Inequity Aversion.

The mid semester course work has hit its deadline, and my group are now starting to look at the end of semester course work and the presentation we are having as part of the work. We are yet to find out which one of the five given articles we are basing our presentation on, and once we know, we have decided to meet up and have a go at making the Power Point slides together. My group was given the option to base our piece on Inequity Aversion instead of the topic of group decision making in animals. This subject still concerns animals, but can also be applied to human decision making.

Slowly but Surely.

My group, Group 2, are now close to finishing off our mid - semester written coursework, which we chose to base on the subject of Reasoning the Fast and Frugal Way. In order to write our piece we have worked on some parts individually, we have met up in the computer room at University, kept in contact via e-mails and texts and we have also communicated via the wiki page that we have set up for our project. The biggest challenge we have come across so far was the actual making of the wiki page. Well, the making of it was fairly easy. The challenge was giving all of us access to it! I am not very good with computers, but need a bit of time to work out difficulties I might come across. Mix that with a bit of a short temper, and I am ready to throw in the towel. Thankfully, together with my colleagues, we all managed to log on and edit our page in the end. It is very good to have a mid - semester task that can prepare you a little for the final project. Group projects are great, as long as you end up in a good one which I have. My group is still working very well, with all five of us keeping in contact weekly both as we are working on this project and earlier when working on the weekly articles and presentations. It is another three days until our deadline, and then we can start focus on our final project which is going to be dedicated to Group Decision Making in Animals.

You can pop into our wiki page and have a look at our mid - semester course work at this address: https://sites.google.com/site/reasoningthefastandfrugalway/

Framing Effects.

The weekly readings for this course have so far been based on articles relevant to the subject of Judgement and Decision Making, articles which our groups prepare to at some point present in class. And I can tell you now: I do not like presentations. When it comes to learning, breaking down a text completely in order to present it confidently is a very effective way of getting knowledge. So far, so good. What I don't like is standing in front of a group of people and talk, it makes me very nervous. Not only when doing so, but generally also during the whole day of that event. But what I did find after my group presented our piece last week was that it is actually not that scary when you do it together, as a group. Still, not at all one of my favourite things to do, but looking back on reading the article and preparing it together the experience was quite enjoyable! The good thing about working together as a group is that the part/parts in the text that do not appear crystal clear (which does feature in a number of articles, I must admit!) can often better be explained to me by my group colleagues in order for me to get my head around it. This week we will complete our mid-semester written work, and I will reflect on this next week when it is completed.

Choices, Values and Frames.

People make decisions all the time and the topic of decision making is shared by disciplines like economics and political science as well as sociology and psychology to name a few. The questions addressed in the study of decisions are both normative (concerned with the logic and rationality in decision making) and descriptive (concerned with ones preferences and beliefs as they are). It is the tension between those two considerations that characterizes most of the studies of choice and judgement, and the analyses of the studies commonly distinguish riskless and risky choices. So, decision under risk is for example the acceptability of a gamble, and a riskless choice would be concerning the acceptability of service being exchanged for money.

Risky choices are made without advanced knowledge of eventual consequences, like wether or not to buy travel insurance when you go on holiday. Since the consequences in this scenario depends on uncertain events, the decision may be understood as an acceptance of a gamble that can give various outcomes. So, studies of decision making under risk has used simple gambles with financial outcomes and specified probabilities in order to reveal basic attitudes towards value and risk.

Kahneman and Tversky (1983) uses an approach to risky choice that developed from a psychophysical analysis of responses to money and probability. People are generally unwilling to risk, but more willing to risk in the case of increasing wealth.

In order to illustrate the phenomena of risk aversion, Kahneman and Tversky (1983) uses the choice between an 85 % chance o win $1000 (and therefore a 15 % chance of winning nothing) and the choice of receiving $800 for sure. Even though the gamble has higher mathematical expectation, a large majority of people (myself included!) prefer choosing the sure thing. The preference of the sure gain is an example of risk aversion. It is suggested that people do not judge probability by the expectation of their financial gain, but by the expectation of the feelings of these outcomes. The subjective value (ones feelings) is a weighted average, but now it is the subjective value of each outcome that is weighted by its probability. The subjective value (utility) is proposed as a concave function of money. In other words, the difference between the utilities of $200 and $100 is greater than the utility difference between $1200 and $1100.

It is usual in decision analysis to describe the outcomes in terms of total wealth. For example, tossing a fair coin is represented as a choice between current wealth and an even chance to double the current wealth or lose it. Only, people do not usually think of small outcomes in terms of wealth. Much more common is to rather view it in terms of neutral outcomes or gains or losses. If the subjective value is a change of wealth rather than an ultimate state of wealth, the psychophysical analysis of outcomes should be applied to losses and gains instead of total assets. This assumption plays a central role in the Prospect Theory. So, a loss is more unattractive than a gain is attractive.

The assumption of risk aversion has played a central part in economic theory. As the value of gains makes risk aversion, the value of losses makes risk seeking. In a situation where one is forced to choose between an 85 % chance to lose $1000 (and a 15 % chance to lose nothing) and a sure loss of $800 a large majority prefer to gamble. Risk seeking is, in other words, more likely in the gambling of a loss.

Certainty Equivalence and Probability Equivalence

For those who know me, the result on my Certainty Equivalence graph is not at all surprising! The few times I have gambled in the past, not once have I won, so if I was to be offered a definite sum of £500 (which I chose as the sum that would make me indifferent between the other two options in this scenario), I would accept it, no questions asked. And what follows in my first graph does not get much more exciting than that. The sums of money I have chosen in the other two scenarios is (according to me) a completely sensible £250 followed by a nice and safe £750. If my financial situation had been a bit different, I would have chosen my sums differently too. So would I most likely have done if my previous experiences had been different in the past, as well as if I actually enjoyed gambling. In other words: my Certainty Equivalence graph suggests that I am risk averse.

As for my second graph, things change slightly. Simply, would there be a chance of me being given a value for certain, I am highly likely to settle. So in the first two scenarios the probability percentage I chose of winning the gamble is 95 % on both of them. Then, finally, in the third scenario in the Probability Equivalence graph I chose a 75 % of winning the gamble since the amount of value which was given for certain was low (£250). This does on the other hand, compared to my Certainty Equivalence graph, suggest that I have a risk seeking attitude. In this case, the profit of winning this bet out takes the possibility of a loss.

The Priority Heuristic.

My immediate reaction to the earlier mentioned article The Priority Heuristic: Making Choices Without Trade-Offs by Brandstätter, Gigerenzer and Hertwig (2006) was confusion. I found the whole experience very different from the Dhami article which I was reading in the week before, and really enjoyed. After reading about the Priority Heuristic over and over again I didn’t get much wiser! It was only on Friday’s lecture that things started falling into place and now I have a bigger understanding about what the Priority Heuristic and the three steps it consists of is about. I also found the explanations of the Utility Theory and the Prospect Theory very helpful to me, but, to be honest, I did find the article very hard. I spent most of my time studying the parts of the text which explained the concept of mathematical expectation, hoping that once I got my head around that bit it would all make sense, and once I focused less on those calculations, and more on the written words and figures, I felt a bit more confident. But it left me wondering: is there anything in the world of Cognitive Psychology that is just logical? But then again, I guess an article based on examples like Richard Branson’s satisfaction if given a thousand pounds would not be appreciated by Cognitive Psychologists worldwide, although it would make my life so much easier.

Introduction to Judgement and Decision Making.

We have now entered our fourth week into the third year Psychology module Judgement and Decision Making, and after one introduction session, one week of strike and one very enjoyable lecture dedicated to three articles, which were presented and discussed in groups, I am getting a bigger understanding of ways in which Judgement and Decision Making can be explained. This field of Psychology is not one in which I have great experience from, neither do I have a lot of experience of working together with other students as a group, but after studying the article Psychological Models of Professional Decision Making by Dhami (2001) with my four colleagues in my given group I also realised the profits of swapping ideas with and explaining your thoughts to a small number of students in a group and were surprised to find that it was very helpful and fun. The reading for this module is based on one main reference, which is the book Judgement and Decision Making by Dr. David Hardman, as well as a number of relevant articles. By also having access to our colleagues blogs we can leave each other comments and swap thoughts with each other this way, which is also a helpful way of working through this course. We are also being assessed through two pieces of collaboratively written work within our groups. This as well will be a new experience of writing coursework for me and I am looking forward to starting these projects with my new friends in my group.

As a joint Criminology and Psychology student I am so far finding this course to be very relevant to me. The first article my group was given to prepare a presentation of (the earlier mentioned Psychological Models of Professional Decision Making by Dhami) was based on testing the ability of the two models Franklin’s rule and Matching Heuristic in order to predict bail decisions made by judges in two different courts. Specific topics that our groups can choose to later pursue in each week of December include for example Moral Judgement and Terrorism and Perceived Risk, which both sounds very interesting to me since it is helpful to apply the information here in examples which relates to what I have previously studied in my Criminology modules.

The piece I am working on now is The Priority Heuristic: Making Choices Without Trade-Offs by Brandstätter, Gigerenzer and Hertwig (2006). This article, together with chapter 7 in Judgement and Decision Making is what our next lecture will be based on, and I will dedicate my next update to my reflections on this article.