Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Decision Making under Uncertainty: From Heuristics and Biases to Neuroeconomics
Hartmut LeutholdDepartment of Psychology
Outline
Normative TheoriesDescriptive TheoriesHeuristics and BiasesDual-Process ModelsPreference, Valuation and Brain
Assumptions
Psychology Economics[Neuroscience]
1 N(agents)
Limited processing powerTime constraintsDynamic cognitive-affective system Prior experiences shape expectationsUse of diagnostic information
Will share values go up?
Can I trust the expert’s advice when making a risky
financial decision?
A fuel efficient car or a fancy sports car?
Organic or standard range products?
Judgment and Decision
Judgments involve an evaluation along a single entity
→ how attractive is a person, how likely is X to occur?
“I decided against my better judgment …”
Decisions are defined by
a choice among at least 2 alternatives
expectation about potential outcomes
value of outcomes can be assessed
uncertainty – ambiguity and risk of outcome
Judgment and Decision
Blaise Pascal Choose the option with highest Expected Value
risk neutral = indifferent between gamble and EV
risk averse = preference for sure payment to a risky
gamble of equal or higher EV
risk seeking = preference for gamble with lower EV
Coin flipping game: Head = £ 100 and Tail = £ 0,
Certain £ 49
Normative Theories
Daniel BernoulliChoose the option with highest Expected Utility
→ psychological value assigned to outcomeconcave utility function implies that utility gained by receiving £50 is more than half the utilitygained by receiving £100
→ Perception of monetary value
depends on your current wealth
Normative Theories
Herbert SimonBounded Rationality – models need to reflect the
properties and limits of the mind and environment
Kahneman & TverskyJudgment under uncertainty: Heuristics and biases
Prospect Theory (1979):
implies risk seeking for low-probability gains and high-
probability losses and risk aversion for reverse scenario
Descriptive Theories
Which lottery ticket would you choose?
Heuristics and Biases
A 01 02 03 04 05 06 A 04 07 19 24 37 41
A 01 02 25 26 48 49A 05 10 15 20 25 30
Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student she was deeply concerned with issues of discrimination and social justice and also participated in anti-nuclear demonstrations. Please rank the following statements by their probability (1-8).
(5.2) Linda is a teacher in elementary school(3.3) Linda works in a bookstore and takes Yoga classes(2.1) Linda is active in the feminist movement(3.1) Linda is a psychiatric social worker(5.4) Linda is a member of the League of Women Voters(6.2) Linda is a bank teller(6.4) Linda is an insurance salesperson(4.1) Linda is a bank teller and is active in the feminist movement
Heuristics and Biases
Heuristics and Biases
RepresentativenessWe judge the likelihood of an entity in terms of how well it represents, or matches, a particular prototype
AvailabilityIn English words, does k appear more often as the first or third letter?Which has more people – Cuba or Venezuela?
People estimate the frequency of an event or the likelihood of its occurrence “by the ease with which instances or associations come to mind”
Heuristics and Biases
Memory
Which is the capital of France?
AnchoringGroup A: Would you pay £25 to clean up River Clyde to maintain
fish population?
Group B: Would you pay £200 to clean up River Clyde to maintain fish population?
A + B: How much do you think would the average Glaswegian pay?
A + B: Please estimate the percentage of Glasgow residents who would pay £ 100.
An uninformative number biases judgment Priming effect - activation in working memory system?
Heuristics and Biases
Evaluation of ExperiencesPatients who are undergoing a painful medical procedure (colonoscopy) report every 60 secs their experienced pain intensity. After the episode, they evaluate the global pain or discomfort.
Heuristics and Biases
From Kahneman & Frederick, 2006
Evaluation of Experiences
Peak and end pain accurately predicted global evaluations and future choices, whereas the duration effect was small.
Episode is represented by a prototypical moment. Associated affective value substitutes the global target attribute.
Peak/end ruleDuration neglect
Heuristics and Biases
Redelmeier & Kahneman (1996)
Heuristics and Biases
Framing effectDr. X tells his patient A that 10% of people diewhile undergoing the surgery. Dr. Z tells another patient B that 90 % survive while undergoing the surgery. Will A and B be equally open to surgery?
Affect heuristic – reliance on a state of feeling that represents a positive or negative quality such as “good” or “bad”
Emotional Memory
From LaBar & Cabeza, 2006
Heuristics and Biases
Framing effect (DeMartino et al, 2006)
Two concurrently active systems, performing automatic (hot, intuitive) versus controlled (cold, rational) processing operations, compete for the control of behaviour.
Dual-Process Model
Name the ink colour of printed colour words
red - green - blue - black
Dual-Process Model
MacDonald et al. (2000)
Dual-Process Model
From Botvinick et al., 2001
Dual-Process Model
From Lieberman, 2007
Neuroanatomy
From Purves et al., 2008
Dual-Process Model
From Lieberman, 2007
Preference
Coca Cola – Pepsi Cola (McClure et al. 2004)VMPFC activity correlates with preference
To guide our behaviour we rapidly evaluate themotivational consequences of eventsGehring and Willoughby (2002) study neuralcorrelates in a game situation: → expected value of monetary outcome is zero → same probability of gains and losses in long run
Choice and Valuation
Medial Frontal Negativity (MFN) ~ motivationaloutcome of the event
0 ms = onset of outcome stimulus
Choice and Valuation
Context effects on choicebehaviour → losses leadto risk seeking behaviour
Correspondence betweenrisk-taking behaviour andoutcome processing as reflected by MFN
Short-term adjustmentsin decision making
Choice and Valuation
ReferencesDe Martino, B., Kumaran, D., Seymour, B., & Dolan, R.J. (2007). Frames, biases, and
rational decision‐making in the human brain. Science, 313, 684‐687.Gehring, W.J., & Willoughby, A.R. (2002). The medial frontal cortex and the rapid
processing of monetary gains and losses. Science, 295, 2279‐2282. LaBar, K.S., & Cabeza , R. (2006). Cognitive neuroscience of emotional memory: A
review of core processes. Nature Reviews Neuroscience, 7, 54‐64.Lieberman, M.D. (2007). Social cognitive neuroscience: A review of core processes.
Annual Review of Neuroscience, 58, 259‐289.MacDonald, A.W., Cohen, J.D., Stenger, V.A., & Carter, C.S. (2000). Dissociating the
role of the dorsolateral prefrontal and anterior cingulate cortex in cognitive control. Science, 288, 1835‐1838.
McClure, S.M., Li, J., Tomlin, D., Cypert, K.S., Montague, L.M., & Montague, P.R. (2004). Neural correlates of behavioral preference for culturally familiar drinks.Neuron, 44, 379–387.
Purves, D. et al. (2008). Principles of cognitive neuroscience. Sunderland, MA: Sinnauer.Redelmeier, D.A., & Kahneman,D. (1996). Patient’s memories of painful medical
treatments: Real‐time and retrospective evaluations of two minimally invasive procedures. Pain, 116, 3‐8.