Day

2 Lecture
The Psychology of Nego5a5ons and
Decision Making

Gas Station Game

Results from Gas Sta5on Game

Distribu5on of Final Values
Average value for teams that competed rst
Average value of teams that cooperated rst

Key Points
Interdependence creates fundamental
dilemmas of trust
Implicit assump5ons drive behaviour
Ra5onal decision making is extremely dicult

Prisoners Dilemma
S/he Keeps
Quiet

S/he confesses

I keep Quiet

We each get 2
years

S/he goes free;

I get 10 years

I Confess

I go free; S/he
gets 10 years

We each get 8
years

Prisoners Dilemma
Invented in the 1950s
Major problem: rational solution is to cheat
This game is common in business!
Personal lives as well

Why do we cooperate rather than cheat?

Repeated Games
Each player has an opportunity to "punish"
Cooperation can then be an equilibrium outcome
Incentive to cheat halted by threat of punishment
Reputations of the players?

Dilemma Strategy: Tit-for-Tat

Academics were invited to send strategies
Winning strategy by social psychologist Rappoport
Description of Tit-For-Tat
On the first turn, always cooperate
Then choose opponents last move as your next move

Key Points of TFT

Nice
Cooperates on the first move

Regulatory
Punishes defection with defection

Forgiving
Returns to cooperation if opponent does as well

Clear
Opponent can always guess the next move

Other Strategies
Tit for two tat
If the opponent defects twice, then defect

Suspicious tit for tat

Defect first move, then tit for tat

All defect
All cooperate

Communication Strategies
Communication impacts our outcomes
Threats/promises can induce cooperation
Threats are effective as long as they dont
have to be used
Both require repeated engagements

Why did you decide?

Rational Decision-Making
Define the problem
Identify the criteria
Weight the criteria
Generate the alternatives
Rate each alternative on each criterion
Compute the optimal decision

But this isnt how things work is it?

Do you MAXIMISE?
Or
Do you SATISFICE?

Why did you decide?

Prior experiences and beliefs
Its a Jungle Out There!! Vs People are nice

Processing of informa5on
Predica5ons
APribu5ons

Ra5onal Decision Making is Hard

ORen what appears to you to be a ra5onal
decision is in fact heavily biased.
Biased by how we process and remember
informa5on
Biased by how we FEEL while we are making a
decision

What You See is All there Is (WYSIATI)

Cogni5on
System 2: Controlled (involves conscious
aPen5on)
Who we think we are

System 1: Automa5c (non-conscious)

Who we mostly are

Automa5c vs. Controlled Processing

Some things to consider

We need System 2 to
follow rules,
compare objects on mul5ple aPributes (while they sit
in working memory), and
make deliberate choices

Using System 2 is hard and has very limited

capacity, so it is VERY lazy
System 2 becomes depleted by concentra5ng or
exercising self-control

So
System 1 underlies most of our experience
with the world and the decisions we make

Gestalt Heuris5cs of Percep5on

We use cues to make inferences:

Con5nuity

Similarity

Closure

Seeing 3D
The re5na is 2 dimensional
We use distance/depth heuris5cs
Can lead to bias in percep5on
Op5cal illusions

Linear Perspec5ve

Explains The Moon Illusion

Leads to Physically
Impossible Objects

Even Gives Cues to Mo5on

Leads to Bias in Your Percep5on of Life

The Point
Heuris5cs underlie our func5oning
Provide a basis for complex func5oning
They are natural, and give us extraordinary
capabili5es
But beware! - There are systema5c ways in
which we are biased

Key Point
APen5on is VERY LIMITED
Controlled thinking is very hard and becomes
depleted quickly
We are naturally inclined to use whatever
informa5on is available even if it is irrelevant
We are mostly unaware when this is happening

WYSIATI Problems
Reliance on System 1 systema5cally biases our
judgment
Can cause us to act irra5onally, decisions
before and during nego5a5ons, and fail to
correct mistakes
Judges example!

Major Biasing Factors

Bad is stronger than good
Nega5vity Bias
Loss aversion

Easy is bePer than hard

Availability bias
Conrma5on bias

You and I are dierent

Fundamental APribu5on Error

Emo5ons and moods are informa5ve

Bad is stronger than good

Confers and evolu5onary advantage!!

Bad is stronger than good

Bad emo5ons have a stronger intensity than
good emo5ons
Bad impressions and bad stereotypes are
quicker to form and more resistant to
disconrma5on
Bad feedback is remembered for longer and
with greater accuracy

Bad is stronger than good

GoPmans ra5o:
You need at least 5 posi5ve interac5ons for every
1 nega5ve interac5ons to have a successful long
term rela5onship

Loss Aversion

Framing of Risk
Imagine that Australia is preparing for the outbreak of an unusual
Asian disease that is expected to kill 600 people. Two alterna5ve
programs to combat the disease have been proposed. Assume
that the exact scien5c es5mates of the consequences of the
programs are as follows. Please choose the program that you
think is best.
You were given one of these two sets of choices:
A: 200 people are saved: 60%
B: 1/3 prob that 600 are saved, 2/3 prob that no one saved: 40%

A: 400 people will die: 20%
B: 1/3 prob that no one will die, 2/3 prob that everyone dies: 80%

Loss Aversion has Strong Eects on

Nego5ators

Status quo bias

Endowment Eect

Loss Aversion

Easy is bePer than Hard

The easier something is to think about, the
more likely you will think it is:
True
Common

Please rank order the following causes of death in the

United States between 1990 and 2000, placing a 1
next to the most common cause, 2 next to the
second most common cause, etc.

_____ Tobacco
_____ Poor diet and physical inac5vity
____ Motor vehicle accidents
____ Firearms (guns)
____ Illicit drug use

Which Kills more People?

When you look at the numbersthe dierence is
huge!

435,000 Tobacco
400,000 Poor diet and physical inac5vity
43,000 Motor vehicle accidents
29,000 Firearms (guns)
17,000 Illicit drug use


Ease of recall biases responses

What makes things easy to think

about?
If we can easily think of examples
If it is emo5onally charged
If it is something we already think or believe

Availability
The easier it is to consider instances of class Y,
the more frequent we think it is

Conrma5on Bias
We search for
informa5on that
supports/conrms our
preconcep5ons, and
disregard informa5on
that challenges it

Self-Serving Bias
You ask your friend to run an urgent errand to pick
something up for you at a shop in Melbourne
Central. She takes your car and gets a parking 5cket
while picking up the item. Should she pay for the
5cket?
%100 said YES
OR
Your friend asks you to run an urgent errand to pick
something up for her at a shop in Melbourne
Central. You take her car and get a parking 5cket
while picking up the item. Should you pay for the
5cket?
%75 said YES

How does Cogni5ve Ease Inuence

Nego5a5ons
Conrming informa5on you already believe
and discoun5ng informa5on that disagrees.
Using tac5cs that have worked well in the past
but are not appropriate

Attribution Theory
Attribution is the process of perceiving
causes for actions and outcomes
Dispositional attributions for success (me)
Good skill, preparation, intelligence

Situational attributions for failures (other

stuff)
Bad luck, other person cheated, no power

Who was at fault in the exercise?

You? Why?

The other party? Why?

Attribution Biases
For ourselves: Self-Serving Bias
Attribute OWN success to DISPOSITION
Attribute OWN failure to SITUATION

For others: The Fundamental Attribution

Error (FAE)
Underestimate the influence of SITUATIONS
Overestimate the influence of DISPOSITION

Emo5ons and moods are a good

source of informa5on
Aect inuences the content of cogni5on
Directly via memory/recall
By ac5ng as informa5on

Feelings as Informa5on
Our feelings color whatever is on our mind
Aboutness principle
We assume whats on our mind is a cause
But moods last longer than their causes!

Bridge study
ARer walking over a high bridge, men more were
confronted by a female experimenter

Bridge Study
Bridge study
ARer walking over a high bridge, men were
confronted by a female experimenter

How you feel as informa5on

First set of respondents:
How happy are you these days?
How much 5me have you spent with your close
friends in the last month?
Correla0on = .01

First set of respondents:

How much 5me have you spent with your close
friends in the last month?
How happy are you these days?
Correla0on = .50

Mood as info about Environment

Moods indicate info about environment
Posi5ve mood its great, so GO ahead
Nega5ve mood its bad, STOP and look

Posi5ve Emo5ons
Broaden and Build (Fredrickson, 2000)
Top-down processing enhanced
Think more rapidly and with less precision
Make decisions more quickly
Use less informa5on
More condent in decisions

Benets
Prompts openness, crea5vity, explora5on

Nega5ve Emo5ons
Ac5on Specic
BoPom-up processing enhanced

More cri5cal thinking

Longer, more elaborate processing strategies
Less crea5ve and open

Benets

Systema5c, analy5c, vigilant processing

More situa5onally aware

New Ultimatum Game

What happened?

Predictions from Economic theory

People are rational actors
In one shot deal offerrer should offer as little
as possible and expect that it will be accepted
- $1
Why? Reputation not at stake

Receiver should be happy with any offer that

makes them better off even $1
Why? Positive expected value is preferable to 0

But what happened?

Most offerers offered more than the
minimum?
Why?

Some receivers refused offers that had a

positive value?
Why?

Asymmetry in Goals and Feelings

Offerers are
High in Power
opportunistic and thinking strategically what is the
most I can get?
Generally feel good and expect to do well

Respondents are
Low in Power
also egocentric, but demand fairness.
Rarely happy, often angry, and expect to do poorly
and be exploited

Key Points
Power can blind people to justice concerns
People care about justice, and will punish
those they feel are acting unfairly EVEN TO
THEIR OWN DETRIMENT
Turillo et al. Study
Much of the effect of injustice on retribution is due
to the negative emotions associated with injustice
(Barsky & Kaplan, 2011)

Major Biasing Factors

Bad is stronger than good
Nega5vity Bias
Loss aversion

Easy is bePer than hard

Availability bias
Conrma5on bias

You and I are dierent

Fundamental APribu5on Error

Emo5ons and moods are informa5ve