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Summary Notes tutorials and articles Judgment & Decision Making
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- (E_IBK2_DDMB)
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- Vrije Universiteit Amsterdam (VU)
Notes tutorials and articles Judgment & Decision Making
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Judgment & Decision Making – TutorialsTutorial 2
Video 1 – Explorations of the Mind: Intuition with Daniel Kahneman
Daniel Kahneman begins his speech about intuition with explaining the two debates he is
having about this subject with economists on one side and psychologist on the other side.
Kahneman questions the intuitions of experts and asks whether these are marvels or flaws.
He mentions a study of Meehl in which is established that people have their illusion of
validity, but a very simple linear combination of variables does better. We have a lot of
evidence both for the models of expert intuition and for the weaknesses of expert intuition.
But what distinguishes those cases where intuition works? According to Daniel Kahneman it
is related to the differences between system 1 and system 2 way of thinking. System 1 is
about intuitive thinking, it acts effortless and is fast in execution. Contradictory, system 2 is
about reasoning, acts effortful and is slow in execution. There is an important distinction
between the assessments that are natural and assessments that are not natural. Therefore
the way that you describe outcomes and problems is going to make a great deal of difference
of how people respond to them. The main message of Kahneman is that if we want to
understand what skills are required and what skills are not acquired, we need to look very
carefully at the interaction between the conditions in the environment and the feedback the
environment provides and the opportunities for learning in the associative network. The most
remarkable I found was that I realized how easily people are fooled by the framing of certain
questions or situations, such as Kahneman’s example of the price of the bat and the ball.
Video 2 – The Headwinds / Tailwinds Asymmetry by Tom Gilovich
In this video we watch Tom Gilovich explain in ten minutes the phenomenon of the
headwinds / tailwinds asymmetry. The main message of his speech is to make people aware
of the concept of loss aversion. To illustrate loss aversion Gilovich uses the headwinds /
tailwinds asymmetry as a metaphor. He points out that people are very aware of headwinds,
because it is an obstacle we have to overcome. To this Gilovich adds that people are less
aware of tailwinds. We do not pay attention to the tailwinds as much as the headwinds and
take the tailwinds for granted. In this metaphor the headwinds symbolize the losses and the
tailwinds symbolize the gains we experience in life. This clarifies that we tend to lose sight of
the gains, as a result of this it is very easy to lose track of how grateful we should be of the
gains. Plus, people are more resentful of the perceived burdens. Gilovich also addresses that
the headwinds / tailwinds asymmetry suggest that you are very aware of how your side has it
difficult and how the other side has it easy. Accordingly it is nice to stick to the claim that your
side has it more difficult, because if you fail you already have an excuse and the glory is
greater when you do succeed. The most remarkable I found in this video is that this
phenomenon occurs in many different situations, whether it be in sports, politics or
academia.
, Tutorial 4
Video – The MPG Illusion
In this video Rick Larrick and Jack Soll present “the MPG Illusion”. They point out that the
measurement we use for our cars, which is MPG, can be a very misleading indicator of
efficiency. They illustrate their findings with a simple example. They posed the question to
people which car is better to replace. Is it better to replace a car that gets 10 mpg with a car
that gets 20 mgp? Or is it better to replace a car that gets 25 mpg with a car that gets 50
mpg? Larrick and Soll question if these improvements are ranked in the right way through
MPG. They found that people have the urge to rank improvements in a linear way, also with
MPG, but this turns out not to be mathematically correct. Instead the mathematics showed
that a small change in MPG could save many gallons. The main insight Larrick and Soll
wanted to present through this example of MPG is that the way information is presented to
people matters a lot and can change people’s thoughts about things.
Paper – “Linear thinking in a nonlinear world” by De Langhe, B., Puntoni, S. & Larrick,
R. (2017)
The authors of the paper “linear thinking in a nonlinear world” want to tell us that linear
thinking is falsely applied to nonlinear phenomena by the human brains. First, linear bias in
practice is argued. Often people are misled by the relationship between cost, volume and
price, because it is a nonlinear phenomenon. This phenomenon also affects intangibles.
Furthermore, four types of nonlinear relationships are discussed. These types are called
“Increasing gradually, then rising more steeply”, “Decreasing gradually, then dropping
quickly”, “Climbing quickly, then tapering off”, “Falling sharply, then gradually” and describe
exactly what each type on relationship contains. The paper also includes four steps on how
to limit the pitfalls of linear bias. The main insight of this paper is that linear bias is present
everywhere around us. People should be aware of the pitfalls of linear bias and try to prevent
from falling for these biases.
Covid-19 example
An example from the Covid-19 pandemic related to this illusion could be the comparison of
the number of positive test results between countries. The number of positive results of covid
tests were compared during the pandemic. Also the percentage of the population with a
positive result were compared between countries. But I believe this is an illusion, because
the number of positive results also depend on the amount of tests taken by the people in a
country.
How can we limit the pitfalls of linear bias?
“The faster you drive the smaller the difference in time that is saved becomes.”
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