Decision-making I choosing between gambles neural basis of decision-makingDo we always make the best possible decisions?What are rational decisions?ExampleExpected Utility ModelSlide 6Utility of money (1)Utility of Money (2)A hypothetical utility curveIndividual DifferencesLimitations of the Expected Utility ModelExample of Framing EffectAnother example: mental accountingViolations of Description InvarianceViolations of TransitivityGeneral Problems of Expected UtilityComplex Decisions: Bounded RationalityNeural Basis of Decision-MakingNeural Bases Of Expected Utility CalculationsNeural Basis of Expected UtilitySlide 21Slide 22Slide 23Functional Neuroanatomy of EmotionsThe Prefrontal CortexThe Iowa Gambling TaskSlide 27Slide 28Slide 29Behavioral Results (Bechara et al., 1999)Skin Conductance Results (Bechara et al., 1999)ResultsDecision-making Ichoosing between gamblesneural basis of decision-makingDo we always make the best possible decisions?•Normative (or prescriptive) theories: tell us how we should make rational decisions–E.g. optimize financial gain•Descriptive theories: tell us how we actually make decisions, not on how we should make them.–Satisficing–Heuristics•Behavior can deviates from normative account in systematic waysWhat are rational decisions?•Decisions that are internally consistent–E.g., •if A>B, then B<A•if A>B, B>C, then A>C (transitivity) •Decisions that optimize some criterion–E.g. financial gain (expected utility theory)Example•What is the best choice?A) .50 chance of winning $20B) .25 chance of winning $48Expected Utility Model•The utility of an outcome is a numerical score to measure how attractive this outcome is to the decision-maker.•The expected utility is the utility of a particular outcome, weighted by the probability of that outcome’s occurring.•A rational decision-maker should always choose the alternative that has the maximum expected utility.Expected Utility ( ) ( )i ip x u x=�probability utility of receiving $xExample•Gamble: if you roll a 6 with a die, you get $4. Otherwise, you give me $1.•Take the gamble?•Expected utility = p(win)*u(win) + p(lose)*u(lose)=(1/6)*(4)+ (5/6)*(-1)=-1/6•So...do not take betUtility of money (1)•Example 1: –What is the best choice? A) .50 chance of winning $20 B) .25 chance of winning $48–Answer can change depending on the utility of winning $10. For somebody who is really hungry and needs a lunch, choice A might be a better bet•For most people, the utility of an amount of money is not equivalent to the monetary value.Utility of Money (2)•Example 2:What is the best choice? (A) .10 chance of winning $10 million dollars(B) .99 chance of winning $1 million dollars•Each additional dollar added to wealth brings less utility(“diminishing marginal utility effect”)A hypothetical utility curveIndividual DifferencesDecision Maker I(risk avoider)Decision Maker II(risk taker)Monetary Value (in $1000’s)Utility-60 -40 -20 0 20 40 60 80 100100 60 40 20 80Limitations of the Expected Utility Model•We can make “bad decisions”—that is, decisions that are irrational according to the expected utility model–Misestimation of likelihoods–Violations of description invariance Framing effects–Violations of procedural invariance–Violations of transitivityExample of Framing Effect•Problem 1Suppose I give you $300, but you also have to select one of these two options:(A) 1.0 chance of gaining $100(B) .50 chance of gaining $200 and a .50 chance of gaining nothing•Problem 2Suppose I give you $500, but you also have to select one of these two options:(A) 1.0 chance of losing $100(B) .50 chance of losing $200 and a .50 chance of losing nothing(72%)(28%)(Tversky & Kahneman, 1986)(36%)(64%)Another example: mental accounting•People think of money as belonging to certain categories, but it is really all the same money•Problem A. Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket? _____•Problem B. Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost a $10 bill. Would you pay $10 for a ticket? _____ (Tversky & Kahneman, 1981)Violations of Description Invariance•Problem 1:–Select one of two prizes(36%) An elegant Cross pen(64%) $6•Problem 2:–Select one of three prizes(46%) An elegant Cross pen(52%) $6 (2%) An inferior pen(Shafir & Tversky 1995)Violations of Transitivity•Experiment included the following gambles (expected values were not shown):•Result: subjects preferred:–D>E, C>D, B>C, A>B, but also E>A (Tversky, 1969)General Problems of Expected Utility•Hastie (2001)–Decision making in everyday life is typically much more complex than it is under laboratory conditions•Some payoffs cannot be calculated•Emotions play a roleComplex Decisions: Bounded Rationality•People have limitations in memory and time•Simon (1957)–Bounded rationality•We produce reasonable or workable solutions to problems within limits of human processing–Satisficing•We choose the first option that meets our minimum requirementsNeural Basis of Decision-MakingNeural Bases Of Expected Utility CalculationsGlimcher (2003)Fiorillo, Tobler, and Schultz. Science. (2003)Neural Basis of Expected UtilityReward will be delivered with probability oneFiorillo, Tobler, and Schultz. Science. (2003)Reward will be delivered with probability zero Neural Basis of Expected UtilityDalgleish, 2004Functional Neuroanatomy of Emotions Nucleus AccumbensPrefrontal CortexDorsomedialOrbitalHypothalamusVentral PallidumAmygdalaAnterior CingulateThe Prefrontal CortexDorsolateralOrbitofrontalVentromedialDavidson and Irwin, 1999The Iowa Gambling Task•The acts of gaining and losing are not just mental or emotional but profoundly physiological•Patients with PFC lesions cannot anticipate feeling of wins or losses. Will gamble to maximize short-term gains•Patients with amygdala lesions cannot experience feeling of wins or losses. Without emotional input, “rational” subjects will persist in a losing strategyThe Iowa Gambling TaskA B C DFour decks: On each trial, the participant has to choose a card from one of the decks. Each