Psychology of Learning

Module 09: Decision-Making 1

Key Terms

Behavioral Economics: The study of how organisms allocate their limited resources, including time & money; combines principles from behavioral psychology with microeconomics to predict decision-making.

Bias: In the Generalized Matching Law, a parameter (b) representing a consistent preference for one alternative independent of reinforcement rates; if b > 1, there is bias toward Alternative 1; if b < 1, bias toward Alternative 2; if b = 1, no bias exists.

Bounded Rationality: The concept that human rationality is limited by cognitive constraints including finite information-processing capacity, limited working memory, & time pressures.

Certainty Effect: The tendency to overweight certain outcomes relative to merely probable outcomes, even when expected values favor the uncertain option.

Choice: A form of decision-making which involves selecting among alternatives; differs from judgment in requiring selection rather than estimation.

Compensatory Strategies: Decision-making strategies that involve trading low values on one dimension for high values on another; weaknesses on some dimensions can be offset by strengths on others.

Decision Tree: A visual tool that maps out all possible choices, outcomes, & their consequences, helping decision-makers systematically evaluate options by making probabilities & trade-offs explicit.

Decision-Making Under Certainty: Decisions made in which the factors that determine the outcomes of the different choice alternatives are known with complete accuracy; you know exactly what will happen if you choose each option.

Decision-Making Under Risk: Decisions made in which the factors that determine the outcomes of the different choice alternatives occur with known probabilities; you know the possible outcomes & the likelihood of each.

Decision-Making Under Uncertainty: Decisions made in which the probabilities of the different factors which affect the outcomes of the different choice alternatives are not known with precision or cannot be determined; you may know possible outcomes but not their likelihoods.

Descriptive Models of Decision-Making: Models that address how humans actually make decisions, describing observed behavior rather than prescribing optimal behavior; reveal systematic deviations from normative prescriptions.

Expected Utility: Calculated by multiplying the probability of each outcome times the utility (value) of that outcome, then summing across all outcomes; the option with highest expected utility should be chosen.

Generalized Matching Law: Baum’s (1974) extension of the Matching Law that incorporates bias & sensitivity parameters to account for systematic deviations from perfect matching; expressed as R₁/R₂ = b(r₁/r₂)ᵃ.

Impulsivity: Preference for smaller-immediate rewards over larger-delayed rewards; demonstrated in paradigms where organisms choose immediate but smaller reinforcement despite larger reinforcement being available after a delay.

Indifference Points: Combinations of options where someone is equally likely to choose either alternative; reveal how steeply a person discounts future rewards.

Information Cascade: A situation where sequential decision-makers ignore their own information & copy predecessors, potentially propagating errors through populations.

Information Overload: A state where too much information is available, exceeding cognitive capacity to process it effectively, leading to poorer decisions.

Judgment: A type of decision-making in which one estimates the likelihood of an event; examples include estimating the probability of rain or assessing chances of success on an exam.

Law of Diminishing Marginal Value: The principle that each additional unit of a commodity provides less additional utility than the previous unit; explains why variety in choices can maximize total utility compared to specialization.

Local Reinforcement Rate: The reinforcement rate currently being received from a particular alternative, as opposed to the overall or average rate.

Loss Aversion: The phenomenon where people are more motivated to avoid losses than to acquire equivalent gains; a loss of $1000 is more “painful” than the gain of $1000 is “joyful.”

Matching Law: The principle that in a two-choice situation, the percentage of responses made on each alternative will match the percentage of reinforcers received from each alternative; expressed as R₁/(R₁+R₂) = r₁/(r₁+r₂).

Melioration: A theory proposing that organisms shift behavior toward whichever alternative provides better local reinforcement rates, even when this doesn’t maximize global outcomes.

Momentary Maximization Theory: A theory of choice that argues that organisms make choices to maximize their satisfaction (utility) at the present moment rather than considering long-term consequences; organisms simply choose whichever option currently offers the highest value.

Normative Models of Decision-Making: Models that address how humans should make decisions to be rational & maximize expected outcomes; establish standards for optimal decision-making.

Optimal Foraging: Behavior patterns in which animals make choices that maximize their net resource intake per unit time; involves balancing current site quality against search costs & alternative site quality.

Optimization Theory: A theory of choice behavior which assumes that consumers spend their resources in ways that maximize their utility; organisms allocate time, effort, & money to produce the highest possible satisfaction given constraints they face.

Overmatching: A deviation from matching in which animals show a stronger preference for the better alternative than matching predicts; responses are more extremely distributed than reinforcements; occurs when a > 1 in the Generalized Matching Law.

Prestige Bias: The tendency to copy choices of successful, high-status individuals.

Probability Theory: A branch of mathematics that deals with random events & allows for the best “average” prediction to be made; provides formal methods for reasoning about uncertain outcomes.

Prospect Theory: A descriptive theory of choice under risk showing that people evaluate options relative to reference points & weight losses more heavily than equivalent gains; developed by Kahneman & Tversky.

Pseudocertainty Effect: Treating conditional certainty (certainty within an uncertain scenario) as if it were absolute certainty.

Rapid Adjusting Procedure (Titration): A procedure that systematically adjusts the value of one option based on previous choices until an indifference point is found; identifies the precise value where someone switches from preferring one option to preferring another.

Reflection Effect: The reversal of risk preferences between gain & loss domains—risk aversion for gains but risk seeking for losses.

Regret Theory: A descriptive model of decision-making that assumes decision-makers experience feelings of regret & try to avoid this feeling when making decisions; people anticipate potential regret & choose options minimizing expected regret.

Satisficing: A theory of decision-making arguing that decision-makers work to satisfy basic needs & achieve acceptable (but not necessarily optimal) outcomes rather than searching exhaustively for the absolute best option.

Self-Control: The ability to delay gratification for a larger reward; measured in procedures like the marshmallow test where individuals must wait to receive a larger reinforcer.

Sensitivity: In the Generalized Matching Law, a parameter (a) representing how responsive the organism is to differences in reinforcement rates; if a = 1, perfect matching occurs; if a < 1, undermatching; if a > 1, overmatching.

Social Learning: Acquiring information about options, outcomes, & strategies by observing others rather than through personal direct experience.

Social Proof: The tendency to infer that popular choices are good choices based on others’ behavior.

Stochastic Models of Choice: Models that treat preferences as though they have a random component, allowing understanding of how a person can prefer different options on different occasions even when options remain unchanged.

Subjective Utility Theory: An extension of expected utility theory used when probabilities cannot be determined in advance; decision-makers estimate subjective probabilities based on beliefs, experience, & incomplete information.

Sunk Cost Fallacy: The tendency to continue investing in something because of past investments that cannot be recovered, rather than basing decisions solely on future costs & benefits.

Sunk Costs: Past investments (time, money, effort) that have already been incurred & cannot be recovered regardless of future decisions.

Type A Personality: A personality pattern characterized by competitiveness, time urgency, hostility, & achievement striving; associated with maximizing decision strategies.

Type B Personality: A personality pattern characterized by a relaxed, patient, & easygoing approach; associated with satisficing decision strategies.

Undermatching: A deviation from matching in which animals express relative indifference to the alternatives in a two-choice procedure; responses are more equally distributed than reinforcements; occurs when a < 1 in the Generalized Matching Law.

Utilitarianism: A theory of morality that argues the best choice is always the one which maximizes the utility of all people that will be affected by the choice; focuses on maximizing aggregate happiness or well-being.

Utility: A measure used in economics to describe the subjective satisfaction, value, or benefit gained from consuming a good or service; in psychology, represents the reinforcing value or “goodness” of an outcome.