PSY2204 Study Guide - Week 8 Decision Making PDF

PSY2204_Study Guide - Week 8_Decision Making This week’s materials cover the psychology of Decision Making, exploring theories that explain how humans make choices, particularly under uncertainty or risk. The content delves into the cognitive, emotional, and neurobiological processes involved in mak...

PSY2204_Study Guide - Week 8_Decision Making This week’s materials cover the psychology of Decision Making, exploring theories that explain how humans make choices, particularly under uncertainty or risk. The content delves into the cognitive, emotional, and neurobiological processes involved in making decisions. Below is a comprehensive summary of the key topics discussed during Week 8. Key Topics Covered 1. Types of Decisions: Riskless Decisions: All outcomes are known (e.g., investing in a fixed deposit). Risky Decisions: The outcomes are uncertain. These are divided into: Ambiguous: Outcomes are difficult to predict (e.g., betting on sports). Calculable: Outcomes have known probabilities (e.g., playing roulette). 2. Theories of Decision Making: Economic Rationality (Edwards, 1954): Assumes that humans are rational and strive to maximize outcomes. However, for perfect rationality, humans would need complete information and perfect cognitive capacity. Bounded Rationality (Simon, 1955): Humans are rational but only within the limits of their cognitive abilities and available information. They satisfice (choose an acceptable solution) rather than optimize. Prospect Theory (Kahneman & Tversky, 1979): Humans do not always behave rationally. They tend to overweight certain outcomes and underweight probable ones, often favoring guaranteed gains but gambling when faced with losses. Biased Rationality: People use cognitive shortcuts (heuristics) such as: Representativeness: Judging based on stereotypes rather than statistical reality. Availability: Overestimating the likelihood of events that are more readily recalled. Anchoring: Relying on initial information when making subsequent decisions. 3. Heuristics and Biases: Heuristics: Cognitive shortcuts or rules of thumb that simplify decision-making. Example: People may perceive sharks as more dangerous than they are because of vivid media coverage, leading to overestimating the probability of shark attacks (Availability Heuristic). Anchoring Effect: People’s decisions can be influenced by an initial piece of information (anchor), even if it’s irrelevant or random. 4. Neurocognitive Frameworks of Decision Making:  Somatic Marker Hypothesis (Damasio, Bechara): Emphasizes the role of emotion in decision-making. The brain generates physiological signals (somatic markers) that help guide decisions, especially in risky or uncertain situations. Impairments in this system, such as in individuals with prefrontal cortex damage or substance abuse, can result in poor decision-making. Impulsive vs. Reflective Systems: Reflective System: Effortful, controlled, and linked to higher-order thinking (prefrontal cortex). Impulsive System: Immediate, emotionally driven, often linked to the amygdala. Can override reflective thinking, leading to poor choices. 5. Delay Discounting: Concept: The tendency to devalue rewards that are farther in the future. For example, many individuals would prefer $100 now over $200 in a year (illustrating impatience or lack of self-control). Applications: Used to study behaviours in substance abuse, addiction, and impulsivity. People with higher delay discounting rates (e.g., substance abusers) are more likely to choose smaller, immediate rewards over larger, delayed rewards. 6. Risk-Taking Behaviours: Balloon Analogue Risk Task (BART): A task where participants decide how many times to inflate a virtual balloon to maximize their reward. Each inflation increases risk, and the balloon can pop at any time, leading to the loss of accumulated rewards. It measures risk propensity. Iowa Gambling Task (IGT): Assesses decision-making under ambiguous conditions. Participants choose cards from different decks, with some decks leading to larger rewards and some leading to losses. Performance on this task is impaired in individuals with prefrontal damage or substance abuse problems. 7. Applications of Decision Making Theories: Real-World Decision Making: The theories are applied to real-life scenarios, such as financial decisions, gambling, addiction, and risky behaviours (e.g., unprotected sex, substance use). Emotional Influence: Emotions can bias decisions, especially in situations involving risk or reward. For example, people may ignore long-term consequences in favor of immediate gratification, as seen in addiction. Key Theories and Models Economic Rationality: Assumes perfect rationality where individuals seek to maximize outcomes based on complete information. Bounded Rationality: Humans are rational but limited by cognitive constraints and available information. Instead of optimizing, they aim for "satisficing." Prospect Theory: People tend to be risk-averse when it comes to gains but risk-seeking when faced with losses, showing irrational tendencies when evaluating probabilities. Somatic Marker Hypothesis: Emotional responses (somatic markers) guide decision-making, especially in ambiguous or risky situations. Delay Discounting: People devalue future rewards compared to immediate ones, which is linked to impulsivity and addiction. Important Experiments & Case Studies Iowa Gambling Task (IGT): Used to study decision-making in substance abusers and people with prefrontal cortex damage. Demonstrates how emotions and implicit knowledge guide choices in uncertain situations. Balloon Analogue Risk Task (BART): Measures risk-taking by requiring participants to balance the potential for larger rewards with the increasing risk of loss. It has strong correlations with real-world risky behaviors. Delay Discounting Studies: Show that people with addictions (e.g., heroin, alcohol) often prefer smaller, immediate rewards over larger, delayed rewards. Conclusion Decision-making is a complex process influenced by cognitive, emotional, and neurobiological factors. While early models of rationality assumed that humans strive to maximize utility, modern theories like Bounded Rationality and Prospect Theory acknowledge the limitations and biases that affect real-world decisions. Emotional processes, particularly as outlined in the Somatic Marker Hypothesis, play a crucial role in guiding choices, especially under conditions of risk and uncertainty. Behavioural tasks like the Iowa Gambling Task and BART offer valuable insights into the psychological and neurobiological underpinnings of decision-making and have real-world applications in areas such as addiction, risk behaviour, and financial decisions. Table: Key Concepts in Decision Making Concept Description Example/Study Riskless Decision Decisions with known outcomes. Investing in a term deposit. Risky Decision Decisions with uncertain outcomes, Betting on sports (ambiguous), further divided into ambiguous playing roulette (calculable). (unknown likelihood) and calculable (known likelihood). Economic Assumes that individuals always aim to Choosing between a sure $10 or Rationality maximize utility with full information. a potential $100 (if rational). Bounded Humans have cognitive limitations and Choosing a good enough car Rationality often choose satisfactory rather than deal rather than the perfect one. optimal solutions. Prospect Theory People tend to be risk-averse with Gambling to avoid a certain loss gains but risk-seeking with losses, rather than taking a small sure often violating rational choice models. loss. Somatic Marker Emotional responses (somatic Iowa Gambling Task: Elevated Hypothesis markers) guide decision-making, SCR (skin conductance especially in risky or uncertain response) before a risky choice. situations. Delay Preference for smaller, immediate Choosing $100 today over $200 Discounting rewards over larger, delayed rewards. in a year.  Concept Description Example/Study Balloon Task used to measure risk-taking by Higher risk-takers inflate the Analogue Risk inflating a balloon for increasing balloon more often. Task (BART) rewards, risking loss with each pump. Iowa Gambling Assesses decision-making under Participants with prefrontal Task (IGT) ambiguity, showing how emotional damage perform worse. responses guide choices in risky situations. Anchoring Relying on the first piece of information Seeing an initial high price Heuristic (anchor) when making decisions, even influences perceptions of later if irrelevant. prices. This table summarizes the key concepts and models from the study of decision making. FAQs on Decision Making Q: What is the difference between riskless and risky decisions? A: Riskless decisions involve outcomes that are known with certainty, such as investing in a term deposit. Risky decisions involve uncertainty, with outcomes either ambiguous (difficult to predict) or calculable (where probabilities are known, such as in gambling). Q: What is Bounded Rationality? A: Bounded Rationality, proposed by Herbert Simon, explains that humans have cognitive limitations and cannot process all available information. Therefore, instead of optimizing decisions, they often "satisfice" by choosing an option that meets an acceptable level of satisfaction. Q: What does Prospect Theory explain about decision making? A: Prospect Theory suggests that people tend to be risk-averse when it comes to gains but risk- seeking when faced with losses. For example, people are more likely to gamble when they perceive a potential loss but prefer a sure gain. Q: What is Delay Discounting? A: Delay Discounting refers to the tendency to prefer smaller, immediate rewards over larger, delayed rewards. This behavior is linked to impulsivity and is often observed in studies on addiction and risk-taking. Q: What is the Balloon Analogue Risk Task (BART)? A: BART is a psychological task used to measure risk propensity. Participants inflate a virtual balloon to earn rewards, but each inflation increases the risk of the balloon bursting and losing the accumulated rewards. Q: What is the Somatic Marker Hypothesis? A: The Somatic Marker Hypothesis suggests that emotional and physiological responses (somatic markers) guide decision-making, particularly in risky or uncertain situations. These markers serve as "gut feelings" that help individuals avoid negative outcomes. Q: How does the Iowa Gambling Task (IGT) assess decision-making? A: The IGT assesses decision-making under ambiguous conditions. Participants choose cards from decks with hidden rewards and penalties, and their performance reflects their ability to identify advantageous strategies. It's often used in research on addiction and brain damage. Q: What is the Anchoring Effect? A: The Anchoring Effect is a cognitive bias where individuals rely too heavily on the first piece of information (anchor) they encounter when making decisions, which can skew their subsequent judgments. Q: How do emotions influence decision-making? A: Emotions play a significant role in decision-making, especially in risky situations. The Somatic Marker Hypothesis explains that emotional signals guide choices, helping people avoid risks even before they consciously recognize them. Q: What is an example of a heuristic in decision- making? A: Heuristics are mental shortcuts used to simplify decision-making. For example, the Availability Heuristic causes people to overestimate the likelihood of events that are easily recalled, such as fearing shark attacks after seeing frequent news reports about them.