Chapter Summary

• Introduction. Early approaches to decision and choice making were strongly influenced by normative theories of optimal decision making and by statistical theories such as Bayesian probability theory. It soon became apparent that people often fail to make optimal decisions, in part because they exaggerate the importance of some of the available evidence and minimise the importance of other evidence.

• Judgement research. People often seem to neglect base-rate information, but this is less likely when such information has clear causal relevance. Base-rate information may be neglected because it is often unavailable or of limited usefulness in the real world. Probability decisions often involve the use of various rules of thumb, such as the representativeness and availability heuristics. There is a lack of process models to explain when and how the various heuristics are used. There has been too much concern about the statistical principles relevant to problems at the expense of their real-world content. Judgements tend to be more accurate when the relevant numerical information is presented in the form of absolute frequencies rather than probabilities.

• Decision making. According to utility theory, we try to maximise utility or subjective value. However, decisions are also determined by other factors such as framing, the social context, perceived justification, anticipated regret, loss aversion, the sunk-cost effect, and individual differences in personality (e.g., self-esteem). There is no general theory that accounts for all these diverse findings.

• How flawed are judgement and decision making? Most of the available evidence indicates that people's judgements and decision making are error-prone. However, most people have developed decision-making strategies that work reasonably well in everyday life even though they do not work so well in the laboratory. For example, heuristics permit rapid and efficient decision making, and these benefits probably outweigh the possible costs of inaccuracy. In the real world, considerations such as being able to justify decisions to ourselves and to others may be more important than optimising utility.

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