need satisfaction.

• If probability of need satisfaction seems to be
low – “negative” emotions;
• If the brain evaluates chances to satisfy the
actual need as high – origin “positive “
emotions.
• Anger, fear, disgust – contrary to joy.
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• If some object frightens us, we do not choose the
way how to approach it, oppositely, we choose
the way how to go away.
• But why people behave unsafely?
• Are they fearless?
• Difficulties with probability assessment?
• Crave for adventures?
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Exercise
• During the week, notice when your emotions
prompted you to take action before you
thought about it.
It could not be a pleasant emotion (may be
guilt, anger, fear), but it did help you make a
decision.
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