88-302

Behavioral Decision Making

Fall 1996

Baruch Fischhoff

Tu-Th 10:30 - 11:50 a.m.

Scaife 224

Course Description

Behavioral decision making is the study of how people make decisions. It hopes to describe these processes in ways that will eventually help people to make better decisions. At present, it is quite an active field, drawing together people from psychology, economics, political science, and management, among other fields. It is also being used, in one way or another, for a wide variety of applications, from managing potentially hazardous technologies, to involving patients more fully in the choice of medical procedures, to the design of computer-interactive systems. The readings picked for discussion are ones that everyone pursuing the field further would want to know, but which also should be helpful in the practical and academic pursuits of those taking only this course. Almost all are, I think, quite readable; some are even entertaining.

Course Goals

---Learn about the academic field of behavioral decision making, its major methods, results, and controversies.

---Learn the methodological standards used within the field for determining the trustworthiness of results.

---Examine the generality of these results and their applicability to actual decision-making problems.

---Acquire some practical, general skills for decision-making, useful in life and work.

Expectations/Grading

Mid-term (Part I) Exam 25%

Mid-term (Part II) Exam 25%

Final Exam 25%

Paper 25%

Determination of grades will also consider class participation

Exams. The exams will require both mastery of the contents of the assigned material and an ability to consider them thoughtfully (in terms of their strengths, limitations, and applications). About 1/3 of the second and third exams will be devoted to material covered earlier. On each part of the exam, you will get a selection of questions to choose from (e.g., answer any 4 out of 10). All exams are open book. The first section of each exam asks for definitions of terms. The second asks for short, factual answers regarding concepts and issues. The final third asks you to discuss controversial topics or to develop an idea on your own. All are open-ended (essay) questions. They take (much) longer to grade, but give me a clearer reading of your understanding of the course material (as well as a chance to catch places where the exam questions or the course itself have been unclear). Usually, I've been able to get them back within a week. My grading scale will be A: 90-100; B: 80-89; C: 70-79; and D: 60-69. If you wish to appeal any of my grading, please do it in writing. I will then reexamine the entire test (so, that I do not just correct mistakes made in one direction -- but I won't be looking for balancing errors).

In class, I will sometimes lecture on material in the readings that seems hard to understand. However, in general, I will try to provide material that is not in the text and to involve you in discussions. As a result, you need to ask me about things that you do not understand from the readings. You are responsible for what is in there, as well as for what is covered in class.

Term paper. The paper can be on any topic related to the general subject matter. It might be a critical reading of a set of studies, an application of these results to some practical problem, an analysis of the relationship between behavioral decision-making research and some topic from another discipline, an experimental study following up an idea from one of the readings, a review of attempts to replicate some early results, or a discussion of the usefulness of some attempt to help lay people make decisions (e.g., self-help guides). We have quite a bit of research going on here on various aspects of this topic. If you wish, you can take up a piece of this for yourself. (There is also the opportunity to do a directed study next term. That would involve joining our research group's weekly meetings, taking part in discussions, and developing a project together with us, with the aim of seeing it through to publication if all goes well.)

You can submit this paper at any time. A list of previous papers appears later in this syllabus. You are expected (for your own protection) to have an outline of the paper approved one month in advance. I look forward to helping you find a topic that relates to your interests. You are encouraged to submit a first draft for comments. I will treat final drafts as though you have taken the opportunity to consult earlier. So, if you submit something that completely misses the mark or has lots of holes that could have been plugged, you bear the responsibility. Don't do yourself the disservice of leaving this to the last minute. Also, if you find yourself perplexed about what to do, just come and see me. It has never taken more than a couple of conversations to find a topic of at least mild interest. Part of my job and your learning experience is to learn how to translate interests into workable idea of the proper scope (usually 10-15 good pages).

Class participation. This is the most difficult part of the course to evaluate in a clear, consistent way. However, it is an important part of the class's success for everyone involved. Although, I will straight-lecture perhaps one third of the time, I do as much as I can to make this a seminar, with class discussion of the issues. For that to work, I need to come up with discuss-able questions and you need to pick up that challenge when I do. Your participation in class also provides essential feedback to me regarding how clearly the topic is getting across.

However, I realize that volunteering to speak up in class is hard for some people, almost impossible for others. As a result, I don't like to force people to speak. Each year, I wrestle with this in seminar-like classes. This year, I would like to try the following policy. Please let me know if you feel that it is working poorly-or well.

First of all, I expect you to come to class prepared. Preparation is how well you know the material when called upon and how much effort you put into making the class work. Because the material of the course deals with the substance of everyday life (i.e., decision making), a test of its usefulness and of your understanding is to make contact between it and your own experiences. I expect that everyone will have something to contribute and I encourage you all to participate in class discussions. I also encourage you to bring in material from the outside that relates to course material, such as public pronouncements that seem to embody doubtful decision-making principles, or examples of advertising that seem to play on some interesting elements of the psychology of consumer decision making, or engineering analyses that use (or misuse) human judgment in ways worthy of discussion. (If, for some reason, you do not wish to be identified with the material, then slip it to me outside of class. If you feel uncomfortable about class participation, for whatever reason, either in general or for specific topics, see me about that, too, and we'll find some way around it.) If you want to think about class participation in terms of grades, then figure that it will make the difference if you fall between two grade levels (i.e., mean grades between 57-63, 57-73, 72-83, 87-93).

In past classes, I've found that there are always a few people who never speak. In order to help break the ice, and to help me see what you're getting out of the readings, I want to create a structured opportunity to speak. Specifically, I want each of you to volunteer to discuss two papers (or chapters) briefly when they come up in class. I will circulate a sign-up list today and have it available throughout the term. You might want to pick one item early in the term and one late. You can choose what to focus on. You might (a) list the three main points, (b) indicate some things that weren't clearly written, (c) suggest some related phenomena, or (d) raise questions about the generality of the results. Your part should take about 5 minutes (the ensuring discusion might take longer). If you are having trouble, come see me. The idea is to get you involved actively with the material, and to show me what you think. I haven't done this before. So, as elsewhere, tell me how it's working or could be improved.

Readings

The course will use two texts, supplemented by additional readings, from the professional literature. Those texts are: R. Dawes, Rational choice in an uncertain world. Harcourt Brace Jovanovich; S. Plous, The psychology of judgment and decision making. McGraw-Hill Publishing Co.

There is some overlap in their coverage, I hope that this will give you alternative perspectives on these topics. Often, that is what is needed in order to achieve mastery of core concepts.

Additional readings are in a packet that can be bought from Rosa Stipanovic, PH 319F. They include two overview articles, which may give you an alternative perspective and a quick summary of the material. Reading them sometime soon will help you to see where we are going.

Fischhoff, B. (1988). Judgment and decision making. In R. Sternberg & E. E. Smith, (eds.), The psychology of human thought. New York: Cambridge University Press.

McKean, Kevin. (1985). Decisions, decisions. Discover (June), pp. 22ff.

I am interested in your feedback on the readings. If you love or hate any, please let me know.

Office Hours

Office: PH 219E; Office Hours: Tu & Th 11:50 - 12:30 (after class); by appointment (gladly); and, if I'm in the office at any other time, don't hesitate to knock; Phone: x8-3246; e-mail baruch@andrew. This is a genuine invitation. If I'm at the university, I'm usually available to talk, about class or anything else where I might be helpful.

In addition, we will have an excellent teaching assistant this term. His name is David Rode. He is a graduate student in SDS after having graduated from the Wharton School of the University of Pennsylvania. His interests in decision making fall in the areas of financial decision making and decision support systems. His office hours are Wednesdays 2-3 p.m. and Thursdays 12-1 p.m; Office-TBA. His e-mail address is rode+@andrew.cmu.edu.

Schedule

There will probably be some small changes in the schedule. Among other things, material sometimes takes more or less time than I expected. I will "close the books" one class before each exam, as far as we have gotten, so that you have time to review the material and ask questions.

Course Schedule

Date Topic Readings

8/27 Introduction Fischhoff (1988)

8/29 Clinical judgment Bar Hillel & Ben Shakhar (1986)

Hyman (1977)

Schmenner (1976)

9/3 Do Plous quiz (at begining of his book)

Byrne (1986)

Plous (15-30; 38-47)

Dawes (230-253)

9/5 Dawes (202-227)

Plous (118-119; 162-173)

9/10 Intuitive Statistics Hickey (1975)

Oldman (1974)

Plous (145-152)

Dawes (121-122; 256-261)

9/12 Tversky & Kahneman (1971)

Dawes (293-311)

Plous (112-113)

9/17 Availability Plous (121-130)

Slovic et al. (1979) (14-39)

Plous (138-147; 174-188)

Dawes (92-106)

9/19 Bayesian Inference Fischhoff & Beyth-Marom (1983)

Plous (131-138)

Dawes (275-292, 313-331)

9/24 Catch Up & Review

9/26 Exam

10/1 Probability Assessment Plous (217-230)

Lichtenstein et al. (1982)

Slovic et al. (1979) (14-39)

10/3 Learning from Fischhoff (1980)

Experience Einhorn (1982)

Dawes (106-120)

Plous (31-37)

10/8 Representativeness Kahneman & Tversky (1972)

Kahneman & Tversky (1973)

10/10 Dawes (66-89, 128-140)

Plous (109-112, 113-120, 153-161)

10/15 Improving Judgment Singer (1971)

Dawes (140-143; 256-273)

Kahneman & Tversky (1979)

Plous (142-144)

10/17 Diamond (1989)

Rosenthal (1978)

Kaplan (1980)

Plous (227-230)

Armstrong (1987)

10/22 Critique Fischhoff (1988) 178-182

Jungermann (1983)

Fischhoff (1982)

Christensen-Szalanski & Bushyhead (1981)

Plous (253-260)

10/24 No Class

10/29 Exam

10/31 Normative Choice Becker (1976)

Models Simon (1976)

Plous (79-83)

[Paper Outline Due]

11/5 Borch (1976)

Plous (84-88)

Dawes (146-175)

11/7 Eliciting Beliefs & Values McNeil et al. (1978)

Plous (51-69)

Gilligan (1982)

Komaroff (1979)

11/12 Fischhoff (1991)

Plous (69-76, 88-93)

11/14 Formulating Decisions Dawes (22-31, 34-47, 50-63, 123-125)

Plous (94-105)

11/19 Thaler (l980)

Kahneman et al. (1991)

McKean (1985)

11/21 Social Context Dawes (178-199)

Plous (191-214)

11/26 Advice Janis & Mann (1976)

Fischhoff (1992)

Dawes (172-175)

12/3 Plous (241-252)

Vaupel & Graham (1980)

Hocking (1991)

Slovic et al. (1979) (14-39)

12/5 Catch Up & Review

12/6 Paper Due

References

Plous = Plous, S. (1993). The psychology of judgment and decision making. NJ: McGraw-Hill.

Dawes = Dawes, R.M. (1988). Rational choice in an uncertain world. Harcourt Brace.

Other References

Armstrong, J.S. (1987). The forecasting audit. In S. Makridakis & S.C. Wheelwright (Eds.), The handbook of forecasting (pp. 535-552). NY: Wiley.

Becker, G. (1976). Introduction. In G.S. Becker, The economic approach to human behavior. Chicago: University of Chicago Press.

Bar Hillel, M., & Ben Shakhar, G. (1986). The a priori case against graphology. In B. Nevo (Ed.), Scientific aspects of graphology. Springfield, IL: Charles Thomas.

Borch, K. (1976). Communications and notes. Journal of Risk and Insurance, 43, 521-525.

Byrne, J.A. (1986). Business fads: What's in -- and out: Executives latch on to any management idea that looks like a quick fix. Business Week, January 20, 52-61.

Christensen-Szalanski, J.J.J. & Bushyhead, J.B. (1981). Physicians' use of probabilistic information in a real clinical setting. Journal of Experimental Psychology: Human Perception and Performance, 7, 928-935.

Diamond, J. (1989). The price of human folly. Discover, April, 73-77.

Einhorn, H.J. (1982). Learning from experience and suboptimal rules in decision making. In D. Kahneman, P. Slovic & A. Tvesky, Judgment under uncertainty: Heuristics and biases (pp. 268-283). New York: Cambridge University Press.

Fischhoff, B. (1980). For those condemned to study the past: Reflections on historical judgment. In R. A. Shweder and D. W. Fiske (Eds.), New directions for methodology of behavioral science: Fallible judgment in behavioral research (pp. 79-93). San Francisco: Jossey-Bass.

Fischhoff, B. (1982). Debiasing. In D. Kahneman, P. Slovic, and A. Tversky (Eds.), Judgment under uncertainty: Heuristics and biases (pp. 422-444). New York: Cambridge University Press.

Fischhoff, B. (1991). Value elicitation: Is there anything in there? American Psychologist, 46, 835-847.

Fischhoff, B. (1992). Giving advice: Decision theory perspectives on sexual assault. American Psychologist, 47(4), 577-588.

Fischhoff, B. (1988). Judgment and decision making. In R. Sternberg & E. E. Smith, (eds.), The psychology of human thought. New York: Cambridge University Press.

Fischhoff, B., & Beyth-Marom, R. (1983). Hypothesis evaluation from a Bayesian perspective. Psychological Review, 90, 239-260 (only 239-247 required).

Gilligan, C. (1982). Images of relationship. From In a different voice. Cambridge, MA: Harvard University Press.

Hickey, J.J. (Ed.) (1975). Adventures in bird counting. In A guide to bird watching (pp. 50-53). New York: Dover Publications.

Hocking, M.B. (1991). Paper versus polystyrene: A complex choice. Science, 251, 504-505.

Hyman, R. (1977). Cold reading: How to convince strangers that you know all about them. The Zetetic, Spring/Summer, 18-37.

Janis, I.L., & Mann, L. (1976). Coping with decisional conflict. American Scientist, 64, 657-667.

Jungermann, H. (1983). The two camps on rationality. In R.W. Scholz (Ed.), Decision Making under uncertainty (pp. 63-86). Amsterdam: Elsevier.

Kahneman, D., Knetsch, J.L. & Thaler, R.H. (1991). The endowment effect, loss aversion, and status quo bias. Journal of Economic Perspectives, 5, 193-206.

Kahneman, D . & Tversky A. (1972). Subjective probability: A judgment of representativeness. Cognitive Psychology, 3, 430-454.

Kahneman, D. & Tversky, A. (1973). On the psychology of prediction. Psychological Review, 80, 237-251.

Kahneman, D. & Tversky, A. (1979). Intuitive prediction: Biases and corrective procedures. TIMS, Studies in Management Science, 12, 313-327

Kaplan, R.M. (1980). How do fans and oddsmakers differ in their judgments of football teams? Personality and Social Psychology Bulletin, 6, 287-292.

Komaroff, A.L. (1979). The variability and inaccuracy of medical data. IEEE, 67, 17-28.

Lichtenstein, S., Fischhoff, B., & Phillips, L. D. (1982). Calibration of probabilities: State of the art to 1980. In D. Kahneman, P. Slovic, and A. Tversky (Eds.), Judgment under uncertainty: Heuristics and biases (pp. 306-334). New York: Cambridge University Press.

McKean, Kevin. (1985). Decisions, decisions. Discover (June), pp. 22ff.

McNeil, B.J., Weichselbaum, M.D. & Pauker, S.G. (1978). Fallacy of the five-year survival rate in lung cancer. New England Journal of Medicine, 289, 1397-1401.

Oldman, D. (1974). Chance and skill: A study of roulette. Sociology, 8, 407-426.

Rosenthal, R. (1978). How often are our numbers wrong? American Psychologist, 11, 1005-1008.

Schmenner, R.W. (1976). Before you build a big factory. Harvard Business Review, July-August, 100-104.

Simon, H.A. (1976). Theories of bounded rationality.

Singer, M. (1971) The vitality of mythical numbers. The Public Interest, 23, 3-9.

Slovic, P., Fischhoff, B. & Lichtenstein, S. (1979). Rating the risks. Environment, 21(4), 14-20, 36-39.

Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1, 39-60.

Tversky, A. & Kahneman, D. (1971). Belief in the "law of small numbers." Psychological Bulletin, 76, 105-110.

Vaupel, J. W. & Graham, J. D. (1980). Eggs in your bier. Public Interest, 4(3), 3-17.