Lecture Slides on Decision Making Behavior | PSY 305, Study notes of Cognitive Psychology

Download Lecture Slides on Decision Making Behavior | PSY 305 and more Study notes Cognitive Psychology in PDF only on Docsity! 1 Decision making behavior • Why do people make the choices they do? • Reason-based choice • Regret theory • Effort-accuracy • Choice and judgment heuristics Where are we so far? • Economics predicts rational choices – Obey the law of contradiction • People’s choices are not always optimal. • That does not mean choices are bad. – Psychologists have set up particular circumstances in which people make poor choices – Helps to illustrate processes people use. • We will examine models of choice behavior. – Many different processes are used to make choices. Prospect Theory • A model that is like economic models. P = Σ ( Π * ui) P is subjective probability u is the utility of each option Utility is evaluated relative to a reference point. Actual Probability S ub je ct iv e P ro ba bi lit y 0 U Π Losses loom larger than gains 2 Prospect Theory • Big difference between certainty and uncertainty • Utility function explains framing effects. Actual Probability S ub je ct iv e P ro ba bi lit y 0 U Π Losses loom larger than gains Reason-based choice • People want to be able to justify their choices – May make decisions that are easiest to justify. – Shafir, Simonson, & Tversky Imagine you just finished a particularly difficult final exam, and you are walking home. You will not find out whether you passed the exam until tomorrow afternoon. A travel agent has a sign for an inexpensive trip to Acapulco. The offer expires that afternoon, but you can pay $5.00 to hold a reservation until tomorrow. Do you sign up to take the trip or pay the $5.00 fee? A majority of people given this scenario pay the $5.00. Two other groups are run One group told they passed the exam: Most choose to go One group told they failed the exam: Most choose to go People are paying for information that will not affect their choice... Reason-based choice (cont.) • People want a reason to go on the trip. – If they get a passing grade: Celebration – If they get a failing grade: Consolation • Other reason-based effects – The attraction effect (discussed last class) – Effect is stronger if people have to justify their choice. • Justification is not always good – People tend to use less information and to rely on single dimensions when forced to justify a choice. – It is easier to come up with these simpler justifications. 5 Mental Accounting • The idea is that people are creating separate mental accounts for different goals. – Money for necessities – Money for entertainment – Spending money from one account does not affect others. Imagine you have gone to the movies to see a show. You got to the front of the line and realized you lost $10, do you still go to the movie? Most people say yes Imagine you have gone to the movies to see a show. The ticket costs $10. You buy the ticket early in the day. When you get to the theater, you realize you lost the ticket. Do you buy another one? Most people say no. The House Money effects • Another example of Mental Accounting You go to a casino and put a quarter in a slot machine. You win $100. How is your gambling behavior affected? People are often more willing to gamble in this situation. Not any windfall increase in money works. You are just about to go into a casino, when you see a newspaper. You own 100 shares of a stock and find out that it went up $1.00 that day. How is your gambling behavior affected? Most people’s gambling behavior is unaffected by this news. In the first case, people feel as if they are gambling with the house’s money. In the second case, it feels like their own money. Summary • Prospect theory • Reason-based choice • Regret theory • Heuristics and biases • Mental accounting 6