A summary of the Utrecht University course 'Introduction to the social sciences', containing Kahneman, psychology, sociology, behavioural economics and related subjects.
Summary introduction to the social sciences exam
Lecture 1: introduction to psychology
Psychology is the study of the mind and behavior.
Foraging theory
Foraging theory is about animals looking to food or people looking for a hotel room. After searching a
certain period, you decide to choose the best hotel you find until then. But why not looking further,
because there could be a better option? It is because of the value of time: after searching 5 hotels,
there is a high chance of finding a better option, but after searching 100 hotels, the time you need to
find a better option will be much longer. This time is also valued, so it is better to stop searching right
now. There are just diminishing returns over time.
Foraging theory is in contradiction with classical economics, in which making a rational decision
should happen with full knowledge of the situation. The theory is useful to economics for
understanding decision-making and we can use it in sales and marketing.
Decision-making
A useful decision is a decision that led to rewards, but how do we learn to make them? If we get
rewarded for specific stimuli in the brain, we will learn that it is connected. In economics, we can use
this by knowing when to give a reward, how people learn complex sequences of tasks and why
people sometimes do not take an immediate reward.
Empirical cycle
In psychology, we study human behavior, the mind, and the brain. We conduct science with the
empirical cycle, which is a framework:
reality theory hypothesis observe/test evaluation reality.
So, for example, if you are doing research on foraging, it could be as follows:
Reality: why aren’t people doing exhaustive search and search all the hotels?
Theory: information about foraging principles
Hypothesis: it is because people stop when returns are diminishing
Observe/test: do an experiment, searching for: when do people stop working on their task?
Evaluation: did the people stop when returns were diminishing?
Lecture 2: two systems
System 1: automatic respond, when a dangerous looking dog runs towards you, you run
away. This system is fast, there is little/no effort required and you have no sense of voluntary
control. It is used in priming.
System 2: You need to think about it, there is an ‘instinker’ because it is not what you think
immediately. The systems requires attention and is slow. We sometimes fail to spot big
changes in a picture or video if we are focused on something else in the picture or video.
When you focus in such a way, you use system 2.
POWERPOINT DIA’S IS NOT WORKING
Lecture 3: Decisions with incomplete information: strategies, heuristics and biases
Decision making in games
We will talk about ECON, the Homo economicus, who is fully rational. And about HUMAN, the homo
sapiens, who is bounded rationality, taking the limitations for people to be fully rational into account.
Rational decision-making means that you select the alternative that results in the most preferred set
of all possible outcomes. In games like tic-tac-toe (boter, kaas en eieren) you can draw a game tree,
leading to all the possible outcomes. But there are limitations here, as you expect every player to be
fully rational and to every time their best alternative. And what if the tree becomes too large, for
example in chess? The human decision maker might use stored memories.
, Heuristics
A heuristic is any approach to problem solving, learning, or discovery that employs a practical
method not guaranteed to be optimal/perfect, but sufficient for the immediate goals. It is a mental
short-cut. You use it to deal with uncertainty. Heuristics are not always right, they may lead to biases.
A bias is a line of reasoning based on subjective beliefs and needs, without switching perspectives
and without obtaining and using all the necessary evidence.
There are three heuristics with their biases:
Heuristic Availability Representativeness Anchoring
What is it? Making judgements Predict something Relying too much on the first
based on easily available based on a piece of information offered
information, but this representation, while when making decisions.
information is not always this is not always
correct representative.
Examples More words beginning Which study does When you’re in a car shop,
biases with ‘r’ or with a ‘r’ as Tom? you base the more expensive cars are
third letter? as a third your answer on in the beginning of the shop.
letter, but words someone who’s name This price is your anchor, so
beginning with ‘r’ are is Tom when you walk along the
more easily to recognize other cars in the shop, it
and think about, so you seems they are cheap, but
would say words it’s just relative to your
beginning with ‘r’. anchor (the expensive ones)
Why useful? Priming
Relevance to Investing based on
economics information that was
recently in the news
Nonrational decision making
With priming, we don’t know that something is happening in our brain, but it is happening. The
definition is: how previous encounters and events can affect our behavior while we are not aware of
it, we cannot even consciously remember the original encounter and mere exposure may direct our
choices in a particular direction. It is a critical phenomenon in the advertisement industry.
Also emotions tend to play a role in non-rational decision making.
Lecture 4: choices
Prospect theory
When there are two options, option A with a 40% chance at winning 100 euro and option B with a
60% chance at winning 80 euros, you can use normative theory to determine what people should
choose: the highest expected value (chance times award). But when the two options are 50% at
winning 8 million euros or 100% at winning 4 million, they should be equal, but many people don’t
think so.
Sensitivity is the relation between objective physical stimulus and subjective experience; two babies
together doesn’t sound twice as loud as one baby, although it sounds louder. In economics it is the
relation between the objective amount and the subjective utility. This leads to rational choice, which
is like the foraging theory: there is diminishing marginal utility; the more money you have, the lower
the value of some extra.
Endowment effect
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