Daniel Kahneman

Judgment under uncertainty: The simulation heuristic

Our original treatment of the availability heuristic (Tversky & Kahneman, 1973, 11) discussed two classes of mental operations that “bring things to mind”: the retrieval of instances and the construction of examples or scenarios. Recall and construction are quite different ways of bringing things to mind; they are used to answer different questions, and they follow different rules. Past research has dealt mainly with the retrieval of instances from memory, and the process of mental construction has been relatively neglected. To advance the study of availability for construction, we now sketch a mental operation that we label the simulation heuristic. Our starting point is a common introspection: There appear to be many situations in which questions about events are answered by an operation that resembles the running of a simulation model. The simulation can be constrained and controlled in several ways: The starting conditions for a “run” can be left at their realistic default values or modified to assume some special contingency; the outcomes can be left unspecified, or else a target state may be set, with the task of finding a path to that state from the initial conditions. A simulation does not necessarily produce a single story, which starts at the beginning and ends with a definite outcome. Rather, we construe the output of simulation as an assessment of the ease with which the model could produce different outcomes, given its initial conditions and operating parameters.

Judgment under uncertainty: Intuitive prediction: Biases and corrective procedures

Introduction Any significant activity of forecasting involves a large component of judgment, intuition, and educated guesswork. Indeed, the opinions of experts are the source of many technological, political, and social forecasts. Opinions and intuitions play an important part even where the forecasts are obtained by a mathematical model or a simulation. Intuitive judgments enter in the choice of the variables that are considered in such models, the impact factors that are assigned to them, and the initial values that are assumed to hold. The critical role of intuition in all varieties of forecasting calls for an analysis of the factors that limit the accuracy of expert judgments, and for the development of procedures designed to improve the quality of these judgments. … Singular and distributional data Experts are often required to provide a best guess, estimate, or prediction concerning an uncertain quantity such as the value of the Dow-Jones index on a particular day, the future sales of a product, or the outcome of an election. A distinction should be made between two types of information that are available to the forecaster: singular and distributional. Singular information, or case data, consists of evidence about the particular case under consideration. Distributional information, or base-rate data, consists of knowledge about the distribution of outcomes in similar situations.

Judgment under uncertainty: Causal schemas in judgments under uncertainty

Abstract : In contrast to the normative theory of evidence, where the impact of data is determined solely by their informativeness, this paper develops the thesis that the impact of evidence on intuitive judgements of probabilities depends critically on whether it is perceived as causal, diagnostic or incidental. The first part of the paper shows that people assign greater impact to causal data than to diagnostic data of equal informativeness. When the same datum has both causal and diagnostic implications, the former dominate the latter. The ease with which people explain unexpected facts and the reluctance to revise old conceptions in the light of new facts are related to the dominance of causal over diagnostic reasoning. The second part of the paper analyzes the use and neglect of base-rate data in terms of the role of these data in causal schemata. It is shown that base-rate information which is given a causal interpretation affects judgments, while base-rate information which cannot be interpreted in this manner is given little or no weight.

Heuristics and Biases: Extensional versus Intuitive Reasoning

Uncertainty is an unavoidable aspect of the human condition. Many significant choices must be based on beliefs about the likelihood of such uncertain events as the guilt of a defendant, the result of an election, the future value of the dollar, the outcome of a medical operation, or the response of a friend. Because we normally do not have adequate formal models for computing the probabilities of such events, intuitive judgment is often the only practical method for assessing uncertainty. The question of how lay people and experts evaluate the probabilities of uncertain events has attracted considerable research interest. (See, e.g., Einhorn & Hogarth, 1981; Kahneman, Slovic, & Tversky, 1982; Nisbett & Ross, 1980.) Much of this research has compared intuitive inferences and probability judgments to the rules of statistics and the laws of probability. The student of judgment uses the probability calculus as a standard of comparison much as a student of perception might compare the perceived size of objects to their physical sizes. Unlike the correct size of objects, however, the “correct” probability of events is not easily defined. Because individuals who have different knowledge or hold different beliefs must be allowed to assign different probabilities to the same event, no single value can be correct for all people. Furthermore, a correct probability cannot always be determined, even for a single person. Outside the domain of random sampling, probability theory does not determine the probabilities of uncertain events – it merely imposes constraints on the relations among them.

Decision, probability, and utility: Prospect theory: An analysis of decision under risk

A lubricator valve apparatus adapted for use when running wireline tools into an offshore well during a production test of the well. The valve includes a valve body having a central flow passage and a ball valve element for opening and closing the passage, hydraulically operable means responsive to surface-controlled pressure for opening and closing the ball valve, latch means for releasably holding the ball valve in both the open and the closed positions, and bypass valve means for equalizing pressures across the ball valve prior to opening thereof and arranged in the event hydraulic control of the ball valve is lost to be opened in response to pressure applied at the surface to the production pipe to provide a flow path for well control fluids.

Behavioral Law and Economics: Experimental Tests of the Endowment Effect and the Coase Theorem

Contrary to theoretical expectations, measures of willingness to accept greatly exceed measures of willingness to pay. This paper reports several experiments that demonstrate that this endowment effect persists even in market settings with opportunities to learn. Consumption objects (e.g., coffee mugs) are randomly given to half the subjects in an experiment. Markets for the mugs are then conducted. The Coase theorem predicts that about half the mugs will trade, but observed volume is always significantly less. When markets for induced-value tokens are conducted, the predicted volume is observed, suggesting that transactions costs cannot explain the undertrading for consumption goods.

The Framing of Decisions and the Evaluation of Prospects

Publisher Summary The chapter presents a series of demonstrations in which seemingly inconsequential changes in the formulation of choice problems caused significant shifts of preference. The inconsistencies were traced to the interaction of two sets of factors: variation in the framing of acts, contingencies and outcomes, and the characteristic non-linearities of values and decision weights. The demonstrated effects are large and systematic, although by no means universal. They occur when the outcomes concern the loss of human lives as well as in choices about money; they are not restricted to hypothetical questions and are not eliminated by monetary incentives. The chapter is concerned primarily with the descriptive question of how decisions are made and emphasizes that the psychology of choice is also relevant to the normative question of how decisions ought to be made. The framing of acts and outcomes can also reflect the acceptance or rejection of responsibility for particular consequences, and the deliberate manipulation of framing is commonly used as an instrument of self-control. When framing influences the experience of consequences, the adoption of a decision frame is an ethically significant act.