Descriptive Decision Making Models

1. Descriptive Decision Making Models how people ACTUALLY make decisions

2. Herbert Simon - satisficing Why do people �SATISFICE� rather than �OPTIMIZE�?

3. Prospect Theory  ( Kahneman & Tverskey) �VALUE� value function �Gains� +500 �Losses� �loom larger� -500

4. Prospect theory GAINS  �loss aversion� incumbent politician LOSSES felt more strongly than = gains �endowment effect�

5. Cognitive basis for STATUS QUO bias? PUBLIC POLICY LEGAL rulings

6. Framing effects Importance of reference effect outcome as gain �.>risk adversive outcome as loss�>risk seeking

7. Preferences Decision WEIGHTS not Probabilities �.>overweight small Probabilities Which prefer? #A: 1/1000 chance winning $5000 or #B: A sure gain of $5 3/4 prefer risky choice

8. Preferences cont.. Which prefer? #C: A 1/1000 chance losing $5000 #D: A sure loss of $5 (4/5 a sure loss)

9. Other differences - SEU Certainty Effect Would you buy insurance with half premium of regular but only payoff 50% of time? (preference to eliminate risk not reduce it)

10. Other differences - SEU Pseudo-certainty Vaccine-50% population from disease expected to infect 20% OR Complete protection from disease infect 10% but no protection other strain

11. 3rd Model �Regret Theory� ASSUMES under UNCERTAINTY People anticipate and take into account REGRET & REJOICING

12. Example: Regret theory Which would you choose? $1000 for sure OR $2000 if coin comes up heads �>avoid regret

13. Who would you vote for? INCUMBENT REPRESENTATIVE in Congress OR UNKNOWN (inexperienced) challenger

14. Other Models:  Multi-attribute Model Approximates �a linear model� Simple regression can approximate College admission board (outperform) GPA + SAT test scores + rec letters

15. Multi-attribute Model Factors approximating College admission board: GPA + SAT test scores + rec letters

16. Additive with trade-offs Add differences Weight differences and sum Example: focus on key difference 2 alternatives (cars) �Ideal point model� (ideal PREZ)

17. People often DON�t make trade-offs eliminate any outside cut-off (noncompensatory) evaluate on basis attribute (disjunctive rule) evaluate on most important dimension (lexicographic) *elimination-by-aspects (automatic, price, color�.N=1)

18. What if 2 equally valued alternatives? What do people do? (select one superior on most important dimension) �it�s a cool car�!

19. People are �binary choosers� Why �most important hypothesis� so often true (Slovic) I.e., �Choose candidate X�> strongest Pro-Choice candidate (satificing on important dimension)

20. So what will people do when forced to make a decision Under uncertainty? Incomplete information SIMPLIFY on the basis of some rule �take the job that pays the most�

21. Implication Hard to predict in advance what the specific rule�.> choice will be WHY?

22. Political problems = �ill-structured problems� No Simple choice Not single person Small Group STEPS 1 develop �shared problem representation� 2 discuss-reach consensus 3 Development problem solution (key reference point STATUS QUO - �make a minor adjustment �

23. Develop a �shared problem representation� (immediate problem at hand Define Problem . . Discuss (what are we doing now?) . . �shared solution� CUBAN MISSILE CRISIS �Must get the missiles out before next election� . . blockade; use force if necessary