MAP 596F, Spring 2005 (also PSY 696F) A Master Seminar in The Foundations of Judgment and Decision Making

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1 MAP 596F, Spring 2005 (also PSY 696F) A Master Seminar in The Foundations of Judgment and Decision Making Instructors: Meetings: Professor Terry Connolly, Management and Policy Professor Massimo Piattelli-Palmarini, Cognitive Science with distinguished MAP visiting faculty McClelland Hall 405F, Tuesdays, 4 6:50pm Purpose: The seminar is intended to provide graduate students from a wide range of disciplines with a foundational introduction to the field of Judgment and Decision Making (JDM). The field is highly interdisciplinary, drawing on ideas of rational choice from philosophy, cognitive science and economics; on descriptive research on actual behavior from psychology; and on application in a wide range of substantive areas including legal and medical decision making, marketing, management, accounting, computer science, and decision analysis. The seminar will introduce students to the core contributions of JDM in several of these disciplines, drawing on the expertise of outstanding faculty in each area. Required background: No special background or prerequisite courses are assumed of the students. The seminar will, however, require the student to engage content and perspectives ranging far from his or her home discipline, so intellectual openness and flexibility will be essential. Required activities: Students receive full credit for the seminar by participating very regularly in all the sessions; by reading the preparatory paper(s) suggested by each lecturer in advance and posted on the course website; by writing short appreciation papers each week to be submitted to the course coordinators along with possible discussion questions for later sessions; and for actively contributing to the discussion. Semester papers are encouraged but not required. They will be jointly evaluated by one of the course coordinators and by the appropriate visiting lecturer.

2 The Master Seminar idea: The Master Seminar format has been successfully used over the past four years in Linguistics, Psychology and Cognitive Science and earlier in Management and Policy. It is administratively a graduate course, cross-listed in several departments, and aimed especially at attracting students (in this case) from cognitive science, management and policy, marketing and other business-related disciplines, economics, psychology and philosophy. In the past numerous outside faculty and auditors have attended regularly, and discussions have been lively. We will continue to encourage such broad participation. Each speaker will be asked to focus on foundational JDM issues in his or her area, aiming at a highly educated but largely interdisciplinary audience. Each speaker will identify one paper, to be posted on the course website and read before the session; and a short reading list of 3 5 other papers that would provide a useful starting point for the student developing an interest in this specific area. In addition the course coordinators will provide an initial scene-setting overview of the field as a whole. A final session will be devoted to integrating the course materials and identifying directions for future research.

3 596, Spring 2005: Speakers, titles & abstracts Jan 18: Introduction and course organization (MPP & TC) Jan 25: Massimo Piattelli-Palmarini (Cognitive Science and MAP): Concepts of probability in decision making. Abstract: Probabilistic illusions arguably constitute the largest domain of cognitive illusions, and there are quite a number of intriguing probabilistic paradoxes (the best known are those discovered by the French mathematician Joseph Bertrand around the year 1900, and the surprising "trivialization" of conditional probability presented by David Lewis around 1976 and then amended by Richard Jeffrey in the following years). We will examine both the main conceptual issues in the normative (i.e. philosophico-mathematical) and in the cognitive (i.e. descriptive) theories, in an attempt to relate them meaningfully towards a better understanding of the role of probabilistic judgments in decision making. Feb 1: Lisa Ordóñez (MAP): Preference reversals Abstract: In this session, we will discuss an interesting set of research results showing that preferences can reverse depending on how the question is asked "which one do you prefer?" Recent research results show that preferences change depending on whether an option is evaluated in comparison to another or in isolation. We will discuss several general models that have been proposed to explain this preference reversal phenomenon and other issues related to preference. Feb 8: John Pollock (Philosophy): Plans and decisions Abstract: Counterexamples are constructed for classical decision theory, turning on the fact that actions must often be chosen in groups rather than individually, i.e., the objects of rational choice are plans. It is argued that there is no way to define optimality for plans that makes the finding of optimal plans the desideratum of rational decision-making. An alternative called "locally global planning" is proposed as a replacement for classical decision theory. Decision-making becomes a non-terminating process without a precise target rather than a terminating search for an optimal solution.

4 Feb15: Terry Connolly (MAP): Emotion in decision making Abstract: Decision researchers have predominantly regarded emotion as an obstacle to rational decision making. Only recently has significant research effort examined the emotions associated with choice, both in anticipation (in shaping their impact on the choices we make) and in experience (in our reactions to the outcomes of our choices). Though several emotions have been examined, regret has attracted the greatest attention, and much of the presentation will be concerned with this emotion. Feb 22: Alan Sanfey (Psychology): Cognitive neuroscience and JDM Abstract: The class will serve as an introduction to the rapidly developing field of cognitive neuroscience, and more specifically, will examine recent research that is seeking to investigate the neural underpinnings of human decision-making. Mar 1: Lehman Benson (MAP): Time pressure effects on judgment and decision-making Abstract: There is a growing body of research about the effects of time pressure and the ways in which individuals cope with time pressure. However, there has been little theoretical work on developing a model of what creates time pressure. This paper develops such a theoretical model. We examine the functional relationship between judged time pressure and the amount of time that is available (Ta) and required (Tr) to complete a task. In a laboratory setting, subjects were asked to consider different tasks in which the time available was less than or equal to the time required to complete a task at work. Least square fits indicated that the relative difference model [(Tr-Ta)/Tr] fit mean time pressure ratings better than both the difference (Tr-Ta) and ratio (Tr/Ta) models. Individual responses were fit to these same models; the majority of subjects were best fit by the relative difference model.

5 Mar 8: Vjollca Sadiraj (Econ): Revealed Altruism Abstract: This paper develops a theory of revealed preferences over one's own and others' monetary payoffs. We introduce "more altruistic than" (MAT), a partial ordering over preferences, and illustrate its use for known parametric models. We also introduce and illustrate "more generous than" (MGT), a partial ordering over opportunity sets. Several recent discussions of altruism focus on two player extensive form games of complete information in which the first mover (FM) chooses a more or less generous opportunity set for the second mover (SM). Here reciprocity can be formalized as the assertion that an MGT choice by the FM will elicit MAT preferences in the SM. We state and prove propositions on the observable consequences of that assertion. Then we test those propositions using existing data from Stackelberg games and new data from Stackelberg mini-games. Mar 22: Anouk Scheres (Psychology): Temporal discounting of reward: A review Abstract: The subjective value of a reward decreases as a function of time. This phenomenon is observed, for example, when people show preferences for smaller sooner rewards over larger later rewards. A 5-day vacation next week may be worth more to me than a 2-week vacation one year from now. The weakening of reward value due to delay is referred to as temporal discounting. In this presentation, an overview of the current literature on temporal discounting of rewards will be provided. This will include some theoretical background, an overview of how people discount the future, what we know about the neural basis of temporal discounting, inter-individual differences, the development of self-control, and the association between temporal discounting and impulsivity. Finally, a study on temporal discounting of rewards in children and adolescents with Attention-Deficit/Hyperactivity Disorder and symptom-free controls will be presented. Mar 29: David Schmidtz (Philosophy): Reinventing the Commons. Abstract: Many legal theorists have commented on the question, if commons tragedies are so bad, and so inexorable from a decision-theoretic perspective, why do common property institutions still exist, and even flourish? I'll discuss the general theory, and apply it to a particular case, namely the voluntary conversion of private to communal property in South African game preserves.

6 Apr 5: Martin Dufwenberg (Econ): Promises & partnership Abstract: We examine, experimentally and theoretically, the impact of communication on trust and cooperation. We are especially interested in how problems of hidden action (as treated in contract theory) may be overcome. Our design admits observation of promises, lies, and beliefs. The evidence supports a theory according to which people strive to live up to others expectations in order to avoid guilt. The theory admits promises to enhance trustworthy behavior, which is what we observe in the experiment. Motivated by these results, we develop a notion of guiltaversion equilibrium for extensive games. Besides explaining partnership interaction, the model sheds light on the role of language, discussions, agreements, and social norms more generally. The analysis also leads to some calls for more research in the field of psychological game theory. Apr 12: Narayan Janakiraman (Marketing): Wait time perceptions and implications Abstract: There is a growing body of literature that shows that individual assessments and estimates of experienced and anticipated wait durations might be vastly different from actual durations. Further, even anticipated wait duration and retrospective duration estimates are likely to vary significantly. We will focus our discussion on trying to understand the source and nature of the bias in duration estimates and the moderating variables that exacerbate or mollify the bias. Waits are rarely seen as pleasurable activities and lead to negative affect and stress. The extent of negative affect resulting from waits and the behavioral implications from negative affect are only now being understood. We will also briefly discuss experiments that shed some light on how duration estimates likely drive negative affect from the wait. Finally, we will extend our discussion to how duration estimates influence decision making by looking at experiments that involves making a choice between different waits and decisions to stick with a chosen wait.

7 Apr 19: Tamar Kugler (MAP): Group Decision Making in Strategic Environments Abstract: This talk will review small-group decision-making in strategic environments environments where outcomes depend not only on one s own decisions, but also on the decisions of other groups or individuals. I will compare group decisions in strategic situations to group decisions under uncertainly and risk on one hand, and to individual strategic decisions on the other hand. The discussion will focus both on differences in process (i.e., what are the dynamics that lead to different decisions made by groups?) and differences in outcomes (are the decisions systematically different? Can general predictions be made?). Apr 26: James Cox (Econ): Implications of Small- and Large-Stakes Risk Aversion for Decision Theory (with Vjollca Sadiraj) Abstract: A growing literature reports the conclusions that: (a) expected utility theory does not provide a plausible theory of risk aversion for both small-stakes and large-stakes gambles; and (b) this decision theory should be replaced with an alternative theory characterized by loss aversion. This paper explains that the arguments in previous literature fail to support either conclusion. The extant concavity-calibration arguments do apply to the expected utility of terminal wealth model but have no implication for the expected utility of income model nor for a new model that we introduce, the expected utility of initial wealth and income model. In order to show that the new model should have fruitful applications, we extend the Arrow-Pratt characterization of comparative risk aversion to it. In order to explicate the actual implications of concavity calibration for decision theory, we introduce a different assumed pattern of global small-stakes risk aversion and calibrate its implications for alternative decision theories including expected utility theory, prospect theory, and all other decision theories that incorporate risk aversion (at least partly) through concave transformations of payoffs. May 3: Course integration and wrap-up (MPP & TC)