What is the role of recognition in decision making
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What is the role of recognition in decision making?. Ben Newell University College London & Centre for Economic Learning & Social Evolution Acknowledgements: David Shanks, Nicola Weston, Tim Rakow Funding: ESRC, Leverhulme Trust. Role of recognition in a cue-learning task.

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What is the role of recognition in decision making?

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What is the role of recognition in decision making

What is the role of recognition in decision making?

Ben Newell

University College London

&

Centre for Economic Learning & Social Evolution

Acknowledgements: David Shanks, Nicola Weston, Tim Rakow Funding: ESRC, Leverhulme Trust


Role of recognition in a cue learning task

Role of recognition in a cue-learning task

  • Previous work examined empirical evidence for building blocks of fast & frugal heuristics (e.g., search, stopping, decision rules) in menu-based tasks

  • Natural extension – examine evidence for fundamental ‘building block’ – the use of recognition


What do we mean by recognition

What do we mean by recognition?

  • Distinction between the truly novel and the previously experienced

  • E.g. nonwords – “prache”, “elbonics”

  • Repetition of nonwords makes them recognisable

  • How much ‘weight’ is placed on simple recognition?


What is the role of recognition in decision making

RH = Recognition High (recognition best predictor of company performance)

RL = Recognition Low (recognition poorest predictor of company performance)

NR = No Recognition (Free advisor informational equivalent of RH)


Choices in accord with recognition

Choices in accord with recognition

Predictions: “special” RH = RL = 1.0; “consistent” RH > RL


Advice purchase

Advice Purchase

Predictions: “special” RH = RL (=0) < NR; “consistent” NR = RH < RL


Compensatory use of cues

Compensatory use of cues

Evidence for compensatory cue use in all conditions, most in RL


Conclusions

Conclusions

  • Recognition information not ascribed “special status” in cue learning task

  • Treated as ‘just another cue’ in the environment (cf.,PROBEX Juslin & Persson 2002)

  • What about inferences from memory – do these rely on a ‘different sort of recognition’?


Recognition availability familiarity

Recognition, Availability, Familiarity…….

  • Powerful influences on inferences from memory

  • Availability Heuristic (Kahneman & Tversky)

  • “Overnight Fame” effect (Jacoby)

  • Recognition Heuristic (Goldstein & Gigerenzer)

Availability

(ease of recall)

No Recognition

Recognition

Recognition +


Recognition heuristic

Recognition Heuristic

  • Adaptive, non-compensatory, “all or nothing” use of recognition – “no other information is searched for”

  • Cities task with football team information

  • When is such a rule applied? What are the consequences…..?


What is the role of recognition in decision making

“Paying for the name…….”


Paying for the name

Paying for the name…..

  • Hoyer & Brown (1990)

    • 3 brands of peanut butter,

    • “Aware group”:1 known, 2 unknown brands

    • 5 trials, opportunity to sample after each choice

  • Support for use of brand recognition in choice of peanut butter (DVD’s, computers, cars…….??)


Paying for the name1

Paying for the name…..

  • Hoyer & Brown (1990) contd….

  • Comparison with “No Awareness” group

  • Significantly more sampling of brands in No Awareness group

    AND

  • Awareness/quality-difference manipulation showed:

  • Reliance on Brand Awareness heuristic led to decreased search and final choice of inferior alternative


A good name is better than riches

“A good name is better than riches” (?)

  • Borges et al. (1999) – can “ignorance” beat the stock market?

  • 180 German lay-people recognition of German stocks

  • 6 month return on DAX 30: Dec 1996 – Jun 1997

  • Result replicated in 6 out of 8 tests

  • Conclusion – ignorance can beat the stock market or big firms do well in strong bull (up) markets?


A good name is better than riches1

“A good name is better than riches” (?)

  • Boyd (2001) – test in a down or ‘bear market’

  • 184 US students recognition of 111 companies randomly selected from Standard & Poor’s 500

  • 6 month return: June 2000 – December 2000

  • No evidence to support use of recognition heuristic in a ‘bear’ market

  • Borges et al result a ‘big firm’ effect?


A good name is better than riches2

“A good name is better than riches” (?)

  • Rakow (2002) – further test in a strong market

  • 53 UK students recognition of 30 companies in Italian Mib 30

  • 8 week return: October – December 2002

  • Compared recognition portfolios, anti-recognition portfolios and expert portfolio with market index

  • Only 7 out of 53 recognition portfolios outperformed market index

  • How robust is recognition heuristic as an investment tool?


When will recognition be accurate

When will recognition be accurate…?

  • It depends on the domain…..

    f(n) = 2(n / N) (N - n / N -1) + (N – n / N) (N – n – 1 / N – 1) ½ + (n / N) (n – 1 / N – 1)

    f(n) = proportion correct inferences

     = recognition validity

     =knowledge validity

    N = reference class of objects

    n = recognized objects

    (fast and frugal?)


Deliberate or automatic

Deliberate or automatic?

  • Automatic ‘feeling of familiarity’ + deliberate application of heuristic?

  • “I recognise it so I’ll choose it” – deliberate selection and use of a heuristic from the toolbox? (cf., Kahneman & Frederick, 2002)

  • Recognition + “relevance check”. Enron?


Conclusions1

Conclusions

  • Cue learning: recognition treated like other cues in the environment

  • Consumer research:Exploitation of reliance on recognition

  • Stock market investment: ‘big firm’ rather than recognition effect – how generalisable?


Where to next

Where to next?

  • Further tests of use of recognition in memory-based inference

  • Cost/benefit effects on use of recognition

  • Discussion of adaptive/maladaptive use of recognition

  • Further specification of the domains in which the ‘recognition heuristic’ applies


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