The gambler’s fallacy, framing, anchoring and hindsight bias in judicial decision-making.

The gambler’s fallacy, framing, anchoring and hindsight bias in judicial decision-making.

Months before William had moved into a new house with his wife, Sarah. They were excited about their move to their new home. William and Sarah unlocked the door to their new house and waited for the furniture removal staff to arrive at the end of their driveway. As the removal van drove up the driveway the van struck the side of William and Sarah’s car, writing the car off. Several months later William and Sarah headed to court to claim for the damages of their car against the removal company. Over many years their lawyer had learnt to be careful in the way that she words her cases in court. Their lawyer asked the judges “How much would you award the plaintiff in compensatory damages?” rather than “We are claiming ‘x’ amount from the defendant.” William and Sarah’s lawyer had learnt that framing a case in such away could exploit the framing bias.

The judicial system is one of the most important systems in all countries with a court of law. Judges play a significant role in society deciding on the outcome of many cases and setting precedencies for future cases. The public expect judges to decide on the outcome of each case fairly, without systematic errors or bias. However, like any instance where a person must make a judgement or decision judges are subject to systematic biases.

One of the most important aspects of law for many people is immigration law. Asylum judges must make decisions that can determine the fate of the individual in court. The United States offers asylum to foreign national who can (i) prove that they have a well-founded fear of persecution in their own countries, and (ii) that their race, religion, nationality, political opinions, or membership in a particular social group is one central reason for the threatened persecution. In 2016 a study by Harvard academics investigated the use of heuristics and biases in the asylum courts of the United States (Chen et al., 2016). Chen and colleagues accessed data through a Freedom of Information Act request of 699 decisions that were made by 357 judges in 45 courts from 1985 to 2013. All cases in the US are handled on a first-in-first-out basis with no quotas as to how many individuals are granted, or not granted asylum. On analysis of the data Chen et al found that judges were subject to the gambler’s fallacy. Judges were more likely to grant (or deny) asylum after denying (or granting) asylum to a previous applicant. The judges presiding over the fate of the asylum applications believes in a representation of randomness, as such, they were more likely to alternate between granting and denying asylum.

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There are many other heuristics and biases that play an important role in the judicial decisions of judges in the US these include framing (as demonstrated by William and Sarah’s lawyer), anchoring, and the hindsight bias. In a joint study with Cornell Law School researchers at a major conference issued questionnaires to 167 federal magistrates. The questionnaires contained examples of cases that a court judge would preside over. From the responses to the questionnaires Guthrie et al (2002) found that judges were subject to anchoring in personal injury claims, framing in copyright action cases, and the hindsight bias in cases of medical negligence.

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A retrospective study by Rachlinski et al (2000) examined the effect of the hindsight bias on decisions in real court cases. The hindsight bias is a mental shortcut that states that we have an inclination, after an event has occurred, to see that the event was predictable. The researchers found that judges failed to appreciate the problems associated with judging an event from hindsight. One example (Chase v. Pevear) from the Supreme Judicial Court of Massachusetts decided that the trustees of two high risk investments should have known the outcome of the investments with a nearly omniscient ability. In the case of First Alabama Bank v. Martin the Alabama Supreme Court held that another group of high risk, high yield equities were speculative, as shown by the fact that trustees lost money by selling ‘at the bottom of the market.’ The courts in both cases assumed that the investors should have known that the price of the equities were recovering, and hence the trustees should not have sold them. One court even held a trustee liable for failing to predict the stock market crash of 1929.

The public expects our judges to make well balanced judgements and decisions without falling for cognitive biases. As humans tasked with make important decisions the judicial system is not isolated from any of the shortcuts that we use to make decisions. For William and Sarah seeking their compensation for the damage to their car the experience that their lawyer had with the framing bias came in useful. In many of other cases, such as with the example of the gambler’s fallacy in the asylum courts these cognitive biases and mental shortcuts can become problematic. We have seen how the framing bias, anchoring heuristic and hindsight bias are all important when making decisions, even at the highest levels of decision-making in society.

 

 

 

How do we make decisions quickly when placing bets in a casino?

How do we make decisions quickly when placing bets in a casino?

Like many tourists, Rebecca and Catherine always wanted to visit Las Vegas. They took in the dazzling sights of the bright lights, enjoyed the stage magic and drifted into one of large casinos. When they walked into the casino they were amazed by the sounds and lights. Catherine had always enjoyed the game of roulette so headed straight to the roulette table. Catherine placed three consecutive bets, losing all three. Watching this Rebecca quietly said to Catherine “Maybe you should try another game, the odds are against you winning.” To this Catherine replied “No, I have lost three times I am overdue a win, I will win soon.”

When we make decisions, we like to think that we make all of our decisions rationally. Casino environments are designed to be one of the most complex environments that we ever encounter, there are colourful, flashing lights, loud machines playing music and people cheering. It is hard to deal with the environment, tune-out and make clear decisions. To deal with complex environments the brain has developed a number of judgement heuristics. Judgement heuristics are mental short cuts that enable us to make quick decisions whilst ignoring part of the decision-making environment. One classic example of a judgement heuristic was given by Catherine above when speaking to Rebecca at the roulette table. The aptly named gambler’s fallacy, as demonstrated above can also be seen in the following classic scenario. Imagine that someone is flipping a coin multiple times, the coin lands head side up three times in a row. Someone watching the coin flipping is asked to guess whether the next coin will land head side up or tail side up. If the person guesses tail side up they are using the gambler’s fallacy, a belief that randomness follows a pattern. Many people believe that for the coin flipping to be truly random the outcome of a sequence of five coin flips must be something like HEADS-TAILS-HEADS-TAILS-HEADS. If an outcome of five flips is HEADS-HEADS-HEADS-HEADS-HEADS then the coin is overdue to land with the tail side up otherwise this is not random. The belief in a pattern of randomness persists in most areas of life.

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In a field study by researchers at the University of Navada 18 hours worth of overhead security camera footage of a roulette table was obtained from a large Reno casino, consisting for 904 bets (Sundali & Croson, 2006). The researchers watched all of the bets and coded the patterns of betting for every gambler that sat down at the table. On an American-style roulette table there are 36 different sections of the roulette wheel, coloured as red or black (European-style roulette has 37 sections). Players can bet on more than one number and colour by placing their chips on the corners or side of each of the numbered squares. If a gambler bets randomly then after the researchers coded each bet there should be a 2.6% chance that a bet would fall on each number. The researchers found that after an outcome of RED-RED-RED gamblers responded with a gambler’s fallacy type logic by betting on BLACK. Like Catherine above and the coin flipping above, the gamblers believed in a representation, or pattern of randomness.

A study by Gal and Baron in 1996 investigated the gambler’s fallacy in a laboratory-based experiment. Gal and Baron examined whether a change in betting strategy was due to boredom by asking participants why they choose to bet in the way that they did. Most of the participants in the Gal and Baron study responded by saying that they were attempting to maximize their earnings by using the gambler’s fallacy-type logic. It would appear that the gambler’s fallacy is not simply caused by boredom.

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Besides gambling at the roulette table other casino games in which heuristics play a major role include the craps table and fruit machines. One prominent heuristic at the craps table is the belief in illusory correlations. When rolling the dice at the craps table gamblers often blow on the dice for luck or roll the dice softly in the belief that a low number will come up, and roll the dice harder when they want a higher number (Griffths. 1994). These gamblers believe that if a number comes up that they did not want then they did not through the dice hard or soft enough.

Cognitive short cuts as heuristics are used in every area of life where decisions need to be made. With respect to gambling, heuristics have been documented in fruit machine users, and at the poker, blackjack, roulette and craps tables. Even when betting on horse or dog races gamblers reliably use these mental short cuts (Terrell, 1998). I have highlighted two of uses of heuristics above, namely the gambler’s fallacy and illusory control. Like Catherine above many people fall for these heuristics and make sub-optimal decisions based on incorrect beliefs. When it comes to gambling, there are two ways to avoid these cognitive traps. If gambling alone take your time to think about the decisions that you want to make. When gambling in a group of with a friend you could listen to the advice of your friend as Catherine should have above.

Heuristics in food choice, how do we choose what to eat and how much to eat?

Heuristics in food choice, how do we choose what to eat and how much to eat?

Ian and Jill were on their lunch break from a long and busy day at work. They both worked in the same office and liked to get out of the office environment for an hour to eat their lunch. Just like on any other day Ian and Jill walked from their office down the street to the local food court. Neither Ian nor Jill were picky eaters they’d just eat whatever they felt like eating. As they got to the food court they both looked around at the large number of restaurants and cafes that they could choose from to purchase lunch. Jill looked at Ian and said “Well, where should we eat today? There are so many choices here.”

In many countries, we live in very food-rich environments. In supermarkets, we can choose from thousands of different items of food, and from this we can combine these food items into tens of thousands of different dishes, albeit with a little help from our recipe books. When we go out to eat like Ian and Jill we encounter vast numbers of dishes to choose from. Most consumers are not aware of it but on a day-to-day basis we make an estimated 200 food choices (Wansink & Sobal, 2007). Of course, we don’t like to agonise of what to eat for lunch so we like to use simple effortless strategies. The lack of any deliberation leaves us susceptible to ‘rules-of-thumb’ (mental shortcuts known as heuristics).

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So, what heuristics are involved in food choice?

When stood at the doors of the food court looking at the dozen or so restaurants ahead of us many us like to consider one attribute of food to be the most important (e.g., low in calories, inexpensive, convenient etc.). A heuristic known as the lexicographic decision rule, LEX for short, accounts for this by saying that we make our decision based on the food that satisfies an attribute the most (e.g., the food alternative with the lowest number of calories). If two foods are equal on the first attribute the second most important attribute of the food acts as the tie-breaker (e.g., convenience and inexpensive).

Academics at the Max Planck Institute in Berlin have investigated the lexicographic decision rule in food choice (Schiebehenne et al., 2007). In 2006 the researchers conducted a study at the Potsdamer Platz Arkaden, a large shopping centre in Berlin. They had students rate food along 38 different attributes (e.g., price etc.). The researchers then used the information from the students in a study were participants were shown 10 photographs of food dishes with the name of a restaurant, the price and type of food (e.g., Indian or Italian food). Participants choose a food and rated their choice on the 38 attributes. Example foods from this study include Big Mac burgers, Bockwurst with potato salad, chocolate muffins, lasagne, sushi and pizza. The results of the study found that participants did mainly consider only one attribute when making their decision about which food to eat. When tied on the single attribute with another food they simply considered the second most important attribute (is this low-calorie food as inexpensive as the second low-calorie food?). The lexicographic decision rule was able to predict the food choice that participants in this study made after considering what single attribute was of the most importance to a participant.

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Another strategy for food choice that many people use is evident in people who keep to strict diets for religious reasons or health reasons. Experienced dieters often practice rules that become habitual, for example, avoid all chocolate. When practiced frequently dietary rules become internalized and can be used as rules-of-thumb, however, this lack of conscious deliberation can leave us susceptible to other cognitive processes, even when trying to avoid sugary chocolate. The size of plates and serving utensils are just one of the things have been shown to influence how much we eat when serving our own food. People tend to serve themselves more, and eat more from larger bowls and plates than when given smaller plates, even when given the option to return for a second serving had they received a small plate (Gier et al., 2006). As for beverages, when given a tall drinking glass people pour more than when they have a short glass (Wansink & Van Ittersum, 2003).

For most of us who do not follow a particular diet and like to try different foods the lexicographic decision rule can be a great decision aid because when using this we don’t have to consider a lot different competing attributes of a food dish. In the case of Ian and Jill walking into the food court satisfying their joint desire to eat healthy the lexicographic decision rule works well to help them avoid the many fast food outlets. However, for those who are aiming to avoid chocolate (or any other single food) we should be aware of the other cognitive processes at work, after all a large plate does not mean that we all have to fill the plate completely.

Dan Edgcumbe

Heuristics in political voting.

Heuristics in political voting.

On the way to vote in the general election John and Sarah were discussing which candidate and political party they were going to vote for. There were two main candidates up for consideration in the general election. The first candidate was seeking a second term in office whilst the second candidate was opposed to the first on policies but had higher approval ratings. Sarah mentioned to John that she was going to vote for the first candidate because the economy had done well under his administration. John said that he was going to vote for the second candidate because she had higher approval ratings, as such, was more popular than the first candidate. They both went on to cast their votes for their favoured candidates and continued on in the day as normal.

In the example of John and Sarah above we see a typical quick discussion with some reasons given for choosing one candidate over another in a general election. Like many voters, John and Sarah think about the state of the economy and approval ratings when trying to decide on who to endorse for public office. Voting in this way is not necessarily the most rational way to vote, however, this demonstrates some of the cognitive biases that influence our decisions during the voting process. When pressed to give a reason why we have voted in the way that we did many of us would say that we weighed up the policies of each candidate (and political party). We like to think of ourselves as rational decision makers however this is not so. Cognitive biases influence our decisions far more than would like to think so.

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General elections are some of the most important decisions that we can make. Although general elections in the United Kingdom are every four years the political party that goes on to win an election can influence our lives in almost every way. The incumbent Prime Minister takes charge of the direction of economic, health, judicial, educational and defence policy. If you have been saving up for the deposit for that nice first home and you are planning to take out the mortgage on the home in the next couple of years the housing policies of the Prime Minister are important, some ministers may help first time buyers whilst others may not.

When putting the ‘X’ next to the preferred candidate’s name and political party at the ballot box we all have a preference for some policies over another (e.g., conservative or liberal policies). John may like the idea of the nationalisation of railways, as such he decides to vote for the party that has historically been in favour of nationalising the railway network. By voting in this way John has made an affective (i.e. emotional) response towards a political party and voted by using the likability heuristic rather than thinking through all of the policies of each political party (Brady & Sniderman, 1985). The likeability heuristic has help John make a quick decision about who to vote without the need for agonising over the decision.

Another rule of thumb (or heuristic) is to evaluate the incumbent Prime Minister on the basis of the economy’s current performance – if the economy is doing well than the Prime Minister is a good candidate (Popkin et al., 1992; Schneider et al., 1985). One problem with this ‘economic performance heuristic’ is that it makes the assumption that the Prime Minister controls the economy, for the most part this is incorrect. The Prime Minister can decide on policies, but they do not control the economy. This ‘economic performance heuristic’ merely rewards good economic luck whilst punishing poor economic luck. For the Prime Minister’s cabinet, this rules of thumb provides incentives to sacrifice long-term economic growth for small boosts in activity, particularly, in election years (Fiorina et al., 1981).

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A third heuristic that many of us use when deciding on who to vote for in a general election, or even local elections, is the ‘approval rating heuristic’. One cleverly designed study in 1993 by Jeffery Mondak at the University of Pittsburgh, Pennsylvania showed that participants used Ronald Reagan’s approval ratings as a cue to performance. When Reagan had high approval ratings, participants said that they would be more willing to vote for him, compared to when he had low approval ratings, Reagan’s policies did not differ with popularity. The study by Mondak demonstrates one important heuristic, that is that, we are more likely to vote for a candidate with high approval ratings than low approval ratings simply because they are more popular than the other candidates.

Heuristics aren’t only important when making decisions in elections they also play a role in the outcome of referendums. Under the direct democracy system of Switzerland, the Swiss have more referendums than any other country. In 2016 alone the Swiss had 13 referendums on a variety of subjects such as highway construction, wine production and economic policy (see Table 1 for an example). At first thought the idea of having a lot of referendums seems like a good idea because the public get their say on all government policies, however this system has its problems. When voting in a referendum we are expected to become informed about a diverse and highly complex serious of issues in our spare-time. One study by Gruner and Hertig (1983) collected data from the regular referendum voters in Switzerland after each vote from 1977 to 1983, they found that only 20% of the voters were actually well informed about the issues at stake, many of the voters only knew the name of the referendum.

(Table 1)

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So, how do we make these decisions about the referendums that are crucial for the direction of government policy? Two of the heuristics that are important decision-making tools for referendum voting are the status quo bias and the likeability heuristic (Passy, 1993; Clarke et al., 2012). The status quo bias suggests that we favour the known over unknown, and reject the new and untested in favour of the familiar. As we can see in the table above many voters choose to stick with the familiar and reject the new without any clear reason. One example of this is the Swiss referendum on joining the European Economic Area (EEA) in December 1992. Following the voting academics asked the voters for their reasons and how they voted (Passy, 1993). On average 30% of the voters could not give any reason for how they voted (despite voting), 50% were able to give one reason and 20% gave two reasons, we can take this as an indication of the level of knowledge that each voter had. Many of the voters voted to reject joining the EEA by using the status quo heuristic.

The second of the heuristics that is involved in decision-making in referendums was demonstrated in Britain’s Alternative Vote referendum on the 5th of May 2011. This referendum is unique because there were some strong political personalities involved in campaigning for and against the alternative ballot. By the time of the referendum Nick Clegg, leader of the Liberal Democrat party had become decidedly unpopular, he was part of the coalition government and went back on many of his campaign policies. Nick Clegg campaigned for the Alternative Ballot. Following the voting many voters stated that they voted against the alternative vote because they no longer liked Nick Clegg (Clarke et al., 2012). Voters used the likeability heuristic rather than weighing up the consequences of voting for or against the referendum.

Like John and Sarah if you are agonising about who to vote for in a general election of which way to vote during a referendum bear-in-mind that there are many cognitive biases (heuristics) can help you make the decision. For better or for worse even when making highly important decisions cognitive biases such as the likeability heuristic, approval rating heuristic, the status quo bias and economic performance rule of thumb influence our decisions. To avoid these cognitive biases, we can start by thinking about the reasons why are considering voting the way we are.

Cognitive reflection and cognitive reflection-like items

Cognitive reflection and cognitive reflection-like items.

Below are a list of items from the academic literature.

Original CRT (3 – item Frederick, 2005)

  1. A bat and a ball cost £1.10 in total. The bat costs a dollar more than the ball. How much does the ball cost? (Intuitive answer 10 pence; correct answer 5 pence).
  1. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? (Intuitive answer 100 minutes; correct answer 5 minutes).
  1. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake? (Intuitive answer 24 days; correct answer 47 days).

4 –items from Toplak (2014).

  1. If John can drink one barrel of water in 6 days, and Mary can drink one barrel of water in 12 days, how long would it take them to drink one barrel of water together? (Intuitive answer 9; correct answer 4).
  1. A man buys a pig for £60, sells it for £70, buys it back for £80, and sells it finally for £90. How much has he made? (Intuitive answer £10; correct answer £20).
  1. Simon decided to invest £8,000 in the stock market one day early in 2008. Six months after he invested, on July 17, the stocks he had purchased were down 50%. Fortunately for Simon, from July 17 to October 17, the stocks he had purchased went up 75%. At this point, Simon has: a.  broken even in the stock market. b. is ahead of where he began. c. has lost money. (Intuitive answer b; correct answer c  value is £7000).
  1. Jerry received both the 15th highest and the 15th lowest mark in the class. How many students are in the class? (Intuitive answer 30; correct answer 29).

2016 CRT (Thomson & Oppenheimer, 2016)

  1. If you’re running a race and you pass the person in second place, what place are you in? (Intuitive answer 1st; correct answer 2nd).
  1. A farmer had 15 sheep and all but 8 died. How many are left? (Intuitive answer 7; correct answer 8).
  1. Emily’s father had three daughters. The first two are named April and May. What is the third daughter’s name? (Intuitive answer June; correct answer Emily).
  1. How many cubic feet of dirt are there in a hole that 3’ deep x 3’ wide x 3’ long? (Intuitive answer 27; correct answer none).

Decoy / control items.

  1. A cargo hold ship had 500 crates of oranges. At the ship’s first stop, 100 crates were unloaded. At the second stop, 200 more were unloaded. How many crates or oranges were left after the second stop? (answer 200 crates)
  1. Sara, Emma, and Sophia embark on a river trip. Each of them brings one supply item for the trip: a kayak, a cooler of sandwiches, and a bag of apples. Sara brought the apples and Emma didn’t bring anything edible. What did Sophia bring? (answer cooler of sandwiches)
  1. An expedition on a mountain climbing trip was traveling with eleven horse packs. Each horse can carry only three packs. How many horses does the expedition need?(answer 4 horses)
  1. A mechanic shop had five silver cars, two red cars, and one blue car in the garage. During the day, three silver cars and one red car were picked up, and one black car was dropped off. How many silver cars were in the garage at the end of the day?(answer two silver cars)  

2-items used for boosting in Shtulman & McCallum (2014).

  1. A house contains a living room and a den that are perfectly square. The living room has 4 times the square footage of the den. If the walls in the den are 10 feet long, how long are the walls in the living room? (Intuitive answer 40; correct answer 20)
  1. A store owner reduced the price of a $100 pair of shoes by another 10 percent. How much do the shoes cost now? (Intuitive answer 80; correct answer 81)

Baron et al., (2015)

Arithmetic items with lures.

  1. If it takes 2 nurses 2 minutes to measure the blood pressure of 2 patients, how long would it take 200 nurses to measure the blood pressure of 200 patients?
  1. Soup and salad cost $5.50 in total. The soup costs a dollar more than the salad. How much does the salad cost?
  1. Sally is making sun tea. Every hour, the concentration of the tea doubles. IF it takes 6 hours for the tea to be ready, how long would it take for the tea to reach half of the final concentration? (Finucane & Gullion, 2010)

Other items.

  1. Jack is looking at Anne but Anne is looking George. Jack is married but George is not. Is a married person looking at an unmarried person? a. Yes b. No   c. Cannot be determined (Toplak & Stanovich, 2002)
  1. Ann’s father has a total of five daughters: Lala, Lele, Lili, Lolo and__. What is the name of the fifth daughter?
  1. On the side of a boat hangs a ladder with six rungs. Each rung is one foot from the next one, and the bottom rung is resting on the surface of the water. The tide rises at a rate of one foot an hour. How long will it take the water to reach the top rung? a. 5 hours b. 6 hours c. never.

Primi et al., (2015) Cognitive reflection test – long scale.

  1. If three elves can wrap three toys in an hour, how many elves are needed to wrap six toys in 2 hours? (Intuitive answer 6 elves: correct answer 3 elves)
  1. In an athletics team, tall members are three times more likely to win a medal than short members. This year the team had won 60 medals so far. How many of these have been won by short athletes? (Intuitive answer 20 medals; correct answer 15 medals)
  1. If you flipped a fair coin three times, what is the probability that it would land ‘Heads’ at least once? _____ percent
  1. A car and a bus are on a collision course, driving toward each other. The car is going 70 miles an hour. The bus is going 80 miles an hour. How far apart are they one minute before they collide? ___ miles
  1. Ellen and Kim are running around a track. They run equally fast but Ellen started later. When Ellen has run 5 laps, Kim has run 15 laps. When Ellen had run 30 laps, how many has Kim run? ___ laps
  1. An ice cream vendor sells 2/3 of her stock of ice creams on sunny days and 1/3 of her stock on cloudy days. Yesterday, it was a sunny day, and she sold 300 ice creams. Today is a cloudy day. How many can she expect to sell?
  1. In a class, there are 42 children. There are 12 more girls than boys. How many girls are there in the class?

Ackerman (2014) items – translated from Hebrew

  1. A frog fell into a hole 30 meters deep. Every day it climbs up 3 m, but during the night it slides 2 m back down. How many days will it take the frog to climb out of the hole?(Intuitive answer 30 days; correct answer 28 days)
  1. Apple mash is comprised of 99% water and 1% apple solids. I left 100 kg mash in the sun and some of the water evaporated. Now the water is 98% of the mash. What is the mash weight? (Intuitive answer 99; correct answer 50)
  1. If a test to detect a disease whose prevalence is 1/1000 has a false positive rate of 5% what is the chance that a person found to have a positive result actually has the disease, assuming that you know nothing about the person’s signs or symptoms?(Intuitive answer 95; correct answer 2)
  1. Every day, a bakery sells 400 cookies. When the manager is not there, 20% of the cookies made that day are eaten by the staff. How many additional cookies should be made on the manager’s day off to ensure that 400 cookies can be sold? (Intuitive answers 80, 500; correct answers 100)
  1. Steve was standing in a long line. To amuse himself he counted the people waiting, and saw that he stood 38th from the beginning and 56th from the end of the line. How many people are stood in the line? (Intuitive answers 94 or 92; correct answers 93)
  1. Ants are walking in a line. A bad-mannered ant cuts in front of the ant waling second. What is the rude ant’s place in the line? (Intuitive answer 1st; correct answers 2nd)

Tremoliere & De Neys (2014) modified congruent and incongruent versions of the bat-and-ball.

Incongruent

  1. A Ferrari and a Ford together cost $190,000. The Ferrari costs $100,000 more than the Ford. How much does the Ford cost? (Intuitive answer $90,000: correct answer $45,000)

Congruent

  1. A Rolls-Royce and a Ferrari together cost $190,000. The Rolls-Royce costs $100,000 more than the Ferrari. How much does the Ferrari cost? (No intuitive answer; correct answer $45,000)

De Neys et al., (2013) control version of the bat-and-ball

  1. A magazine and a banana together cost $2.90. The magazine costs $2. How much does the banana cost? (No intuitive answer; correct answer 90 cents)

Oldrati (2016) booster items.

  1. A rope ladder hangs over the side of a boat with the bottom rung on the surface of the water. The rope ladder has 6 runs that are 30 cm apart from each other. The tide rises 70 cm. How many rungs will stick out of the water at high tide? (Intuitive answer 3 rungs; correct answer 6 rungs)
  1. There are 12 one-cent stamps in a dozen. How many two-cent stamps are there in a dozen? (Intuitive answer 6 stamps; correct answer 12 stamps)
  1. A farmer makes 4 piles of hay in one corner of a field and other 5 piles in another corner. If he merges them how many piles will he have? (Intuitive answer 9 piles; correct answer 1 pile)
  1. You are participating in a run. You overtake the second runner in the last meters before the finish line. In what position did you finish? (Intuitive answer first position; correct answer second position)
  1. 25 soldiers are standing in a row 3 m from each other. How long is the row? (Intuitive answer 75 m; correct answer 72 m)
  1. A snail starts climbing up a five-meter-high wall in the morning. During day it climbs 2 m and during the night it slips back 1 m. How many days will it take the snail to reach the top of the wall? (Intuitive answer 5 days; correct answer 4 days)
  1. A brick weighs 1 kg plus half a brick. How much does half a brick weigh? (Intuitive answer .5 kg; correct answer 1 kg)
  1. There are 5 white and 5 black socks in Franco’s drawer. Franco’s room is in the dark. How many socks should Franco take out of the drawer to be sure that he gets a matching pair? (Intuitive answer It cannot be determined; correct answer 3 socks)
  1. You go to bed at eight. You set your old analogue alarm clock to wake you up at nine. How many hours of sleep will you get? (Intuitive answer 13 h; correct answer 1 h)
  1. One month has 28 days. How man of the 11 months left have 30 days? (Intuitive answer 4 months; correct answer 11 months)

 References

If you use any of these please reference the original source paper (cited in brackets above the items) and if possible this blog.

In APA format this blog is cited as…

Edgcumbe, D (2017). Cognitive reflection and cognitive reflection-like items [Blog post]. Retrieved from https://absolutedecisionsblog.wordpress.com/2017/01/08/cognitive-reflection-and-cognitive-reflection-like-items/

 

Frederick, S. (2005). Cognitive reflection and decision making. The Journal of Economic Perspectives. 19(4), 25-42.

Toplak, M., West, R. & Stanovich, K. (2014). Assessing miserly information processing: An expansion of the Cognitive Reflection Test. Thinking & Reasoning, 20(2), 147-168.

Thomson, K. & Oppenheimer D. (2016). Investigating an alternate form of the cognitive reflection test. Judgment and Decision Making, 11(1), 99.

Shtulman, A. & McCallum, K. (2014). Cognitive reflection predicts science understanding. In Proceedings of the 35th Annual Conference of Cognitive Science Society (pp. 2937-2942).

Baron, J., Scott, S., Fincher, K. & Metz, S. (2015). Why does the Cognitive Reflection Test (sometimes) predict utilitarian moral judgment (and other things)? Journal of Applied Research in Memory and Cognition, 4(3), 265-284.

Toplak, M. & Stanovich, K. (2002). The domain specificity and generality of disjunctive reasoning: Searching for a generalizable critical thinking skills. Journal of Educational Psychology, 94(1), 197.

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Cognitive reflection test

The anchoring and adjustment heuristic in real estate transactions.

The anchoring and adjustment heuristic in real estate transactions.

Jack and Sally were looking forward to buying their first house. Like many of us they browsed real estate websites and searched through the real estate agent shop windows looking for that ideal first home. As Jack and Sally browsed the potential properties they kept in mind their budget. Jack made note of a few potential properties with the correct number of bedrooms, bathrooms, reception rooms and garden size whilst noting the seller’s asking price. Eventually after visiting a few properties for viewings they decided to put an offer in for one of the properties. Jack noticed the asking price saying that it was above their budget and for a moment began to lose hope. After discussing with Sally as to how much to offer for the house Sally reminded Jack that although the house was on offer for £500,000 they could in fact put in an offer below the asking price. Jack and Sally went on to offer £450,000 and after some consideration the seller agreed to the price. Jack and Sally won the property that they wanted to buy and in the process demonstrated one of the most prevalent cognitive biases in human decision-making, namely the anchoring effect.

door-keys

The anchoring effect (also called the anchoring and adjustment bias or anchoring and adjustment heuristic) is one of the cognitive biases that occurs most often when making a judgement about the quality, value or worth of an item. The effect works because when you are given a number (e.g., 1200 meters) that relates to a property of an item (the quality etc) with a question about that property you are likely to, whether knowingly or not, anchor your judgement by using the number as a reference point (i.e. the anchor). Imagine a boat tethered to a lowered anchor, the boat cannot move far from the anchor and remains within range of the length of the tether. We typically do not deviate a lot from the anchor. The anchoring effect has been observed to influence factors such as charitable giving, price valuations, fairness judgements, loyalty judgements, judgements of guilt, and prosocial motives among many other factors (Soule & Madrigal, 2015). The anchoring effect is just one of many cognitive biases that influences our judgements in a systematic and predictable fashion. It is simply easier to accept the anchor (e.g., the house seller’s asking price) and adjust closely to the anchor (e.g., £50,000 less rather than £150,000) than to make an entirely new judgement about something (e.g., the value of the house).

In the case of Jack and Sally there is a clear anchoring effect (albeit to no negative effect to the seller). Jack and Sally see the initial asking price (the anchor) and consider making offers that are close to this, they are anchored by the seller’s asking price. Of course, in the case of buying a house deviating from the asking price by too much (toward a lower price) will result in a rejected offer.

It is important to understand the anchoring effect because prices are by nature simple numeric information that can act as the anchor or reference point. Since the majority of the most agonising judgements that we must make in life revolve around pricing (e.g., buying that first house, holiday home, car or a big holiday) understanding the role of cognitive biases in decision-making is important. To avoid falling into the trap of the cognitive biases we should make ourselves aware of these biases. We are not the rational decision makers that we think we are.

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One large study investigating the anchoring effect in residential home sales recorded data from 14,000 separate transactions (Bucchioneri & Minson, 2013). The researchers noted that the literature on housing economics, negotiations and auctions converge on the notion that home prices are an objective function of the property’s neighbourhood and characteristics (e.g., number of rooms, size of the house and characteristics). However, as we have seen above the judgement and decision-making literature on the anchoring effect suggest that there is a positive relationship between the listing price (asking price) and the sale price. The analysis of the 14,000 transactions found that higher asking prices are associated with higher sales prices independent of the property’s features, which is consistent with the anchoring effect. For the average property in the study overpricing by 10 to 20% lead to an increase in sales price because buyers were anchored by this higher sales price. So, whether a property has 5 large bedrooms in a desirable area of the countryside or 2 small bedrooms in a noisy part of a city asking for higher price for the 2-bedroom property (compared to the 5-bedroom property) could result in a higher sales price than the 5-bedroom property despite the larger property being initially more desirable than the smaller.

In the domain of property rentals the same study by Bucchianeri and Minson found that by adopting the same strategy of overpricing the asking rental price by 10 to 20% there was an increase in rental value of $117 to $163.

The data from transactions on house sales and rental pricing suggest that although we tend to believe that it is the characteristics of a property that determines the value of the property this is not the case. Pricing strategies are the major determiner of the value of the property. So, whether you are buying you first starter home, buying your dream family home, renting your house or looking to rent a house being aware of the anchoring effect will save you or make you more money. If you are selling your house to take full advantage of anchoring set your asking price 10-20% higher than the valuation, after all, if your property does not sell you can simply reduce the price at a later point. If like Jack and Sally you are buying your first home, to take advantage of the anchoring effect you can start by being aware that the asking price is not absolute, you can put in a lower offer if this is reject simply increase the offer by a small amount.

The finance room

First blog post

A brief introduction to heuristics and biases in the decision-making research.

John found himself standing at the station surrounded by the cosmopolitan rush. As the crowd ebbed and flowed around him he was struggling to remember. John had been to London some 30 years earlier but had visited so many places since, he had planned to visit before but never got around to it until today. He needed to get to his conference on time but couldn’t remember the route. John had to make a decision and risk being late by going the wrong way or staying at the station and guarantee being late. At that moment John thought to himself “Aren’t nice conference halls always in a nice part of town at an impressive hotel? Of course they are.” By remembering the numerous other conferences he had attended John headed towards the nicest hotel in this part of London. John got to his conference on time by going with his ‘gut-feeling’, a ‘hunch’ that he knew had worked many time before, he just did not know how.

Just like John many of us go with ‘gut-feeling’ about a situation every day, choosing to rely on our ‘hunches’ and ‘intuition’. We like to think of ourselves as logical thinkers who take our time when making an important decision. When asked “How did you make that decision?” or “Why did you choose that option?” most of us would reply that we weighed up the ‘pros and cons’, taking all of the facts into consideration. We are naturally inclined to think that decisions that are made with slow and careful consideration produce better answers than those that are not.

Many of us have grown up reading the books and watching films that portray famous double-acts that oppose each other in the way that they make decisions, take for consideration Dr Jekyll and Mr Hyde, Captain Kirk and Spock, or Sherlock Holmes and Dr Watson . The popular duo Sherlock Holmes and Dr Watson are a clear example of our natural inclination to believe that one decision-making strategy is superior to another. If you sit down and read the books (I’d recommend them) Holmes makes slow and calculated decisions, generating ingenious plans to whatever situation he finds himself in, whilst Watson on the few occasions when he does act, makes rapid decisions.

Holmes is of course famous for his deductive reasoning, a type of reasoning that is not always reliable outside of the idealistic word of the great works of Sir Arthur Conan Doyle. Below are two interesting examples where Holmes has failed to make reliable decisions. Firstly from the short-story “The adventure of the priory school” we encounter Holmes trying to deduce the direction that a bicycle had traveled by observing the tracks that had been left behind in the mud (The Strand Magazine, 1904).

Holmes: “This track, as you perceive, was made by a rider who was going from the direction of the school.”

Watson: “Or towards it?”

Holmes: “No, no, my dear Watson. The more deeply sunk impression is, or course, the hind wheel, upon which the weight rests. You perceive several places where it has passed across and obliterated the more shallow mark of the front one. It was undoubtedly heading away from the school.”

Here we see that Holmes’ deductive reasoning clearly fails. If you think about it, no matter what direction a bicycle is travelling the hind (back) wheel must always follow the front wheel. Bicycles cannot travel backwards, well, not very easily in any instance. Holmes opts to use the ‘confirmation bias’ heuristic here, where he takes notice of the information that confirms his idea (the heavier track cutting through the lighter track), whilst ignoring any contradictory information (this would happen no matter what direction the bicycle was travelling).

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Secondly, in another of the great Sherlock Holmes stories (The Hound of the Baskervilles, 1902) we see Holmes and Watson picking up a walking stick with a small, silver band at one end. On the silver band we hear that the following is engraved “To James Mortimer, M.R.C.S. from his friends of the C.C.H. 1884.” Holmes and Watson spend some time trying to work out who it belongs to and what the initials stand for when Holmes makes the unusual ‘mistake’ in going with his intuition.

“…I would suggest, for example, that a presentation to a doctor is more likely to come from a hospital than from a hunt, and that when the initials ‘C.C.’ are placed before that hospital the words ‘Charing Cross’ very naturally suggest themselves.”

At first glance, Holmes’ deduction here seems logical, however, he is using what cognitive neuroscientists now call the ‘representativeness heuristic’. Holmes has no evidence that the walking stick belongs to a doctor he simply assumes that because doctors often frequent the place in which the stick was found and that it appears to belong to a wealthy man that it must therefore belong to a doctor. ‘C.C.H.’ could just as easily stand for the ‘Country Club of Honiton’ or a number of other things.

In recent years, since the Noble prize winning research of Daniel Kahneman (2002 prize in Economics) a substantial amount of work has been produced into how we make decisions. John’s ‘gut-feeling’ about which was way to go to get to his meeting in time and Holme’s diversion from his normal decision-making strategy fall into the realm of Kahneman’s short-cuts in thinking  (heuristics). Kahneman, although a psychologists by training won the Noble prize in economics because he demonstrated that in all walks of life we rely on these short-cuts to make decisions.

Intuition and heuristics can be used to both bad and good effects. Research in cognitive neuroscience and psychology since 2003 has shown the use of heuristics and intuition in most situations in which decisions are required. We use heuristics when in a hurry to make a decision or when we are distracted by something else. Experienced police officers (Brown & Daus, 2015), managers (Tversky & Kahneman, 1981), gamblers (Alberola et al., 2013), retail investors (Butler et al., 2014), forensic experts (Dror & Cole, 2010) and even the military (Keller et al., 2015) often use intuition and heuristics to make quick decisions.

Some professionals have even demonstrated that they have the ability to choose which type of decision-making style to use when in a hurry (intuition or slow and calculated). A piece of research published last year by Dr Volker Thoma and colleagues investigated decision-making in financial traders from the trading floors of London and non-experts when asked to make decisions regarding financial transactions (Thoma et al, 2015 – PlosOne). The study found that even when required to make cognitively taxing decisions the city traders ignored their intuition and made calculated decisions. The non-expert group as you can expect relied on intuition to make decisions regarding the financial transactions. This study shows that, although we like to think of ourselves as logical thinkers we often relying on intuition, heuristics and ‘gut-feeling’ to make decisions for us, particularly when we are confronted with a lot of facts to calculate.

Despite our intuition and heuristics being useful at times there is also a down-side to heuristic and intuitive-based reasoning. One case from 2004 demonstrates how heuristics can have negative consequences when we don’t understand how we have come to a particular conclusion (known as cognitive biases).

On the morning of Thursday the 11th of March 2004 a disaster struck Madrid at between 7:30 and 8:00, several simultaneous explosions occurred on the Madrid underground. In the following investigation the FBI offered to help the Spanish National Police find who was responsible. Fingerprints left at the scene were collected and the FBI linked these to an American attorney. Brandon Mayfield, a Muslim attorney from Oregon was arrested and held for two weeks on the basis of an erroneous match between these fingerprints. The fingerprints were not an exact match, but had some similarities with respect to the ridges in the prints. Not only did one FBI fingerprint examiner misinterpret these prints but a further two additional examiners corroborated with the original findings. After two weeks in jail Brandon Mayfield was released without any charges. Later in the investigation the Spanish National Police linked the fingerprints to an Algerian national called Ouhnane Dauod. The similarities in the ridges had made it easy for cognitive biases to take over and affect the identification of suspects. Once the FBI examiners found matches in some of the ridges ‘confirmation bias’ took control. The examiners paid explicit attention to the similarities whilst ignoring any differences. This case study goes to show that even in legal criminal cases of great importance decisions can by affected by differences in decision-making strategies, even when this is unknown to the decision maker.

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These cases all go to show that the way in which we make decisions affects us in everything we do, nobody is immune to unknowingly making decisions based on cognitive biases. Since the growth in research after Kahneman won the Noble prize in 2002 a large number of heuristics and cognitive biases have been identified. We have seen previously clear examples of how we use the confirmation bias and representativeness heuristic. To name just a few of the other heuristics and biases there is the anchoring heuristic, availability heuristic, framing heuristic, hindsight bias, attribution bias and recognition heuristic. The positive and negative aspects of making decisions with the use of heuristics and biases are seen every day when they can either aid in making an accurate, correct decision or an incorrect decision.

Research by Professor Gerd Gigerenzer at the Max Planck Institute in Berlin in cognitive psychology has focused primarily on the use of cognitive biases and heuristics. In numerous pieces of research Gigerenzer’s lab has demonstrated that heuristics can often lead to more accurate decisions than taking the time to think about the alternatives. This research shows that the notion of taking the time to weigh up the ‘pros and cons’ when making a decision and thinking ‘logically’ as many of our popular literary duos do not always produce a superior solution to a problem, sometimes going with our intuition works (intuition as under-pinned by a set of basic heuristics).

Our decision-making strategies are complex things part of Gigerenzer’s work has focused on the recognition heuristic. The recognition heuristic suggests that when given two alternatives we often go with what we know. For instance, if you were asked to choose between two brands of clothing and there was no significant differences between the items of clothing other than the make you’d more than likely go with the brand that you are familiar with. Advertisers take advantage of the fact that we trust a brand that we know more than one that we don’t, this is in part why advertising has grown into a ‘big money industry’. When a company can advertise a car for example, on billboards around town, in advertisements on TV and in full-page spreads in magazines and newspapers their sales will go up. Put quite simply, we often go with what we know and trust. Seeing a brand on a daily basis reinforces our perceived knowledge about a brand which makes us more likely to trust it, associating it with good quality.

In research conducted some 30 years before winning his Noble prize Daniel Kahneman and his long running collaborator Amos Tversky identified another heuristic that is prevalent in everyday life, the availability heuristic. In the now classic study in cognitive psychology participants were asked to judge the frequency of which particular letter appeared in either the first place (e.g., right) or the third place in a word (e.g., work). Participants could think of more instances of particular letters appearing as the first letter in a word than the third, and therefore often judged falsely that the letters occurred more frequently at the beginning of a word. In terms of the speed of making a decision and the use of cognitive resources it was easier to think of letters occurring first. Participants therefore made the error in with this idea and succumbing to what Kahneman and Tversky called the ‘availability heuristic’.

For better or for worse intuition, heuristics and ‘gut-feelings’ are an important tool in our decision-making tool box this blog will explore these through the rooms.