1. ALLISON SPIELMAN ADVISORS Cognitive Decision Making: How Your Brain Can Fool You January 29, 2013

2. Why Talk About Decision Making? It is what we do It can help you improve your life

3. Quiz  In middle of page write down the last 3 digits of your phone number.  Put a mark above or below if you think Attila-the-Hun died before or after the number you wrote.  Now write down the year that you think Attila-the Hun died.  Answer 453AD

4. Anchoring Richard Thaler Daniel Kahneman & Amos Tversky

5. OTHER EXAMPLES Mahatma Gandhi Proportion of African countries in the United Nations

6. IMPLICATIONS Negotiations Driving Relationship Fund Raising

7. Framing Classic Illustration: Rare Asian Disease

8. IMPLICATIONS Lawyers influencing juries Labor negotiations Medical decision

9. REPRESENTATIVENESS Tversky & Kahneman – The Linda Problem

10. IMPLICATIONS Jury decisions HIV testing

11. OTHER HEURISTICS Availability Recency Confirmation Over-confidence Loss Aversion 200 more by some estimates

12. POPULAR PRESS  “Sway: The Irresistible Pull of Irrational Behavior” by Brafman & Brafman (2008)  “Blind Spots: Why Smart People Do Dumb Things” by Van Hecke (2007)  “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Ariely (2008)  “Decision Traps: The Ten Barriers to Brilliant Decision Making” by Russo & Schoemaker  “Everyday Irrationality: How Pseudo-Scientist, Lunatics, and the Rest of Us Systematically Fail to Think Rationally” by Dawes (2001)

13. So…Are we hopelessly irrational decision makers?

14. GARY KLEIN “What really happened is that Kahneman and Tversky designed their studies to demonstrate the limits of classical decision theory, not the limits of their subjects”

15. Two System Brain

16. SYSTEM 1  Automatic  Quick  Little or no effort  No sense of voluntary control  Operates below our consciousness (mostly)

17. SYSTEM 2  Effortful  Complex computations  Choice  Concentration  Consciousness

18. Two System Brain

19. Synaptic Connections

20. DOPAMINE  Produces good feelings  Expectations  Amplified - Cortex

21. EXAMPLES  Iowa Gambling Task  Lt Riley

22. IMPLICATIONS  Fire Fighters  Code Blue Emergencies  Driving

23. Dopamine

24. EXAMPLES  Yale Undergrads vs. Lab Rats  Apple iPods

25. IMPLICATIONS  Stock Investing  Investment Bubbles

26. Interaction Between System 1 and System 2

27. Shopping Choices

28. Making Shopping Decisions

29. APPLICATIONS – COGNITIVE BIASES  Control the data  Know when you are susceptible

30. APPLICATIONS – SYSTEM 1 OR SYSTEM 2  Less Important – System 2  More Important – System 1  Predictable Patterns – System 2 (maybe)  Random Patterns – System 1  Puzzles vs. Mysteries

31. APPLICATIONS – IMPROVING DECISIONS  Embrace Uncertainty  Focus on Errors  THINK ABOUT THINKING

32. OVER-COMING ERRORS  Start with realistic anchors – GIGO  Build expertise  Put Judgments into perspective  Represent data in a more usable fashion