Professor Peter Ayton is deputy dean of Social Science at City University London and one of the foremost leaders in the realms of decision theory which is very relevant to our experiences online and of course in wider communications. Peter talks about our judgements and how rational thought (or rather lack there of!) comes into play. Plus there is a little bit about how compromise effects which cheese burger we decide to order!

1. Psychological determinants of
human judgment & decision making.
Peter Ayton
Department of Psychology
City University London

2. Behavioral Decision Making
Behavioural Decision Research
Rationality? Irrationality?
Errors and illusions: Clues to hidden processes.
Visual and Cognitive

3. Hering Illusion
The red lines are perfectly straight (but not parallel).

4. Ebbinghaus Illusion
The circles are perfectly regular.

5. Circled Square
The square appears to bend outwards, but does not.

6. Orbison Illusion
This time the square appears to bend inwards.

7. Scintillating Grid
Illusory black dots appear in the white circles.
(The effect is more pronounced if you glance around the grid)

8. Café Wall
The horizontal lines are actually perfectly straight and parallel.

9. Dynamic Café Wall

10. This image has two perfect circles

11. Twisted Checkerboard
The large black and white squares are perfectly regular, but the small white squares cause them to appear distorted.

13. Muller-Lyer illusion - adaptation to a rectangular world?

14. Ponzo Illusion
The two black rectangles are exactly the same size.

15. Ponzo illusion - sensitivity to a cue to depth - the downside of intelligent inference?
Which horizontal line is longer?

16. Ames Room illusion
Observer looks through
pinhole. Ceiling heights
and trapezoid window frames
are arranged to fool the
observer that she is looking
into an ordinary room.

17. Visual illusions: Ames Room illusion:
ambiguous perspective

18. Values

19. Values

20. Separate versus comparative evaluation

21. Vendor H Vendor L
Exhibit 1. Drawings in Study 2
WTP prices for Vendor H’s and Vendor L’s Servings in Study 2
Evaluation Mode Vendor H’s Vendor L’s
Separate evaluation S1.66 S2.26
Joint evaluation
Source: Hsee (1998)
S1.85 S1.56

22. Vendor H Vendor L
Exhibit 1. Drawings in Study 2
WTP prices for Vendor H’s and Vendor L’s Servings in Study 2
Evaluation Mode Vendor H’s Vendor L’s
Separate evaluation S1.66 S2.26
Joint evaluation
Source: Hsee (1998)
S1.85 S1.56

23. Attributes of Two Dictionaries
Year of
publication
Number
of entries Any defects?
Dictionary A 1993 10,000 No, it’s like new
Dictionary B 1993 20,000 Yes, the cover is torn;
otherwise it’s like new
Separate versus comparative evaluation

24. Mean WTP values for Dictionary A and Dictionary B. The numbers
in parentheses indicate numbers of participants
A 24 (39)
20 (38)
27 (39)
19 (39)
A
B
B
Attributes of Two Dictionaries in Hsee’s Study
Year of
publication
Number of
entries Any defects?
Dictionary A 1993 10,000 No, it’s like new
Dictionary B 1993 20,000 Yes, the cover is
torn; otherwise
it’s like newSource: Adapted from Hsee (1998)

25. Evaluability
Chris Hsee (University of Chicago)
“To say that an attribute is hard to evaluate . . .
means that people do not know whether a given
value on the attribute is good or bad . . .

26. Separate versus comparative evaluation
• Features that trigger clear sentiments in separate evaluation sometimes lose their appeal in
comparative settings
• Features that are hard to assess in separate evaluation are sometimes easier to evaluate in
comparative settings

27. Separate versus comparative evaluation
• Features that trigger clear sentiments in separate evaluation sometimes lose their appeal in
comparative settings
• Features that are hard to assess in separate evaluation are sometimes easier to evaluate in
comparative settings
Without a direct comparison, the number of dictionary entries is hard to evaluate because the
evaluator does not have a precise notion of how good or how bad 10,000 (or 20,000) entries is.
HOWEVER, the defects attribute is evaluable because it translates easily into a precise
good/bad response and thus it carries more weight in the independent evaluation. Most people
find a defective dictionary unattractive and a like-new one attractive.
BUT under joint evaluation, the buyer can see that B is far superior on the more important
attribute, number of entries. Thus number of entries becomes evaluable through the comparison
process.

28. Unsurprising Psychological Finding
Often people don’t know what they
like or how much they like it

29. The thesis of preference construction is that
we often do not know our own values and
must construct them “on the spot,” using not
only our knowledge, feelings, and memory,
but also many aspects of the current
environment, including how the preference
question is posed and what type of response
is required.

30. Reason based choice
Shafir 1993
Imagine that you serve on a jury of an only-child sole-custody case following a messy
divorce. To which parent would you award sole custody of the child?
Parent A
Average income
Average health
Average working hours
Reasonable rapport with the child
Relatively stable social life
Parent B
Above-average income
Very close relationship with the child
Extremely active social life
Lots of work-related travel
Minor health problems

31. Reason based choice
Shafir 1993
Imagine that you serve on a jury of an only-child sole-custody case following a messy
divorce. To which parent would you deny sole custody of the child?
Parent A
Average income
Average health
Average working hours
Reasonable rapport with the child
Relatively stable social life
Parent B
Above-average income
Very close relationship with the child
Extremely active social life
Lots of work-related travel
Minor health problems

32. Award Deny
Parent A 36% 45%
Parent B 64% 55%
People are looking for preferences that are easy to
justify
Shafir 1993

33. Reason based choice
Shafir 1993
Resort A: Resort B:
Average weather Lots of sunshine
Average beaches Gorgeous beaches and coral reefs
Medium quality hotel Ultra-modern hotel
Medium-temperature water Very cold water Very strong winds
Average nightlife No nightlife
Imagine that you have to choose between two holiday resorts. Which resort would
you choose/reject?

34. Choose Reject
Resort A 67% 52%
Resort B 33% 48%
People are looking for preferences that are easy to
justify
Shafir 1993

35. Defining Value
Values are constructed during the elicitation
process in a way that is strongly determined
by context and has profound effects on the
resultant evaluation.

36. 1. Compromise effect
Items can GAIN market share when new
options are added to the market when they
become the compromise or middle option in the
choice set (Simonson 1989)
Example: Cheeseburger
CONTEXT EFFECTS ON CHOICE

37. Example: Cheeseburgers
50% 50%
CONTEXT EFFECTS ON CHOICE

38. Example: Cheeseburgers
50% 50% 10%30% 60%
CONTEXT EFFECTS ON CHOICE

39. We often don’t know what we want until we see
it in some context.
Attraction effect
Introducing an inferior (decoy) item will create a
simple comparison with one option and thereby
make it appear superior
CONTEXT EFFECTS ON CHOICE
2. Attraction effect

41. Choice shares
Group 1
40%
N.A.
60%

42. Choice shares
Group 1 Group 2
40% 20%
N.A. 0%
60% 80%

43. D2
D1
Y
Z
X
Adding Z to the set of options
increases the probability that
X will be selected over Y.
Asymmetric Dominance
Z makes X
“look good”

44. Reference dependence
• Sensations depend on reference point ‘r’
–E.g. put two hands in separate hot and cold water, then
in one large warm bath
–Hot hand feels colder and the cold hand feels hotter
• Where does r come from?
–Default: Usually status quo or pre-experiment condition

45. Values are often elusive and influenced by reference points…

46. Constructed Beliefs
How happy are you with your life in general?
How many dates did you have last month?
Happiness question first: correlation = .12
Dating question first: correlation = .66
"The Dating Heuristic"

47. Ariely, D., Loewenstein, G. and Prelec, D. (2003).
Coherent arbitrariness:
People were asked for the last 3 digit number of their social security number.
Then listened to unpleasant loud noise and asked: “Would you listen again to
the noise they just experienced (for 300 seconds) if they were paid the money
amount they had generated from their social security number (e.g.
997=$9.97)?”
Then they indicated their WILLINGNESS TO ACCEPT ($) to listen to
sounds in exchange for payment.
In each trial, after, subjects were shown both their own price and a random
price. If the price they had given was higher than the random price, subjects
continued directly to the next trial. If the price they set was lower than the
random price, they received the sound and the money associated with it (the
amount set by the randomly drawn number), and then continued to the next
trial.

48. Mean willingness to hear (in dollars) for the three annoying sounds.
The data is plotted separately for subjects whose random three digit anchor was below
the median (low anchor) and above the median (high anchor). Error bars are based on
standard errors.

49. Traditional Economics …
…assumes that prices of products in the market are determined by a balance
between production at each price (supply) and the desires of those with
purchasing power at each price (demand ).
This assumes that the two forces are independent and together produce the
market price.
BUT What consumers are willing to pay can easily be manipulated – consumers
don’t have a fixed notion of their own preferences and what they are willing to
pay. Anchoring shows that the two forces are dependent – prices influence
willingness to pay.
If the trades we make are arbitrarily influenced by anchors then we may not
make choices that reflect the real utility or pleasure we derive from products
and the market may not set optimal prices

50. NYC taxi drivers
Camerer, Babcock, Loewenstein, & Thaler (2000)
Strategy: Set daily income target.
Stop working when target is reached.
phenomenon: Drivers quit earlier on busy days…
So drivers work least when wage rates are highest.
Would earn 8% more if they worked same # hours every day.
(+ People would find it easier to get cabs on rainy days)

55. Choice blindness (Johansson, Hall, Sikström & Olsson, 2005)
“Sleight of hand”: Most participants fail to detect that their “choice” is not what they chose. When
asked to motivate their choices, the participants delivered their verbal reports with the same
confidence, and with the same level of detail and emotionality for the faces that were not chosen,
as for the ones that were actually chosen.
A follow-up experiment involved shoppers in a supermarket tasting two different kinds of jam,
then verbally explaining their choice while taking further spoonfuls from the "chosen" pot. The
pots were rigged so that when explaining their choice, the subjects were tasting the jam they had
previously rejected. Similar experiments done with tea .

56. 56
The Ostrich effect
Karlsson, Loewenstein and Seppi (2009) found that, following market
downswings, investors are less likely to login to monitor their retirement
portfolios. They concluded that, rather like (apocryphal) ostriches sticking
their heads in the sand, investors avoid unpleasant information by reducing
portfolio monitoring in response to news of negative market movement.

57. 57
The Meerkat effect
Gherzi, Egan, Stewart, Haisley & Ayton (2014) find that investors increase their
portfolio monitoring following both positive and daily negative market returns,
behaving more like hyper-vigilant meerkats than head-in-the-sand ostriches.
Moreover, an investor personality trait – neuroticism - attenuates the pattern of
portfolio monitoring suggesting that market–driven variation in portfolio monitoring is
attributable to psychological factors.
Least neurotic
Most neurotic
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