Day 2 Lecture

The Psychology of Nego5a5ons and Decision Making

Gas Station Game

Results from Gas Sta5on Game

Distribu5on of Final Values

Average value for teams that competed rst

Average value of teams that cooperated rst

Key Points

Interdependence creates fundamental dilemmas of trust

Implicit assump5ons drive behaviour

Ra5onal decision making is extremely dicult

Prisoners Dilemma

S/he Keeps Quiet

S/he confesses

I keep Quiet We each get 2 years

S/he goes free; I get 10 years

I Confess I go free; S/he gets 10 years

We each get 8 years

Prisoners Dilemma Invented in the 1950s

Major problem: rational solution is to cheat

This game is common in business! Personal lives as well

Why do we cooperate rather than cheat?

Repeated Games Each player has an opportunity to "punish"

Cooperation can then be an equilibrium outcome

Incentive to cheat halted by threat of punishment

Reputations of the players?

Dilemma Strategy: Tit-for-Tat

Academics were invited to send strategies Winning strategy by social psychologist Rappoport

Description of Tit-For-Tat On the first turn, always cooperate Then choose opponents last move as your next move

Key Points of TFT

Nice Cooperates on the first move

Regulatory Punishes defection with defection

Forgiving Returns to cooperation if opponent does as well

Clear Opponent can always guess the next move

Other Strategies

Tit for two tat If the opponent defects twice, then defect

Suspicious tit for tat Defect first move, then tit for tat

All defect All cooperate

Communication Strategies

Communication impacts our outcomes Threats/promises can induce cooperation Threats are effective as long as they dont

have to be used

Both require repeated engagements

Why did you decide?

Rational Decision-Making Define the problem Identify the criteria Weight the criteria Generate the alternatives Rate each alternative on each criterion Compute the optimal decision

But this isnt how things work is it?

Do you MAXIMISE?

Or

Do you SATISFICE?

Why did you decide?

Prior experiences and beliefs Its a Jungle Out There!! Vs People are nice

Processing of informa5on Predica5ons APribu5ons

Ra5onal Decision Making is Hard

ORen what appears to you to be a ra5onal decision is in fact heavily biased.

Biased by how we process and remember informa5on

Biased by how we FEEL while we are making a decision

What You See is All there Is (WYSIATI)

Cogni5on

System 2: Controlled (involves conscious aPen5on) Who we think we are

System 1: Automa5c (non-conscious) Who we mostly are

Automa5c vs. Controlled Processing

Some things to consider

We need System 2 to follow rules, compare objects on mul5ple aPributes (while they sit in working memory), and

make deliberate choices

Using System 2 is hard and has very limited capacity, so it is VERY lazy

System 2 becomes depleted by concentra5ng or exercising self-control

So

System 1 underlies most of our experience with the world and the decisions we make

Gestalt Heuris5cs of Percep5on

We use cues to make inferences:

Con5nuity

Similarity

Closure

Seeing 3D

The re5na is 2 dimensional We use distance/depth heuris5cs

Can lead to bias in percep5on Op5cal illusions

Linear Perspec5ve

Explains The Moon Illusion

Leads to Physically Impossible Objects

Even Gives Cues to Mo5on

Leads to Bias in Your Percep5on of Life

The Point

Heuris5cs underlie our func5oning

Provide a basis for complex func5oning

They are natural, and give us extraordinary capabili5es

But beware! - There are systema5c ways in which we are biased

Key Point

APen5on is VERY LIMITED

Controlled thinking is very hard and becomes depleted quickly

We are naturally inclined to use whatever informa5on is available even if it is irrelevant

We are mostly unaware when this is happening

WYSIATI Problems

Reliance on System 1 systema5cally biases our judgment

Can cause us to act irra5onally, decisions before and during nego5a5ons, and fail to correct mistakes Judges example!

Major Biasing Factors

Bad is stronger than good Nega5vity Bias Loss aversion

Easy is bePer than hard Availability bias Conrma5on bias

You and I are dierent Fundamental APribu5on Error

Emo5ons and moods are informa5ve

Bad is stronger than good

Confers and evolu5onary advantage!!

Bad is stronger than good

Bad emo5ons have a stronger intensity than good emo5ons

Bad impressions and bad stereotypes are quicker to form and more resistant to disconrma5on

Bad feedback is remembered for longer and with greater accuracy

Bad is stronger than good

GoPmans ra5o:

You need at least 5 posi5ve interac5ons for every 1 nega5ve interac5ons to have a successful long term rela5onship

Loss Aversion

Framing of Risk Imagine that Australia is preparing for the outbreak of an unusual

Asian disease that is expected to kill 600 people. Two alterna5ve programs to combat the disease have been proposed. Assume that the exact scien5c es5mates of the consequences of the programs are as follows. Please choose the program that you think is best.

You were given one of these two sets of choices: A: 200 people are saved: 60% B: 1/3 prob that 600 are saved, 2/3 prob that no one saved: 40%

A: 400 people will die: 20% B: 1/3 prob that no one will die, 2/3 prob that everyone dies: 80%

Loss Aversion has Strong Eects on Nego5ators

Status quo bias

Endowment Eect

Loss Aversion

Easy is bePer than Hard The easier something is to think about, the more likely you will think it is: True Common

Please rank order the following causes of death in the United States between 1990 and 2000, placing a 1 next to the most common cause, 2 next to the second most common cause, etc.

_____ Tobacco _____ Poor diet and physical inac5vity ____ Motor vehicle accidents ____ Firearms (guns) ____ Illicit drug use

Which Kills more People? When you look at the numbersthe dierence is huge!

435,000 Tobacco 400,000 Poor diet and physical inac5vity 43,000 Motor vehicle accidents 29,000 Firearms (guns) 17,000 Illicit drug use Ease of recall biases responses

What makes things easy to think about?

If we can easily think of examples

If it is emo5onally charged

If it is something we already think or believe

Availability

The easier it is to consider instances of class Y, the more frequent we think it is

Conrma5on Bias

We search for informa5on that supports/conrms our preconcep5ons, and disregard informa5on that challenges it

Self-Serving Bias You ask your friend to run an urgent errand to pick something up for you at a shop in Melbourne Central. She takes your car and gets a parking 5cket while picking up the item. Should she pay for the 5cket? %100 said YES

OR Your friend asks you to run an urgent errand to pick something up for her at a shop in Melbourne Central. You take her car and get a parking 5cket while picking up the item. Should you pay for the 5cket? %75 said YES

How does Cogni5ve Ease Inuence Nego5a5ons

Conrming informa5on you already believe and discoun5ng informa5on that disagrees.

Using tac5cs that have worked well in the past but are not appropriate

Attribution Theory

Attribution is the process of perceiving causes for actions and outcomes

Dispositional attributions for success (me) Good skill, preparation, intelligence

Situational attributions for failures (other stuff)

Bad luck, other person cheated, no power

Who was at fault in the exercise?

You? Why?

The other party? Why?

Attribution Biases

For ourselves: Self-Serving Bias Attribute OWN success to DISPOSITION Attribute OWN failure to SITUATION

For others: The Fundamental Attribution Error (FAE) Underestimate the influence of SITUATIONS Overestimate the influence of DISPOSITION

Emo5ons and moods are a good source of informa5on

Aect inuences the content of cogni5on Directly via memory/recall By ac5ng as informa5on

Feelings as Informa5on

Our feelings color whatever is on our mind

Aboutness principle We assume whats on our mind is a cause But moods last longer than their causes!

Bridge study ARer walking over a high bridge, men more were confronted by a female experimenter

Bridge Study

Bridge study ARer walking over a high bridge, men were confronted by a female experimenter

How you feel as informa5on First set of respondents:

How happy are you these days? How much 5me have you spent with your close friends in the last month?

Correla0on = .01 First set of respondents:

How much 5me have you spent with your close friends in the last month?

How happy are you these days? Correla0on = .50

Mood as info about Environment

Moods indicate info about environment Posi5ve mood its great, so GO ahead Nega5ve mood its bad, STOP and look

Posi5ve Emo5ons

Broaden and Build (Fredrickson, 2000)

Top-down processing enhanced Think more rapidly and with less precision Make decisions more quickly Use less informa5on More condent in decisions

Benets Prompts openness, crea5vity, explora5on

Nega5ve Emo5ons Ac5on Specic

BoPom-up processing enhanced More cri5cal thinking Longer, more elaborate processing strategies Less crea5ve and open

Benets Systema5c, analy5c, vigilant processing More situa5onally aware

New Ultimatum Game

What happened?

Predictions from Economic theory

People are rational actors In one shot deal offerrer should offer as little

as possible and expect that it will be accepted - $1

Why? Reputation not at stake Receiver should be happy with any offer that

makes them better off even $1 Why? Positive expected value is preferable to 0

But what happened?

Most offerers offered more than the minimum? Why?

Some receivers refused offers that had a positive value? Why?

Asymmetry in Goals and Feelings

Offerers are High in Power opportunistic and thinking strategically what is the

most I can get? Generally feel good and expect to do well

Respondents are Low in Power also egocentric, but demand fairness. Rarely happy, often angry, and expect to do poorly

and be exploited

Key Points Power can blind people to justice concerns

People care about justice, and will punish those they feel are acting unfairly EVEN TO THEIR OWN DETRIMENT Turillo et al. Study

Much of the effect of injustice on retribution is due to the negative emotions associated with injustice (Barsky & Kaplan, 2011)

Major Biasing Factors

Bad is stronger than good Nega5vity Bias Loss aversion

Easy is bePer than hard Availability bias Conrma5on bias

You and I are dierent Fundamental APribu5on Error

Emo5ons and moods are informa5ve