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Allison Spielman Advisors. Cognitive Decision Making: How Your Brain Can Fool You January 29, 2013. Why Talk About Decision Making?. It is what we do It can help you improve your life. Quiz. In middle of page write down the last 3 digits of your phone number . - PowerPoint PPT Presentation
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ALLISON SPIELMAN ADVISORS
Cognitive Decision Making:How Your Brain Can Fool YouJanuary 29, 2013
Why Talk About Decision Making?
• It is what we do
• It can help you improve your life
QuizIn 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
Anchoring• Richard Thaler
• Daniel Kahneman & Amos Tversky
OTHER EXAMPLES
Mahatma Gandhi
Proportion of African countries in the United Nations
IMPLICATIONS
NegotiationsDrivingRelationshipFund Raising
Framing
Classic Illustration:Rare Asian Disease
IMPLICATIONS
Lawyers influencing juriesLabor negotiationsMedical decision
REPRESENTATIVENESSTversky & Kahneman –
The Linda Problem
IMPLICATIONS
Jury decisionsHIV testing
OTHER HEURISTICS
AvailabilityRecencyConfirmationOver-confidenceLoss Aversion200 more by some estimates
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)
So…Are we hopelessly irrational decision makers?
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”
Two System Brain
SYSTEM 1
Automatic Quick Little or no effort No sense of voluntary control Operates below our consciousness
(mostly)
SYSTEM 2
Effortful Complex computations Choice Concentration Consciousness
Two System Brain
Synaptic Connections
DOPAMINE
Produces good feelings Expectations Amplified - Cortex
EXAMPLES
Iowa Gambling Task Lt Riley
IMPLICATIONS
Fire Fighters Code Blue Emergencies Driving
Dopamine
EXAMPLES
Yale Undergrads vs. Lab Rats Apple iPods
IMPLICATIONS
Stock Investing Investment Bubbles
Interaction Between System 1 and System 2
Shopping Choices
Making Shopping Decisions
APPLICATIONS – COGNITIVE BIASES
Control the data Know when you are susceptible
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
APPLICATIONS – IMPROVING DECISIONS Embrace Uncertainty Focus on Errors THINK ABOUT THINKING
OVER-COMING ERRORS
Start with realistic anchors – GIGO Build expertise Put Judgments into perspective Represent data in a more usable
fashion