Vietnam decision making 2008

Taking Rational Decisions in Risky Situations Erich Kirchler University of Vienna, Austria Faculty of Psychology 2008 Individuals and groups (organizations etc.) are taking frequently decisions Most decisions are complex and risky (risky: consequences or probabilities of consequences are not precisely known; we know for sure that we will once die; however, dying due to smoking is not for sure) Understanding risk perception is essential to understand how individuals and groups decide in risky situations, what they in risky situations, and how to communicate with people Voluntary Chronic Common Certain not fatal Involuntary Nuclear power X-rays Known to exposed Catastrophic Dread Certainly fatal Not known to exposed Immediate Delayed Known to science Not known to science Not controllable Controllable New Old Mean rating f to p ce r t o n co e a ord ve in te ard icia to z n d mu e r ne k o com e s W e ri rly th ope r p Every risk or hazard has a unique profile of qualities that influence perception and acceptance of risk (source following pages Paul Slovic) • Risk as analysis • Risk as feeling There is no dearth of evidence in everyday life that people apprehend reality in two fundamentally different ways, one variously labeled intuitive, automatic, natural, nonverbal, narrative, and experiential, and the other analytical, deliberative, verbal, and rational (Seymour Epstein; 1994, p 710) Two Modes of Thinking: Comparison of the Experiential and Rational Systems Experiential System Rational System • Holistic • Analytic • Affective: pleasure-pain oriented • Logical: reason oriented (what is sensible) • Logical connections • Associationistic connections • Behavior mediated by conscious • Behavior mediated by “vibes” appraisal of events from post experience • Encodes reality in abstract • Encodes reality in concrete symbols, words and numbers images, metaphors and • Slower processing: oriented narratives towards delayed action • More rapid processing: oriented • Requires justification via logic towards immediate action and evidence • Self-evidently valid: “experiencing is believing” (Adapted from Epstein, 1994) Strong Affect Overcomes Probability Prices paid to avoid electric shock and $20 penalty $20 18 16 14 12 10 Money Shock 1% 99 % Probability by d ke oc not s h n s , are ilitie e wh ces bab e l n o op que g pr e P ce ri n n co nside co Payment to avoid a chance of electric shock is not much affected by probability (Rottenstreich & Hsee: Money, Kisses, and Electric Shock: On the Affective Psychology Risk Psychological Science, 2001) Intuitive Toxicology – Main Result Many people lack dose-response sensitivity for exposure to chemicals that can produce effects that are dreaded, such as cancer (high affect) If large exposures are bad, small exposures are also bad High Public Cancer risk Toxicologists Low Low Small probability of harm High Exposure High probability of harm by d ke oc not s h n s , are ilitie e wh ces bab e l n o op que g pr e P ce ri n n co side n co 10 Do groups make better decisions ? • Groupthink (Janis) • Garbage can models (March, Olson, Simon) • Muddling through (incremental decisions; Braybrooke, Lindblom) 74 Group-think • Pigs-bay crisis 1961 (USA-Cuba): Analysis of the documents of the board of decision makers, J F Kennedy • In cohesive groups that are isolated from alternative sources of information, and in which the leader favours a certain solution, increases the risk of group-think Dangers at high pressure of conformity, at self-censorship, at overestimation of the inviolability of the group and at collective rationalisation, are missing definitions of the goal, selective information processing, insufficient valuation of the consequences of the alternatives and poor plans of realisation 75 Everywhere is Lohhausen (Dörner, 1989) In businesses, in public administration, in households ; everywhere are complex problems present Decision makers often tend not to solve relevant problems but easy tasks; Crisis management is practiced; deficiencies are discovered and repairs are made Sub-goals are achieved; final goals are lost sight of • Lohhausen • Tanaland Dictatorial mayors, regents or governments should govern towns and land and should lead them into wealth 76 and Tanaland (Dörner, 1989) • Good solutions are found by persons who not loose sight of the overall goal; who divide the overall goal in subgoals, who concretise and solve them and who look at them from an overall context Above all, they have to pay attention to developments over time • Often secondary goals are achieved and towns and land are ruined 77 „What was yesterday is in darkness of oblivion, and what we will happen tomorrow, lies in obscurity We human beings are creatures living in the present.“ 78 Taking Decisions Tips and Hints ? 79 Deciding right Hints ? In everyday life quick decisions are often required We not have time to brood for a long time and we decide on a gut level ation r e d i s : n s o e g a ut of c t o t n w f o e a l h Weaknesses: v e e r m a o a s Ad criteri w ro n g some feels s t i n l l o i i t s s i t c de cal, bu i g tional criteria o l We decide upon we know e In b ms to e e s g n i ometh S ns o i s i c e ! Our decision process is intransparent d k l tiona e quic a r d i r c o e f d mane w e u o l h l W n a i s n n a io truct ituatbecome s s n Wrong decisions not clear o e l c p s l m i e m od On l y s d n se a a s c e l u a q u i t n c tech n or a Complex decisions us o i t a u t i 80 s Decision overstrain ic f i c e p s o t distance Deciding right Hints ? most common mistakes: You delay decisions (no decision is a bad decision) You judge to quick („Doers not loose time“; „strong decision maker“, ) You only rely on your feelings You not separate essential things from nonessential You invest to much energy (take care of effort and costs) You only deal with easy problems You simply rely on “expert” advice 81 Deciding right Hints ? • The usage of decision techniques is especially recommendable when decisions to make are important and have to be justified • Especially when making important decisions you should also check whether it “feels” right while not only relying on your gut instincts! 82 Deciding right Hints ? Try to uncover hidden goals - especially in team decisions Time pressure? Watch out for nonelaborated decision aspects, for manipulations you might be vulnerable to and for overlooked alternatives Do not put off decisions 83 Possibilities to optimize decisions (1) • Questions concerning situation analysis (Did I analyze the initial situation sufficiently; consider all basic conditions?; which emotions might influence my view of the problem?) • Questions concerning goal setting (Are my goals realistic, too high or are they too far away in the future? Did I consider all sub-goals; side effects; consequences of the decision? Which criteria can be used to evaluate the success of the decision? • Questions concerning information search (Do I judge information or source of information? Did I gather relevant information? Do I overweight some information because it is flashy, new or corresponding to stereotypes?) 84 Possibilities to optimize decisions (2) • Questions concerning strategy (What does the decision look like if I “watch it from aside”? Am I able to view the decision situation from a global perspective? Do I hop from sub-goal to sub-goal, I miss a “general concept” of the decision process? Do I adhere to my modus operandi because I think it will be successful or because I am “used to “ it? Do I refuse to acknowledge that I “headed into the wrong direction” because costs have already occurred? Is it sensible to delegate the task? Who is most competent to reach an efficient decision?) 85 Possibilities to optimize decisions (3) • Questions concerning evaluation of results (Is the decision made really reasonable? Are there alternative solutions? Do I justify my actions with hindsight? Do I try to bring the numerous decisional and operational steps I took in a suitable, logical order - thereby avoiding to learn from mistakes?) 86 Possibilities to optimize decisions in groups (4) In order to reduce the dangers of group think: • Reluctance to bring forward own comment by the superior, • Encouragement to utter doubts and demurs, • The role of an „advocatus diaboli“, • Sub-groups to work on sub-problems competively, • Analysis of competitors intentions, • Rethinking of (preliminary) settlements, • Calling in external observers and critics, • Deployment of a parallel group working on the same problem 87 88 [...]... information adequately; decision situations are complex and individuals are often described as cognitively stingy; extensive decisions are often taken by using rules of the thumb; people apply heuristics due to time lack; consistent decisions can‘t always be expected, since people consider the framing of a task and are sometimes risk averse and sometimes risk seeking 18 Decision making: Individuals and... Decision making: Individuals and Groups • Perception of a critical situation • Identification of decision criteria (relevant criteria, criteria which can be substituted ) • Weighting of decision criteria • Detection of decision alternatives • Evaluation of alternatives • Choice of optimal alternative 19 Decision anomalies • • • • • Limited information processing capacity Time restriction and heuristics... Utility maximization Identifyable individual or group taking a decision All alternatives are known in advance All consequences are known and can be evaluated Evaluation bases on constant aims Consequences have known probabilities Importance of information can be judged clearly, and additional information can be gained if necessary 14 Example for a decision taks (a) Alternative A offers: Gain 44 €; p = 5;... gain nor loss 0 €; p = 2; 15 Example: Decisions in game theory • Prisoner dilemma B + -1 A - - -1 + 0 -10 -5 -10 0 • Ultimatum game Dictator A splits 100 € and shares it with a partner B; -5 + Prisoners cooperate and comply - Prisoners defect Acceptance or rejection by partner B 16 According to the model of „homo oeconomicus“ people are maximizing their utility in decision situations In the presented...Following … How do people take decisions in analytic way ? Do people decide rationally ? 11 Logics, Rationality, etc What is rationality? When is an individual or group behaving in a rational way? Rationality can be perceived from