Decision making and

reasoning
Mrs. Buddhini Athukorala
The classical model of decision-making
• Clearly defined problem
• Certain environment
• Full information
• Rational decision
Three main steps for decision-making
• Listing all available alternatives

• Ranking listed alternatives

• Selecting the best-suited alternative

Subjective Expected Utility Theory

• Subjective utility
• Subjective probability
• The goal of human action is to seek pleasure and
avoid pain. According to this theory, in making
decisions, people will seek to maximize pleasure
(referred to as positive utility)and to minimize
pain (referred to as negative utility)
Heuristics and Biases
• Heuristics - are mental shortcuts that lighten the
cognitive load of making decisions
• Satisficing - we select an option as soon as we find
one that is satisfactory or just good enough to
meet our minimum level of acceptability.
• Elimination by Aspects -we eliminate alternatives
by focusing on aspects of each alternative, one at
a time.
Representativeness Heuristic

• A mental shortcut which helps us make a decision by

comparing information to our mental prototypes
• This heuristic, like others, saves us time and energy. We
make a snap decision and assumption without thinking
very much.
• Unfortunately, many examples of the
representativeness heuristic involve in stereotypes.
Availability Heuristic
• is a mental shortcut which helps us make a
decision based on how easy it is to bring
something to mind.
• In other words how easy it is to think of examples
when making a decision or judgment.
Anchoring
• A heuristic related to availability is the anchoring-
and-adjustment heuristic, by which people adjust
their evaluations of things by means of certain
reference points called end-anchors
Framing
• The way that the options are presented
influences the selection of an option
• We tend to choose options that demonstrate risk
aversion when we are faced with an option
involving potential gains.
Biases
• Illusory Correlation -We are predisposed to see
particular events or attributes and categories as
going together even if they are not.
• In the case of events, we may see spurious cause-
effect relationships.
• We may use personal prejudice to form and use
stereotypes
Overconfidence
• An individual’s overvaluation of her or his own skills,
knowledge, or judgment.
• People sometimes make poor decisions as a result of
overconfidence.
• Businesses sometimes use our tendencies toward
overconfidence to their own advantage
Hindsight Bias
• When we look at a situation retrospectively, we
believe we easily can see all the signs and events
leading up to a particular outcome
Fallacies
• Gambler’s Fallacy - a mistaken belief that the
probability of a given random event, such as
winning or losing at a game of chance, is
influenced by previous random events.
Conjunction Fallacy
• An individual gives a higher estimate for a subset of
events than for the larger set of events containing
the given subset
• Why Do People Fall for the Conjunction Fallacy?
• People usually don't consider which scenario or
situation is more probable. Instead, they think of
options A and B as alternatives to each other. What
they don't realize is that one scenario is simply a
subset of the other.
Sunk-Cost Fallacy
• the decision to continue to invest in something
simply because one has invested in it before and
one hopes to recover one’s investment
Individual decision making
• A consensus, which is a cohesive, agreeable
decision made by more than one person.
• This consensus takes into account the different
viewpoints, backgrounds and perspectives of the
individuals that made the decision.
• One can make quick decisions than a group
Group Decision Making
• occurs when a group makes faulty or ineffective
decisions for the sake of reaching a consensus
• Working as a group can enhance the effectiveness
of decision making, just as it can enhance the
effectiveness of problem solving
• Another benefit of group decision making is
improved group memory over individual memory
Groups that are successful in decision making
The group is small;
• it has open communication;
• members share a common mind-set;
• members identify with the group; and
• members agree on acceptable group behaviour
Groupthink
• A phenomenon characterized by premature
decision making that is generally the result of
group members attempting to avoid conflict
• As a result, the outcomes of decisions shaped by
groupthink have a low probability of success.
Reasoning
Reasoning is the action of constructing thoughts
into a valid argument
• Inductive Reasoning
• Deductive Reasoning
Inductive Reasoning

• Inductive reasoning is referred to as cause and effect

reasoning' or 'bottom-up reasoning' because it seeks
to prove a conclusion first
• Inductive reasoning is based on specific instances,
and it can often produce weak and invalid arguments
• Inductive reasoning is bottom-up reasoning; it starts
with a probable conclusion and induces premises.
Causal Inferences
• How people make judgments about whether
something causes something else
• Ex: It may be that Factor A causes Factor B
It may be that Factor B causes Factor A

• Confirmation bias
Reasoning by Analogy
• We draw conclusions by comparing two things.
• Analogies are a tool in which two things are
compared and conclusions are drawn based on
their similarities.
• Reasoning by analogy is a way to help others
understand, to persuade, and to reason
 Deductive Reasoning
• Where true premises develop a true and valid
conclusion. In the case of deductive reasoning, the
conclusion must be true if the premises are also
true.
• Deductive reasoning uses general principles to
create a specific conclusion.
• Deductive reasoning is also known as 'top-down
reasoning' because it goes from general and works
its way down more specific.
Syllogistic Reasoning

Categorical syllogism
• A logical argument containing two premises and a
conclusion, and concerned with the properties of, and
relations between, categories.
• An example is, “All trees are plants. All plants require
nourishment. Therefore, all trees require nourishment.”
This is a valid syllogism, since the truth of the premises
guarantees the truth of the conclusion.
Conditional reasoning
• Conditional reasoning is another form of
deductive reasoning but it uses if/then
statements
• For example, “If students study hard, then they
score high on their exams.”
Dual Processing
• The two aspects of dual processing theory
• The implicit processing theory - the part of your
mind that reacts/responds automatically, or
without conscious thought
• The explicit processing theory - your
consciousness that is truly conscious and
controlled
Thank you!