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Lecture 7

Lecture 7

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Doug Brown

Lecture 7 - Decision-making 1. Types of decision-making a. Automatic: associative network, operates quickly, stereotypes b. Reflective: unique to humanity, slow, work through rules – thinking i. Question 1: .10  answer: .05 ii. Question 2: 100  100 5 minutes iii. Question 3: 12 days  47 days c. Making decisions when voting i. Study: whether pictures of candidates predict who would win 1. Presented pictures of candidates running against each other a. Brought naïve participants – ask “who looks more competent” b. Associated competence judgments with faces to actual election results c. How accurate? i. Competence judgments of naïve observers predicted election results 70% of the time ii. Goes against the reflective model ii. Study: children (8-12 years): who should be ship’s captain? 1. Experiments with children indicate that they are accurate 70% of the time iii. Study: if you have people from other cultures make snap judgments based on pictures, they are 70% accurate 2. How do we think? a. The “perfect thinker” (homoeconomicus) b. Supposed to follow a series of steps i. Identify if problem occurs ii. Search for relevant information 3. Drazen, Lowenstein, and Ariely – business students, marketing class a. Jot down last two digits of Social Insurance # b. Bid on items – cordless keyboard, wine, chocolates, etc c. Write down maximum amount you’d pay for each item – auction was real d. Crossed data with social insurance numbers i. Maximal bids increasing systematically as function of people’s SS#s – irrational ii. Example of anchoring effect 4. The influence of anchoring a. Anchors are starting points based on some piece of available information b. Once the anchor is set, the outcome is biased around it 5. BUT a. Awareness can allow one to “unfreeze” b. Extreme counter anchoring can disrupt/cancel an initial anchor 6. Impact: a. Negotiations b. Charities ($100, 250, 1000, 5000) versus ($50, 75, 100, 150) i. Do much worse when fundraising numbers are casually thrown “humble” c. Lawsuits i. Throw out numbers so negotiation happens above expected amount – anchoring jury d. MSRP i. Houses – buy a medium priced house in pricy district and prices around neighbourhood drive up price 7. What mistakes do we make? a. Usually group A: companies with strong brand names b. Right answer: group B: companies that do not have strong brand names 8. Availability a. The prediction of how likely something is, influence by how easily it’s recalled or how readily examples come to mind b. Accessibility and salience i. Warp predictions of probability ii. Big impact if making an estimates on risk iii. Consumer
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