Smart Choices The PrOACT System of Decision Making

Smart Choices The PrOACT System of Decision Making
Psychology 466: Judgment & Decision Making Instructor: John Miyamoto 11/02/2017: Lecture 06-2 Note: This Powerpoint presentation may contain macros that I wrote to help me create the slides. The macros aren’t needed to view the slides. You can disable or delete the macros without any change to the presentation.

Lecture probably ends here
Outline The 5 Steps to Sound Decision Making The PrOACT System Psychological Traps Cognitive theory and decision making Lecture probably ends here Chapter Titles from Smart Choices Book Psych 466, Miyamoto, Aut '17

Ch 1: Making Smart Choices Ch 7: Uncertainty
Hammond, Keeney & Raiffa Smart Choices: A Practical Guide to Making Better Life Decisions. Ch 1: Making Smart Choices Ch 7: Uncertainty Ch 2: Problem Ch 8: Risk Tolerance Ch 3: Objectives Ch 9: Linked Decisions Ch 4: Alternatives Ch 10: Psychological Traps Ch 5: Consequences Ch 11: The Wise Decision Maker Ch 6: Tradeoffs A Roadmap to Smart Choices Psych 466, Miyamoto, Aut '17 Diagram Depicting the PrOACT System for Decision Making

Outline: The Eight Elements of Smart Choices
Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions PrOACT Steps 1 – 5 constitute the PrOACT approach to decision making. In addition to the above, there’s a chapter on Psychological Traps, i.e., cognitive biases Special Issues Psych 466, Miyamoto, Aut '17 How to Critique a Decision: Good Decision ≠ Good Outcome

How to Critique a Decision
Bad Decision ≠ Bad Outcome on a Single Occasion Good Decision ≠ Good Outcome on a Single Occasion Psych 466, Miyamoto, Aut '17 Good Decision = Good Decision Process

Bad Decision ≠ Bad Outcome on a Single Occasion Good Decision ≠ Good Outcome on a Single Occasion Good Decision = Good Process in Making the Decision Good Process = Good Track Record Compared to Other Decision Processes Psych 466, Miyamoto, Aut '17 Good Process --> Good Track Record

Bad Decision ≠ Bad Outcome on a Single Occasion Good Decision ≠ Good Outcome on a Single Occasion Good Decision = Good Process in Making the Decision Good Process = Good Track Record Compared to Other Decision Processes Psych 466, Miyamoto, Aut '17 Reminder: The Eight Elements of Smart Choices

Problem Objectives Alternatives Consequences Tradeoffs PrOACT In addition to the above, there’s a chapter on Psychological Traps, i.e., cognitive biases Psych 466, Miyamoto, Aut '17 Problem Definition - What Is It? Why Is It Important?

Problem Definition - What Is It? Why Is It Important?
Step 1 of Pr OACT: Carefully define the decision problem. SUGGESTIONS: What triggered this decision? Why am I even considering it? Problem Definition (Continued) Psych 466, Miyamoto, Aut '17

Problem Definition - What Is It? Why Is It Important? (cont.)
Step 1 of PrOACT: Carefully define the decision problem. SUGGESTIONS: What triggered this decision? Why am I even considering it? What constraints are implicit in the problem statement. Example: Initial problem: When to hold a business meeting to discuss the northeastern strategy. Revised problem: Finish the development of a northeastern strategy. Note that the initial problem definition implicitly assumes that we need a meeting. Problem Definition (Continued) Psych 466, Miyamoto, Aut '17

Problem Definition - What Is It? Why Is It Important? (cont.)
Step 1 of PrOACT: Carefully define the decision problem. SUGGESTIONS: What triggered this decision? Why am I even considering it? What constraints are implicit in the problem statement. Identify the essential elements of the problem. Are you defining the decision too narrowly or too broadly? Ask others how they see the situation. What other decisions impinge on or hinge on this decision? Problem Definition Is Important Psych 466, Miyamoto, Aut '17

The Problem Definition is Important!
A misconceived problem definition limits options, hides issues, or misleads the decision maker. Really bad decisions often result from an inadequate problem definition. The psychology of how people define problems for themselves is poorly understood and under-researched. Objectives Psych 466, Miyamoto, Aut '17

Objectives Step 2 of PrOACT = Objectives = Goals of the decision
In order to determine the objectives, you must work out answers to the questions: • What do you want? • What are you trying to accomplish? • What are your hopes? Means objective: Earn more money Fundamental objective: Support my family Psych 466, Miyamoto, Aut '17 Suggestions for Working Out the Objectives

Suggestions for Working Out the Objectives
Write down all of the concerns that this decision should address. Means objective: Earn more money. Fundamental objective: Support my family. Means objective: Live near good schools. Fundamental objective: My children should get a good education. Suggestions for Working Out the Objectives (cont.) Psych 466, Miyamoto, Aut '17

Write down all of the concerns that this decision should address. Clarify what you mean by each objective. Means objective: Earn more money. Fundamental objective: Support my family. Means objective: Live near good schools. Fundamental objective: My children should get a good education. Suggestions for Working Out the Objectives (cont.) Psych 466, Miyamoto, Aut '17

Write down all of the concerns that this decision should address. Clarify what you mean by each objective. Convert your concerns into a succinct list of objectives (brief labels). Means objective: Earn more money. Fundamental objective: Support my family. Means objective: Live near good schools. Fundamental objective: My children should get a good education. Suggestions for Working Out the Objectives (cont.) Psych 466, Miyamoto, Aut '17

Write down all of the concerns that this decision should address. Clarify what you mean by each objective. Convert your concerns into a succinct list of objectives (brief labels). Distinguish means objectives from fundamental objectives. For any objective, ask why you want it. A fundamental objective does not require further justification. Means objectives are “negotiable”. Fundamental objectives are not “negotiable”. Means objective: Earn more money. Fundamental objective: Support my family. Means objective: Live near good schools. Fundamental objective: My children should get a good education. Suggestions for Working Out the Objectives (cont.) Psych 466, Miyamoto, Aut '17

Step 2 of PrOACT: What do you want? What are you trying to accomplish? What are your hopes? Write down all of the concerns that this decision should address. Clarify what you mean by each objective. Convert your concerns into a succinct list of objectives (brief labels). Distinguish means objectives from fundamental objectives. Test your list of objectives against some real alternatives – Do you find any new issues that were overlooked in the initial list of objectives. Psych 466, Miyamoto, Aut '17 Objectives are Important!

Objectives are Important!
If you don’t know where you are going, any route will get you there. There = Nowhere The psychology of how people select or conceptualize their objectives is poorly understood. The psychology of how people make decisions given that they have certain objectives is highly researched. Psych 466, Miyamoto, Aut '17 Alternatives

Alternatives Step 3 of PrOACT: The alternatives are the different courses of action that the decision maker can take. Other names for alternatives: “choices” or “options” or “possible actions”. Your objectives will direct you to asking “how can this be achieved.” Alternatives are possible answers to this question. SUGGESTIONS: Challenge constraints Do your own thinking first; then ask others for suggestions Give your subconscious time to operate Create alternatives first, evaluate them later Never stop looking for alternatives Psych 466, Miyamoto, Aut '17 Alternatives are important!

Alternatives Are Important!
You can never choose an alternative that you haven’t considered. Your decision is only as good as your best alternative. There is an enormous amount of psychological research on how people choose between alternatives, but …. … there is almost no research on how people generate good alternatives. Psych 466, Miyamoto, Aut '17 Consequences

Consequences Step 4 of PrOACT: Consequences are the possible outcomes of a decision. They are the aspects of the outcomes that matter to you. Imagine that you are experiencing a consequence. Mentally put yourself into the world where this consequence is real. What is it like? Create free-form descriptions of the consequences of each alternative Smart Choices is written as if there is only one consequence for each alternative; if there are more, you have to apply the suggested exercises to each of these consequences. Psych 466, Miyamoto, Aut '17 Continuation of This Slide

Consequences Step 4 of PrOACT: Consequences are the possible outcomes of a decision. They are the aspects of the outcomes that matter to you. Imagine that you are experiencing a consequence. Mentally put yourself into the world where this consequence is real. What is it like? Create free-form descriptions of the consequences of each alternative. Eliminate alternatives that are clearly inferior. Organize the descriptions of the remaining alternatives into a consequence table. Example of a Consequence Table Psych 466, Miyamoto, Aut '17

Example of a Consequence Table
Smart Choices, p. 69, Vincent Sahid’s Job Decision Alternatives Consequence Job A Job C Job E Salary $2,000 $1,800 $2,200 Flexibility of Schedule Moderate High None Skills Development Computer Operations Time Management, Multi-Tasking Vacation (Days) 14 10 12 Benefits Health, Dental, Retirement Health Health, Dental Enjoyment Great Good Boring Tradeoffs Psych 466, Miyamoto, Aut '17

Tradeoffs Step 5 of PrOACT: Judging whether a positive difference on one dimension compensates for negative difference on another dimension. Example: You want to rent an apartment. Apartment A costs $800/month and it is 45 minutes from campus. Apartment B costs $950/month and it is 25 minutes from campus. Is $150 difference on the cost dimension worth the 20 minute difference on the time dimension? How should you evaluate tradeoffs? Psych 466, Miyamoto, Aut '17 The Even-Swaps Technique for Evaluating Tradeoffs

The Even-Swaps Technique for Evaluating Tradeoffs
Purpose of the Even-Swaps Technique: Deciding which options is better when one option is better on several dimensions and worse on several other dimentions. I.e., the purpose is to evaluate multiple tradeoffs. Evaluating multiple tradeoffs is cognitively overwhelming. Even-swaps simplifies this evaluation. Purpose of the Even-Swaps technique is to answer the question: Am I willing to make these tradeoffs or not? Example 1: You must choose between Apartments A, B and C. Psych 466, Miyamoto, Aut '17 Even-Swaps Example

High Quality of Housing
Even-Swaps Example Method of the Even-Swaps Technique: Creating alternatives that are all equivalent on one dimension by judging the compensating adjustment on another dimension. Example 1: You must choose between Apartments A, B and C. Alternatives Objectives Apt A Apt B Apt C Keep Cost Down $700/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Mediocre Very Good Excellent Psych 466, Miyamoto, Aut '17 Even-Swaps Example - Focus First on A versus C

Example: Even-Swaps Technique for Evaluating Tradeoffs
Alternatives Objectives Apt A Apt B Apt C Keep Cost Down $700/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Mediocre Very Good Excellent ? Excellent First focus on Apartments A and C. Suppose we change quality of housing to "excellent" for Apt A (same as C). What adjusted cost for Apt A' would make Apt A' & Apt A equivalent? Let's suppose we answer $780 (change from $700) Same Slide with $780 replacing $700 in Apt A (Creates Apt A') Psych 466, Miyamoto, Aut '17

Alternatives Objectives Apt A' Apt B Apt C Keep Cost Down $700/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Mediocre Very Good Excellent $780/month Excellent Note Apt A has been replaced with Apt A' ($780/month replaces $700/month). Decision maker has judged that: Apt A  Apt A' ( means "equally preferred") Repeat the Slide with $780 Inserted for $700 in Apt A (Creates Apt A') Psych 466, Miyamoto, Aut '17

Example: Even-Swaps Technique for Evaluating Tradeoffs (cont.)
Alternatives Objectives Apt A' Apt B Apt C Keep Cost Down $780/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Excellent Very Good ? minutes Apt A' is equivalent to Apt A. Suppose we change commute time to 25 minutes in Apt A'. What increase in cost would make A' and A'' equivalent? Suppose we answer $900 (change from $780) Same Slilde with $900 replaceing $780 in Apt A' (Creates Apt A'') Psych 466, Miyamoto, Aut '17

Alternatives Objectives Apt A'' Apt B Apt C Keep Cost Down $780/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Excellent Very Good $900/month minutes Apt A'' is equivalent to Apt A' (remember Apt A' is also equivalent to Apt A). Decision maker has judged that: Apt A''  Apt A'  Apt A ( means "equally preferred") Even-Swaps Example – Apt C dominates A" Psych 466, Miyamoto, Aut '17

Alternatives Objectives Apt A" Apt B Apt C Keep Cost Down $900/month $800/month $850/month Keep Commute Time Down 25 minutes 30 minutes High Quality of Housing Excellent Very Good Apartments A, A' and A" are equivalent Apartment C dominates Apartment A" (it is strictly better in some respects; and equally good in other respects) Therefore we can eliminate Apt A – even-swaps has shown that Apt C is better than Apt A. Conclusion: Apt C is better than Apt A Psych 466, Miyamoto, Aut '17

Alternatives Objectives Apt A Apt B Apt C Keep Cost Down $700/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Mediocre Very Good Excellent Conclusion: Apt C is better than Apt A. We can eliminate Apt A. Reason for Conclusion: Apt C is clearly better than Apt A'' and Apt A'', Apt A' and Apt A are all equivalent to each other. Same Slide with $780 replacing $700 in Apt A (Creates Apt A') Psych 466, Miyamoto, Aut '17

Alternatives Objectives Apt A Apt B Apt C Keep Cost Down $700/month $800/month $850/month Keep Commute Time Down 45 minutes 30 minutes 25 minutes High Quality of Housing Mediocre Very Good Excellent Now we apply even-swaps to compare Apts B and C. (skip this step in the lecture, but the procedure is the same as the comparison of Apt A versus Apt C.) Summary – Even-Swaps Psych 466, Miyamoto, Aut '17

Summary: Even-Swaps Even-swaps method is used to evaluate tradeoffs – Which tradeoffs are worth making? Which are not worth making? Does anchoring & adjustment affect even-swaps? Even-swaps method is useful for judging tradeoffs, but it is subject to potential biases. Possible Solution: Try repeating the even-swaps technique with different starting comparison (B versus C instead of A versus C), … or mapping tradeoffs into different dimensions (map the cost difference into a commute time difference instead of the other way around). Return to PrOACT Overvew Psych 466, Miyamoto, Aut '17

Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions PrOACT In addition to the above, there’s a chapter on Psychological Traps, i.e., cognitive biases Special Issues Diagrams for depicting the structure of decisions (decision trees; influence diagrams) Interview methods for assessing utility functions of a client. Interview methods for assessing client’s judgments of probability. Psych 466, Miyamoto, Aut '17 Transition to Overview of Decision Errors

Where Do Decisions Go Wrong?
Common decision errors (Smart Choices lists 8 common errors) Psychological Traps Eight Most Common Decision Errors Psych 466, Miyamoto, Aut '17

Smart Choices: The 8 Most Common & Most Serious Errors
Smart Choices: The 8 Most Common & Most Serious Errors in Decision Making Working on the wrong problem. Failing to identify your key objectives. Failing to develop a range of good, creative alternatives. Overlooking crucial consequences of your alternatives. Giving inadequate thought to tradeoffs. Disregarding uncertainty. Failing to account for your risk tolerance. Failing to plan ahead when decisions are linked over time Not included in the above list – important "psychological traps." "Psychological Traps" - Definition Psych 466, Miyamoto, Aut '17

"Psychological Traps" Heuristic strategies – habits of judgment, reasoning & decision making They are often useful & adaptive They sometimes result in biases and reasoning errors They are dangerous because they are invisible! Psychological Traps – engaging in heuristic reasoning without recognizing the potential for errors. Claim (in Smart Choices): The best protection against these traps is awareness. JM’s comment re psychological traps: The only known protections against these traps are awareness and self-training. Anchoring Trap Psych 466, Miyamoto, Aut '17

Anchoring Trap Anchoring & adjustment – final estimates are too close to a biased or arbitrary initial estimate What can you do about it? Consider different perspectives or starting points. Consider the decision on your own before talking to others. Avoid becoming anchored on someone else's point of view. Seek information from a variety of people. Be open-minded. Don't create anchors for other people when you discuss your decision. Prepare well before negotiating. Don't let others define the anchors in negotiations. Status Quo Trap Psych 466, Miyamoto, Aut '17

The Status Quo Trap To be discussed later in Psych 466 Samuelson, W., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of Risk and Uncertainty, 1, 7–59. Endowment effect & sunk cost reasoning create bias towards maintaining current holdings and current projects. Ambiguity aversion – changes to the status quo often introduce unfamiliar uncertainties How to Avoid Status Quo Trap Psych 466, Miyamoto, Aut '17

How to Avoid the Status Quo Trap
To be discussed later in Psych 466 Remind yourself of your objectives – how well does the status quo serve your objectives? Never think of the status quo as your only alternative. Force yourself to imagine alternatives. Would you choose the status quo if it were not the status quo? Remember: The cards are stacked in favor of the status quo. Give innovative options a fair chance to compete with the status quo. Sunk Cost Trap Psych 466, Miyamoto, Aut '17

The Sunk Cost Trap To be discussed later in Psych 466 Sunk cost fallacy – to maintain current projects to justify past investments in them. (Very similar to status quo bias) How to Avoid the Sunk Cost Trap: Seek out & listen to people who weren't involved in the original investment decisions. (Relevant to organizational decisions) Warren Buffet: "When you find yourself in a hole, the best thing you can do is to stop digging." If there are social costs to changing your course of action (criticism, regret, recrimination, blame), include these costs explicitly in your analysis of the decision. Confirmation-Evidence Trap Psych 466, Miyamoto, Aut '17

The Framing Trap To be discussed later in Psych 466 Framing: The same choice alternatives can look better or worse depending on how they are framed What to do about it? Remind yourself of your fundamental objectives. Are you framing the decision in a way that advances these objectives? Don't just focus on gains or just focus on losses. Consider both gains and losses. Don't automatically accept an initial frame. Consider alternative frames. The Base-Rate Trap Psych 466, Miyamoto, Aut '17

The Base Rate Trap The Base Rate Trap – the tendency to ignore relevant base rate information How to avoid it? Be aware of this trap. Seek information about relevant base rates. Don't confuse the likelihood of the data (diagnostic information) with the probability of a hypothesis that produces this data. Combine the base rate information with the diagnostic information. Don't ignore one and keep only the other. Misperception of Chance Psych 466, Miyamoto, Aut '17

The Outguessing Randomness Trap
The Outguessing Randomness Trap – people see patterns where none exist. (The Misperception of Chance) What to do about it? Be aware of the tendency to see patterns in random data. Don't try to outguess purely random phenomena. It can't be done. If you think you see patterns, check your theory in an inexpensive study. Failure to Predict Future Experience Psych 466, Miyamoto, Aut '17

Errors in Predicting Future Experience
To be discussed later in Psych 466 This is not on the Smart Choices list. Impact bias – consequences seem more important than they turn out to be. Projection bias – tendency to project one's current mood or visceral state into a future situation where one will be in a different mood or visceral state. What to do about it? Be aware that future possibilities usually have a smaller impact than we expect them to have. Remember that your emotional response to a change is different from your emotional adjustment after you are used to the change. Conclusion – Forewarned is Forearmed Psych 466, Miyamoto, Aut '17

Conclusion – Forewarned is Forearmed
Today, this collection of warnings is the best that we can do. Claim (in Smart Choices): The best protection against these traps is awareness. JM’s comment re psychological traps: The only known protections against these traps are awareness and self-training. In the future, can we train ourselves to be better decision makers? Decision calisthenics Decision therapy Early education in decision making Decision Aids: Hardward/software for helping people make better decisions. Return to the Outline of the Chapters of Smart Choices Psych 466, Miyamoto, Aut '17

Ch 1: Making Smart Choices Ch 7: Uncertainty
Hammond, Keeney & Raiffa Smart Choices: A Practical Guide to Making Better Life Decisions. Ch 1: Making Smart Choices Ch 7: Uncertainty Ch 2: Problem Ch 8: Risk Tolerance Ch 3: Objectives Ch 9: Linked Decisions Ch 4: Alternatives Ch 10: Psychological Traps Ch 5: Consequences Ch 11: The Wise Decision Maker Ch 6: Tradeoffs A Roadmap to Smart Choices Psych 466, Miyamoto, Aut '17 What Does Cog Psych Have to Say About These Topics - END

Practice, practice, practice
What Parts of Decision Making Are Helped by Cognitive Psychology (Today) Ch 1: Making Smart Choices Ch 7: Uncertainty Ch 2: Problem Ch 8: Risk Tolerance Ch 3: Objectives Ch 9: Linked Decisions Ch 4: Alternatives Ch 10: Psychological Traps Ch 5: Consequences Ch 11: The Wise Decision Maker Ch 6: Tradeoffs A Roadmap to Smart Choices   No help from cog (but clinical help) Not much Discuss what aspects of decision making are helped by what we know about cognitive psychology and what parts are not helped. Wise decision making – Practice good decision making habits.  Generate Choose Generate Choose Practice, practice, practice  END Psych 466, Miyamoto, Aut '17

Set Up for Instructor Turn off your cell phone. Close web browsers if they are not needed. Classroom Support Services (CSS), 35 Kane Hall, If the display is odd, try setting your resolution to 1024 by 768 Run Powerpoint. For most reliable start up: Start laptop & projector before connecting them together If necessary, reboot the laptop Psych 466, Miyamoto, Aut '17

Smart Choices The PrOACT System of Decision Making

Similar presentations

Presentation on theme: "Smart Choices The PrOACT System of Decision Making"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Smart Choices The PrOACT System of Decision Making

Similar presentations

Presentation on theme: "Smart Choices The PrOACT System of Decision Making"— Presentation transcript:

Similar presentations

About project

Feedback