1. 4/1/2017 Outline Study Question.
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 Tversky’s 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? or
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. Martha’s or the IWK?
Ignoring base rates
John: Truck driver or classics professor at Dalhousie?
The Gambler’s 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 -> 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 -> 363/365 X .99 = .99
Person 4 -> 362/365 X .99 = .98
Person 5 -> 361/365 X .98 = .97
Person 6 -> 360/365 X .97 = .95

6. Decisions The Representativeness Heuristic, revisited The birthday bet
Person 10 -> 356/365 X .90 = .88
Person 15 -> 351/365 X .77 = .75
Person 20 -> 346/365 X .62 = .59
Person 25 -> 341/365 X .46 = .43
Person 30 -> 336/365 X .32 = .29
Person 35 -> 331/365 X .21 = .19
Person 40 -> 326/365 X .12 = .11
Person 45 -> 321/365 X .07 = .06
Person 50 -> 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 2:1.
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 Counterfactual thinking
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 Anchoring and adjustment
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 & Tversky’s results
Plan A
1/3 Saved
Plan B
P=1/3 Saved
Plan C
2/3 Die
Plan D
P=2/3 Die
72%
28 %
22%
78 %

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 & K’s results (theatre ticket for $10)
Lose ticket -: 46 % buy another ticket
Lose $ % 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?
-> 64 % Chose Parent B
To whom would you deny sole custody?
-> 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
Very Unlikely 6 4
Very Likely
Likelihood ratio 5 3
Statiscally
Naive
Intermediate
Statistically
Sophisticated

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.
Transitive inference
Raven’s Matrices
Dashed = Controls
Dotted = Temporal lobe
Solid = Prefrontal lobe

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 6:00 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 6:00 PM. The next morning, at 6:00 AM, he descends the mountain, again travelling at varying paces and with breaks. He arrives at 6:00 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?