PSYCH 2H03 Lecture Notes - Lecture 23: Utility, Loss Aversion, Satisficing
Monday 19th March 2018
Lecture 23
Decision Making
Utility Theory
• We make several decisions that are life changing.
• What values do we put on these decisions, and how does this move us closer to what
we want?
• Every choice has costs and benefits.
• Most decisions are hard to assign dollar values.
• Different things would motivate us, but there are different things to consider and they
have multiple factors that could influence our decision.
• We use subjective utility to make choices.
• When you make these decisions we compare and contrasts.
• With all of this there may also be uncertainty.
• We can calculate the expected utility, when we are talking about dollar value.
• But expected utility was developed in the 17th century and her proposed that we should
multiply the probability that and event can occur by the value.
• People often ignore probabilities when making judgments.
• This often depends on whether or not we are risk takers, not based on the utility.
• This is the certainty effect; people prefer sure things.
• People are not utility maximizers, we violate utility theory all the time.
• We often make decisions based on the psychological distance between two things not
the utility.
• Our decisions are subjects to all kids of thigs.
Framing effects
• The way we frame things can cause people to say different things.
• It is more about gains and losses.
• Dealing with losses, we will not risk take, if it is framed as a gain we take the chance.
• We engage in loss aversion; we strongly prefer to avoid losses.
• We do not want to give something up that we already have.
• Utility theory may say we should not do something, but if it is framed as a gain, we may
make the decision to go ahead.
• It does not have to do with rational though, we reason.
• This is satisficing rather than optimizing.
• We compromise in a sensible way, we make a choice that is good enough, we do not put
in that much effort.
Better than rational
• Sometimes we make decisions that are better than rational.
• People decide to cooperate to conserve resources.
Document Summary
Better than rational: sometimes we make decisions that are better than rational, people decide to cooperate to conserve resources. Ted talk dan gilbert https://www. ted. com/talks/dan_gilbert_researches_happiness: our comparisons change value. If you go through all the alternative, eventually we will get to the right answer, however often times this is too time consuming. Means ends analysis: you can often break down problems into sub component, making it more simple, often the problems are very complex and you may have to use more than one strategy. Working backwards: the answer comes easier when you work backward, sometimes working backwards may even work best. It may seem complex but the answer is hidden at the end. Problem solving: mental models and mental imagery are good techniques, sometimes it is good to form a mental representation other times you need a new one. Mental models: using mental models to help reason out categorical syllogisms.
