Overview of Unit Two
In this Unit we looked a variety of cases in which most people make decisions or formulate judgments in ways that deviate from Rational Choice Theory and Probability Theory. Behaviorial scientists have categorized these behaviors under labels, such as Framing Effects, Confusion of the Inverse, Pseudo-certainty, etc. You should be able to describe these various sorts of behavior and explain how they violate normative principles.
Behaviorial scientist have then proposed various descriptive theories that are intended to give unified accounts of at least some of these phenomena. We looked in detail at one -- Tversky & Kahneman's Prospect Theory. You should be able to describe this theory and show how it does (or does not) account for some of the categories of behavior exemplified above.
The lectures and homework assignments emphasized some aspects of the Plous readings and completely ignored others. What I'll now do is leaf through the assigned chapters in Plous and designate the most important sections with a "+" mark. There are a few sections that are pretty tough going and which we didn't have time to talk about and I'll mark those with a "-" sign. The remaining sections provide useful background.
Chapter 6 provides a nice account of how the way a question is posed or an option described can affect how people respond. Especially important are the accounts of various experiments:
+ Framing
+ A Bitter Pill
+ Deductive Logic (which is actually about tax deductions!)
+ Psychological Accounting
+ Conclusion
Chapter 9 follows Chapters 7 and 8 which we discussed
in Unit 1. It may be useful to recall what was in them. Chapter
7 presents what Plous calls "Expected Utility Theory",
which we covered under the title "Rational Choice Theory".
He then turns to some famous paradoxes in Chapter 8. What happens
in Chapter 9 is a discussion of various models or theories which
attempt to describe and explain the ways in which people systematically
deviated from the dictates of Expected Utility Theory.
We had covered an appeal to satisficing in Unit 1. (You may recall that although our stress was on maximizing expected utility, we all discussed other strategies, such as "play-it safe" and picking a satisfactory option.
We stressed:
+ Prospect Theory
+ The Certainty Effect
+ Pseudocertainty
+ Conclusion
We omitted entirely"
- Regret Theory
- Multi-attribute Choice
- Noncompensatory Strategies
Chapter 10 begins the discussion of how people assign probabilities and various errors that they fall into.
+ All Sections of this Chapter!
Chapter 11 provides interesting and useful background.
Chapter 12 continues the discussion of various errors in manipulating probabilities. Especially important are:
+ Confusion of the Inverse (You need not memorize Bayes' Theorem
but you should understand why it is important and when it is to
be applied.)
+ Compound Events
+ Recommendations
+ Conclusion
Chapter 13 again is background. You needn't get bogged down in the calculations in:
- Further Examples of Anchoring
Chapter 14 describes some very fundamental confusions about randomness, some of which can have important consequences. Lecture 11 took some of these themes a little further. The most important sections are:
+ Seeing Patterns in Randomness
+ Can People Behave Randomly?
Although the Tversky and Kahneman article was not assigned reading, it does give a succinct account of Prospect Theory, which is the topic we emphasized most in this unit, so it can now provide a useful review.