Psychology of Decision-Making

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Decision-making is the cognitive process of selecting a belief or a course of action from a set of possible options. Making a choice involves assessment and judgement; that is, evaluating different options and making a decision about which option to choose. Current empirical research suggests that different people in different situations frequently think about decisions in the same way, indicating that humans have a common set of cognitive skills that are used in decision making.

Controversially, most research on decision-making suggests that people don’t necessarily make the choices that align best with their desires or preferences. For this reason, it’s crucial to separate normative questions about decision-making from descriptive questions;

• Normative: How should individuals behave when faced with a choice?
• Descriptive: How do individuals behave when faced with a choice?

Even with a substantial body of work on risky decision-making, sometimes we behave like monkeys. Don’t agree with that? Watch this TED talk:

Psychology in the mainstream
Did you know that psychologists have won the Nobel Prize for Economics? Daniel Kahnemann and Amos Tversky explored how individuals make decisions and developed Prospect Theory. They asked participants a series of questions such as those below:

Would you prefer £100 today or £200 in six months?
Would you prefer a 90% chance to win £100 or a 10% chance to win £1,000?
Would you prefer to lose £100 today or to lose £200 in six months?
Would you prefer a 10% chance to lose £900 or a 90% chance to lose £100?

But what makes this so interesting? Try out Activity 1!

Before Prospect Theory it was assumed that people will always choose the least risky option. It is not as simple as that, however. In fact, we are both risk seeking and risk averse depending on how we perceive the option- as a gain or a loss.
Other views on this area come from the work of Gerd Gigerenzer on heuristics. Heuristics are basically mental shortcuts that we use to think more quickly about things we experience on a regular basis. They make up what is called the “adaptive toolbox”, which enables us to live with lack of information and uncertainty when facing the decision situation. In other words, it’s the simple strategies of how we make choices when we don’t have enough information about possible alternatives and consequences.

Behavioural economics
One very recent shift in interest for social psychologists has been economic and financial behaviour. Much of this links to the impact that Prospect Theory had on how researchers and governments understand likely behaviours related to financial choice. A variety of groups seek to capitalise on this understanding in order to promote certain behaviours related to health, spending, diet, and many other daily activities. An increasingly common approach has been to utilise what is known as nudge theory, which involves communication-driven interventions that seek to change behaviours without specifically mandating them. This work has shown so much impact that there is now a government office in the United Kingdom devoted entirely to exploring potential areas where they can encourage healthier, more efficient, or more financially responsible decisions across the country.

See the Useful Links section for some more information, before working through the activities.

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