Who is really loosing out?

The whole endownment theory is based around the fact that there are two different ways in which we could value an object. The first one, is on how much we are willing to pay for that object (WTP) and the second how much we are willing to sell it for or accept the loss of it (WTA). It is easy to see why, when we own something for a long time, we would value it higher. Usually, we put emotional attachment to things and would not want to depart from something that means something to us. However, the findings from studies show that WTP is still less than WTA when the item has been recently given to us. It does make sense as it follows from the loss aversion theory that we are not keen on giving things up. At this point something flashed up at me that I hope someone can answer or explain: buying and selling is simply an exchange of money for an item or service, so when we sell we lose the item but when we buy we lose the money. I guess my question is, if we are given £5 to buy something, wouldn't the giving up the £5 note away seem as a loss to us and therefore make us want to value it higher, i.e. Is there not two cases of endownment in each transaction rather than just one? If so how can this be proven?????

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Risky Decisions

I am about to write my blog post for week 4 which incorporates both parts of judgement and decision making under risk and uncertainty. I write this entry now as personal reasons have made me absent from weeks 4 and 5. So I have catching up to do, I will also discuss framing as it is the topic for week 5:

Decision making under risk and uncertainty is an area which fascinates me. I have even chosen it as my dissertation topic for this year. Part of my interest is due to the way in which people have responded to the problem questions and how they show our day to day decisions to be based on things other than rationality. It should come as no surprise that expected value theory has come under such criticism; it is after all a rather simple theory and it assumes we all place the same value to things. But, even if you were to look at things subjectively, like expected utility theory does, the choices we make don't seem to reflect those predicted by the theory. We seem to be risk averse when out comes are gains and the other way round when outcomes are loses. Furthermore the Allais paradox shows, along with other research which shows that people don't follow the axioms suggested by expected utility theory, that this is not a plausible theory.

If I am going to be honest prospect theory seemed to me a simple evolution of expected utility theory that tried to describe our pattern of decision making rather than explaining it. There are two things about this theory which I did like and thought useful. One is the weighing function and the other was framing. I suppose that framing was the most interesting part when reading through the literature. The implications extend from marketing to politics to professional decision making. I found fascinating that someone can change their mind on a decision simply because a problem has been worded differently. Knowing how to frame properly can lead to making people choose the option that you want.


I found the neuroscience section of this topic was interesting but not something which I wanted to pursue in more detail; far too biological for my liking. Support theory, however, I did like. To me it seems to have more face value and explain our decision making patterns in a way that seemed to make sense. We must automatically asses our chances and take the course of action that seems logical and in some primitive cases life saving. It also seems more useful as throughout our day to day life we do not come across certain probabilities so we asses our own.

And finally, priority theory seemed to me like a mathematical equation and not much like a person would actually think. However I could be proven wrong. If you place this equation to previous problems in other studies then most of the time it works. Maybe the reason I am displeased with it is because I am (like the judges we have discussed in previous sessions) uncomfortable with the idea that mathematical equations could be so predicting of our behaviour.

Can we trust our judgement?

So my book has still not arrived, partly due to Amazon's slow despatch system and Royal mail strikes which ironically raise a decision making question* which I will point out after I summarise what I learnt from the reading I have done so far.

I have read chapter's one and two of the book (to my relieve it is a fairly compact book but rather informative nonetheless) and also the article by Dhami, M.K. on Psychological Models of Professional Decision Making. The first chapter of the book was a useful introduction to terminology and a general idea of what we refer to Judgement and decision making. It also touched on the debate about what rationality really is and what characteristics are required in order to be rational. We, as humans, have adapted to our environment through evolution and can make rational assessments about the world such as we make the judgement that that the moon doesn't actually change size just because it appears bigger one night and smaller the next. However, for certain judgements we require cues to help us make judgements such as motorway speed indicators when coming of at a junction etc. The most interesting thing about this debate is the decisions we make based on bad judgement when it comes to gambling etc. So it made me think; how rational are we and to what extent are our decisions misguided by wrong judgements?? And if we aren't able to rationalise properly with all the information we have, then what information are we basing our decisions on??

There are ways in which we can try and figure how it is we come to make these decisions. The Social Judgement Theory looks at what factors are important to people and what 'weight' do hey place on certain information. If I am going to be completely honest I am still getting to grips with some of the maths involved in the methods they use to predict these weightings but I think I have got the main idea of what they show. What I do understand is that using previously gathered data we are able to work out roughly the decisions that a certain group of people such as doctors or judges will come to given a certain amount of information, we do this by creating Actuarial models and working out how much weight they place under each cue. The interesting bit is that people show to be inferior to actuarial models when it comes to predicting decisions, this findings show that people are inconsistent and don't place the same weighing to cues in every case.

I must point out that when I was first reading all of this, I did think "so what?" I mean we are only human and we are bound to make misinformed decisions. But there is a real problem here, what about when these decisions are important; what about when someone's life is at stake; what about diagnosing patients on irrelevant information. We could just replace people with actuarial models but that would have a very bad reaction from the media and I am sure people wouldn't want to be replaced by a statistical equation. Even so, there is so much evidence out there showing how bad we are at decision making.

Another question is: what are we actually doing if we aren't using all the information available. When we have to make 'fast and frugal' decisions what models do we use? The 'fast and frugal' heuristics seems quite convincing as they point out that we use short cuts when we have limited capacity. We could be asked to make a choice on a question that we don't know the answer to so we would search through our heads and we would choose the first one that sounds familiar (i.e. recognition heuristics) if we cant recognise it then we search a bit further in our heads and look for the most likely then so on and so on (you have probably read about them so no need for me to list them all). The evidence for the use of these heuristics which includes the Dhami,M.K. article pretty much convinced me.

What I have been able to summarize from my reading s that we are not very consistent and good at making decisions when under pressure and the use of such shortcuts in important situations highlights a real issue. Measures should be taken to insure that, in situations such as trials and medical diagnosis, decisions are being reached using all the relevant information available and not just one or two cues.

Anyway I thought I would leave my question till the end as it puts a bit of real life context to these debates.

* I actually decided to buy it on Amazon as I thought it would be more efficient and the link was right there on the webpage, however I did know from previous experience that it can take a bit long and also I was aware of upcoming postal strikes.... had I taken all this information into account I probably would have bought the book when I arrived at uni and got it by now (BAD DECISION MAKING ON MY PART)

Week 1 - Missed Lecture

Unfortunately I manage to miss my first week of university and could not attend the first session of this module.

It seems to be an introduction to the module and to the assessment strategies so hopefully I didn't miss anything that I haven't been able to find out from the module booklet and associated websites.
I have Managed to buy David's book on Amazon and started reading one of the articles so by next week I will be able to write on here something much more useful and related to Judgement and decision making.

This week I have put some links to videos on the right hand side of the page, these videos might be useful. The top one is actually pretty good but rather long. However, some of them are not related to our module but I was unable to be too specific about which videos came up due to technological problems with the site.

Just in case that anyone does happen to read my Blog, could you please help me out with the following:
I have managed to Download and print the Mandeep K. Dhami paper on Psychological models of professional decision making BUT I am still unable to get access to the other articles, I have tried both the university catalogue and the direct links and none of them let me acess the full text...???....?? Any Ideas?

I will try and put up some sort of picture on every post (As you can see above) so that my Blog doesn't look boring, the picture will hopefully be related to that specific Blog.