In a fast-moving world, the necessity of making decisions, and preferably good ones, has
become even more difficult. One reason is the variety and number of choices perhaps
available which often arenot presented or understood. Alternatives are often unclear and
complex paths to them confusing and misleading. Thus the process of decision making itself
requires analysis on an ongoing basis. Decision making is often made based on cultural
factors whereas the best alternative might be quite different. The subject touches ethics
aspects as well as psychological considerations. This new book presents important research
on the psychology of decision making related to economics, business and finance.
Expert Commentary – Sustainable management of natural resources necessitates
conscious and organised activity. When planning the use of a certain spatially explicit
management unit, competing goals and interests call for multi-objective decision support. The
environmental decision making also involves uncertainty concerning available information
and future predictions. Traditionally, a typical procedure has included the use of preference
elicitation tools, statistical models, and optimisation methods, to find an acceptable solution
for the decision problem at hand.
When improving the decision support portfolio to work more efficiently, there is a need
to consider the overall structure of decision problems. To demonstrate that, we have
conceptualised the variety of forestry decision problems in three-dimensional decisionproblem
space, which comprises geographical, temporal, and social dimensions. The crucial
issue in the problem structuring and, thus, in the selection of decision support method, is
scope awareness: recognising the fundamentals of the decision problem at hand. With the aid
of that, the unwanted decision-model-based or support-methodology-based psychological
biases can be avoided or smoothened.
By the results of the research proposed in this chapter, both the efficiency of single
phases of decision making and the quality of the whole decision process would be improved.
The results would also enhance learning about the characteristics of decision problems and
decision makers’ preference structures.
Chapter 1 – We report a study in which methodologies from psychophysics are adapted to
investigate context effects on financial decision making related to retirement savings and
risky investment. The aim was to determine how the range of the options offered as possible
saving rates and levels of investment risk influences decisions about these variables. The
respondents were presented with either a full range of choice options or a limited subset of the
feasible options. The study was conducted on a sample of working people, and we controlled whether the participants can financially afford in their real life the decisions taken in the test.
The results showed that choices of saving and risk are affected by the position of each option
in the range of presented options. Various measures of risk aversion did not account for the
risk taken in each condition. Only the simplest and most direct risk preference measure was a
significant predictor of the responses within all contexts (conditions), although the actual
choices were still very much influenced by each context. Thus, the results reported here
suggest that judgments and choices are relative, rather than absolute, which corroborates, in a
more applied and realistic setting, previous related work with abstract gambles and
hypothetical risky investments.
Chapter 2 – Self-evaluations of performance are important in theory and practice. In
contexts with multiple persons performing the same task, the evaluation of one’s own
performance is expected to be a process involving judgments about the performance of others,
and comparisons between one’s own and others’ performance. We conducted a longitudinal
study tracking 79 participants’ evaluations of their own and others’ performance on five
repetitions of a task over a four-month period. Three temporal factors that Radhakrishnan,
Arrow, and Sniezek (1996) identified as influences on self evaluations of performance were
examined: Temporal Perspective, Time Horizon, and Experience. In the present study, we
investigated in more detail, the role of these factors, on judgments evaluations at multiple
time-points before and after each task performance event. Results show that in general,
evaluations of own and others’ performance as well as on social comparisons. Participants
made evaluations at multiple time-points before and after each task performance event.
Results show that in general, evaluations of own and others’ performance and social
comparisons both had a positively leniency bias. This bias in self evaluations and social
comparisons decreased when estimates were made (a) after performance than before; (b)
closer to the performance event than farther away from it; and (c) with increasing experience.
However, evaluations of only one’s own performance were more variable with changes in the
temporal factors. Further, the increase in bias with longer time horizons was reduced
considerably with increasing experience. Changes in inter- and intra-individual validity
followed those for bias. Interestingly, changes in solo evaluations over time were similar to
those for social comparisons.
Chapter 3 – The aim of this paper is to draw attention to what is arguably a very general
and pervasive feature of human cognition that may have important implications for our
understanding of human decision making and also for some aspects of economics. The major
claim, defended here, is that when people judge the attributes of choice options (like utilities,
payoffs, and probabilities), they are not able to represent the absolute magnitudes of these
attributes; instead, they represent magnitudes ordinally—in relation to other magnitudes that
they can sample from memory or from the current environment. Also, when people represent
a magnitude, they can only do so on the basis of whether it is larger or smaller than other
sampled magnitudes. Such sampling of knowledge from memory and transferring it to the
current situation produces certain biases in judgment because stimuli are judged only relative
to each other and therefore utility of an option is dependent on the other options that can be
retrieved from memory. As a consequence, there may be no ability to represent cardinal
scales, for any magnitude and judgments involving such magnitudes are determined by the
context. The core evidence for this claim comes from recent research in psychophysics on the
perception of the intensity of basic psychophysical magnitudes such as the brightness of a light or the loudness of a sound, and also from research on the effects of context on decision
making under risk and uncertainty.
Chapter 4 – The vast majority of the public learns about new risks to health and society
predominantly from the media, including the press media directly or indirectly. However,
little is known about the role and mechanisms through which the press media influences
attitudes and risk perceptions. Some approaches stress the ides that risks are partly created
while other state that the media plays a neutral role, however empirical evidence is hard to
retrieve and still is scarce. This paper empirically examines both the role of press media
coverage and reporting of new genetically modified (GM) foods between 1999-2004. We
draw upon a combination of qualitative and quantitative evidence. First, evidence of content
analysis of key press media in two countries – Spain and the United Kingdom (UK) – is
examined to illustrate preliminary evidence and subsequently, quantitative evidence of survey
data (Eurobarometer surveys) is examined to scrutinise for the existence of some media
biases, inter-country differences in public perceptions as well as specific media effects
connected to role of journalism in the country. Results point towards the existence of
significant differences in media reporting and respect for journalism between the two
countries, which correlate with public perceptions, although a similar lack of trust was
identified. Furthermore, we find evidence suggesting some specific media biases depending
on the press media readership.
Chapter 5 – When making decisions between different options, we often consider two
basic properties of these options, how risky they are and when they will occur. For example,
we may choose to gamble or to wait for a larger reward. Decisions under risk refer to
decisions among known probabilistic options, inter-temporal decisions refer to choices
between options that will be realized at known future timepoints.
Risky and inter-temporal decisions have been captured theoretically primarily by Ecology
and Microeconomics but findings from Behavioral Economics, Psychology and Neuroscience
often contradicted theoretical predictions. As a consequence, a wealth of more descriptive
models has emerged to explain the findings. A subset of these models has stressed the
similarities between risky and inter-temporal decisions. In this chapter we review both core
theoretical approaches and empirical findings. We discuss possible explanations for
discrepancies and identify key behavioral experiments.
Chapter 6 – While remaining within the traditional micro-economic framework of rational
utility maximization, we enrich the standard and random parameters logit choice models with
perceptions data. From the estimated models we derive a value of time and we also make a
tentative attempt to derive a value of safety. Because we estimate the values simultaneously,
we are able to explore whether values estimated in conjunction differ from values estimated
in isolation. Survey data is used to measure the individual’s perceptions of five modal
attributes (time, cost, safety/risk, environmental friendliness and flexibility) and show how
these perceptions affect the modal choice for work trips. The respondents’ perceptions are
elicited by a novel approach in which the names of two modes (car and bus) are used as
attribute levels instead of objective levels. A difference between our survey and traditional
ones is that we do not attempt to educate the respondents about, for example, the risks of
travelling. Instead, we record the respondent’s perceptions about the risk and the other the
modal attributes.
Chapter 7 – Economics has always focused on how individuals make decisions.
Traditionally, the discipline has viewed individuals as rational agents maximizing their own utility. However, economists have recently begun to incorporate research from the field of
psychology in creating a richer view of decision making. This push is the result of challenges
to the neoclassical model made by theoretical advances such as Kahneman’s Nobel-winning
prospect theory model and from the field of experimental economics. This growing field has
revealed many aspects of human behavior that cannot be explained by traditional economic
models. Some of these aspects of behavior include loss aversion (as explored by Kahneman);
relative deprivation (the theory that individuals consider their relative position as compared to
others when making decisions), motivations of altruism, fairness, and reciprocity; and the
endowment effect (individuals tend to value goods more highly if they are already in
possession of them). These innovations have impacted economists’ views of issues such as
consumption, worker-firm relations, labor supply, equities and real estate.
This paper reviews the impact of psychology on economic models of decision making.
The major trends will be discussed, along with implications that these changes have for both
economics and public policy.
Chapter 8 – Today more than ever, people try to anticipate financial needs and to plan
wisely for a lifetime of financial security. Information about financial options is plentiful, and
financing for health and long-term care (LTC) is no exception. With all of the information
and advice that is available, under what circumstances would a person decide that his/her
decision was no longer the best option?
We address this question by looking at the market for LTC insurance, and estimate
logistic regressions to model consumer decisions to drop or renew an existing LTC insurance
policy. We explore events that occurred after the policy was last purchased and before the
current policy was dropped or renewed. The price and benefit design of each policy is not
directly observable so several proxy measures of the price of a policy are explored.
Data is obtained from the publicly available Health and Retirement Survey (HRS). Data
from 2002 is used to identify those who have a LTC policy and to establish baseline financial
circumstances. Data from 2004 is used to determine whether the policy was renewed, and to
identify potentially influential events that occurred since 2002.
The study sample includes 1,375 individuals who reported an existing, private LTC
insurance policy in 2002, and were therefore eligible to renew the existing policy before
2004. Proxy prices were calculated and assigned using publicly available price schedules.
Preliminary findings suggest that price was an influential factor in the decision to drop an
existing policy, even though the price of the policy did not increase as a result of age. Those
with newer policies were less likely to allow a policy to lapse. Those with low levels of assets
(less than $200,000) were more likely to allow a policy to lapse, as were those with more than
$1.5 million in assets.
Our results suggest that financial considerations are important, and a thorough review of
an individual’s financial circumstances may be effective in enabling people to make a lasting
choice when they decide how to plan for LTC.
Chapter 9 – The acceptance of risks associated with new technologies is a key issue that is
likely to limit the extent of innovation in a ‘risk society’. However, given the limited
comprehensible information available to the public of new technologies, it is likely that risk
information provision will have a heterogeneous effect on public perceptions. In order to
examine this issue, we empirically examine the determinants of risk perceptions, benefit
perceptions and risks acceptance of new technology developments in Spain. Our findings
indicate that risk and benefits perceptions are not independent but affected by common information sources. Furthermore, by taking into account this effect individual’s knowledge
of science heterogeneously increases both risks and benefits perceptions.
Chapter 10 – The present theory proposes that investors not only think of future monetary
benefits, but also value the choices’ implications regarding their self-esteem in decision
making. Self-esteem is one’s subjective evaluation of the self. Most people want to maintain a
positive self-image. When they decide to invest in a project, people expect to receive financial
rewards, and they also hope to enhance their self-esteem through the success of the project.
Thus, when their initial investment produces negative economic return, they not only suffer
financial loss, but also encounter challenges to their self-esteem. They can withdraw from the
project to minimize their monetary loss, or they may keep throwing additional money into the
project to demonstrate that their initial decision was correct. It is painful to admit a mistake
because it poses negatively to the investors’ self-concept. As a result, investors may be
entrapped within a losing project and suffer accumulated financial loss. The present theory
suggests that when investors encounter conflicts between money and self-esteem in decision
making, they may choose to give up money in order to defend their self-esteem.
0 Komentar