PSY 305 Lecture Notes - Lecture 17: Satisficing, Major Depressive Disorder, Orbitofrontal Cortex
29 Jun 2018
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21 November Notes
Thinking: Using Knowledge
● Decision making
○ How do you make decisions?
■ Prior experience, current emotional state, values and beliefs, schemas,
utility value
■ “Decisions per se, take place when a goal is specified, when information
is gathered and judged, when values are used to choose the best
solution, and when detailed plans are made and valuated” - Wales and
Nardi 1984
Decision Making
● According to Expected Utility Theory, people make decisions by calculating the
expected value of each of their options
○ Determine the relative costs and benefits of each choice, and choose the option
with the best outcomes
○ Expected value = {probability of a particular outcome} x {utility of the outcome}
○ For example, the expected value of a lottery ticket that gives you a 1% chance of
winning $200 is $2
● Many of our decisions follow the principle of utility maximization, or choosing the option
with the greatest expected value. However, many decisions do not follow this principle
○ The problem is that many decisions involve costs and benefits that are difficult ot
assess or compare
○ Would you book a ski trip with a non-refundable deposit of $50 with a 60%
chance of good powder or one with a $150 deposit with a 75% chance of good
skiing condition
■ Expected value: {50 x .6 = $30} or {150 x .75 = $112.50}
■ According to expected utility theory, an optimizer would choose option #1
bc there is less risk
Cognitive Bias
● Kahneman and Tversky proposed prospect theory
○ Central to prospect theory is the idea that risky decisions are based on
calculating subjective utility relative to some reference point
○ It predicts that the value assigned to gains vs. losses is not equal
○ Potential losses affect decision making more than potential gains do - bias!
Thinking models… revised
● Descriptive models tell us how reasoning ordinarily proceeds (including the errors) and
highlight reasoning shortcomings
○ Clearly, many of our decisions are not driven by utility maximization, as
predicted by utility theory
○ Instead, our decisions are sometimes inconsistent and open to framing effects
Document Summary
Prior experience, current emotional state, values and beliefs, schemas, utility value. Decisions per se, take place when a goal is specified, when information is gathered and judged, when values are used to choose the best solution, and when detailed plans are made and valuated - wales and. According to expected utility theory, people make decisions by calculating the expected value of each of their options. Determine the relative costs and benefits of each choice, and choose the option with the best outcomes. Expected value = {probability of a particular outcome} x {utility of the outcome} For example, the expected value of a lottery ticket that gives you a 1% chance of winning is . Many of our decisions follow the principle of utility maximization , or choosing the option. The problem is that many decisions involve costs and benefits that are difficult ot with the greatest expected value. However, many decisions do not follow this principle assess or compare.
