Figure 174

Percentage choosing to buy a holiday immediately as a function of having passed an examination, failed an examination, or not knowing whether the examination has been passed or failed. Data from Tversky and Shafir (1992).

occurred because parents naturally anticipated enormous regret at the possibility of causing their child's death, but their inaction had the effect of increasing their child's risk of death.

Self-esteem

Decision making undoubtedly depends in part on individual differences in personality. There has been disappointingly little relevant research, but a study by Josephs, Larrick, Steele, and Nisbett (1992) is an exception. Individuals high and low in self-esteem were invited to choose between two options of equal utility but differing in risk (e.g., a sure win of $10 versus a 50% chance of winning $20 on a gamble). The key finding was that individuals low in self-esteem were 50% more likely than those high in self-esteem to choose the sure gain.

Why were those low in self-esteem reluctant to take risks? People of low self-esteem seem to focus on self-protection, and are concerned that negative or threatening events will reduce still further their self-esteem (see Wood et al., 1994).

HOW FLAWED ARE JUDGEMENT AND DECISION MAKING?

Most of the evidence discussed in this chapter indicates that people's judgements and decision making are error-prone. As Reisberg (1997, pp. 469-470) concluded his discussion of research on various heuristics:

We have painted an unflattering portrait of human reasoning. We have discussed several sources of error, and we have suggested that these errors are rather widespread. These studies have been run on many different campuses, including some of the world's most prestigious colleges and universities. Thus, the subjects are, presumably, talented and intelligent. The errors occur nonetheless .One might draw rather cynical conclusions from these findings: Human reasoning is fundamentally flawed; errors are appallingly common.

There are, in fact, several reasons for not being unduly pessimistic about human decision making. If people's decision making in everyday life were as flawed as it appears to be in the laboratory, then it seems very unlikely that the human race would have been as successful as it has. According to numerous experts (e.g., Oaksford, 1997), there are important differences between decision making in the real world and in the laboratory. People often have to make decisions on the basis of very incomplete information, whereas this is typically not the case in laboratory studies. There are other situations in the real world in which people are exposed to a considerable amount of redundant information, which is also not true of most laboratory studies. It is likely that people have developed decision-making strategies that work reasonably well in everyday life, but may not work so well in the laboratory. As Oaksford (1997, p. 260) argued, "Many of the errors and biases seen in people' s reasoning are likely to be the result of importing their everyday probabilistic strategies into the lab."

This line of argument can be applied to the various heuristics or rules of thumb used in making judgements. The use of heuristics can lead to error, but they serve a valuable function in our lives. As Reisberg (1997, p. 471) pointed out:

Heuristics provide efficiency. A heuristic is therefore valuable if this gain in efficiency is worth more to us than the cost...our lives are filled with countless occasions requiring a judgment of one sort or another. If we took too much time in each of these judgments, we would spend our days frozen in thought, unable to move forward in any way.it might be madness not to use the heuristics, even if they do, on occasion, lead us astray.

Another important point is that the emphasis on people as inadequate users of logic and statistical information may be unduly limited. According to Mellers et al. (1998, p. 450), "Early metaphors for decision makers posited human beings as intuitive scientists, statisticians, and economists. Depending on the situation, people may be better understood as intuitive politicians who balance pressures from competing constituencies, intuitive prosecutors who demand accountability, or intuitive theologians who protect sacred values from contamination." For example, the importance of taking account of social factors was shown clearly by Wang (1996). Even Kahneman (1994) has argued that we need to move beyond simple logical analyses of problems. For example, he proposed that we should assess decision outcomes in terms of the benefits and costs to the individual as well as in terms of their match or mismatch to Bayes' theorem or some other form of statistical inference.

Finally, most people have a need to be able to justify the choices they make to themselves and to others. It is likely that the perceived justification of any given choice is a significant factor in many of the phenomena of decision making, including the framing effect, loss aversion, the sunk-cost effect, and omission bias.

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