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The year is 1992, and two of the
biggest names in judgement and 

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decision making were in Kansas 
City at the Society for 

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Judgement and Decision Making 
meeting, getting ready to square

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off in a debate about human 
judgement and decision making. 

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One of those was Danny Kahneman,
an icon in the field and one of 

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the founders of the heuristics 
and biases paradigm. 

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The other was Gerd Giga Renzer, 
a rising star and a critic of 

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Kahneman's work. 
Hi, I'm Joey Barnett. 

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And today my colleague Mike and 
I are are talking about a 

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behavior so common that most of 
us are barely even aware that 

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we're doing it. 
I'm talking about decision 

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making. 
Yeah. 

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We're. 
Tracking that shell now. 

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Happy. 
Ben, Mike, Joey. 

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Let's go. 
Welcome to Cracking the Show. 

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I'm Joey Barnett and I'm here 
with my colleague Mike, and the 

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topic of our discussion today is
decision making. 

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So Mike, this is one of your 
areas of expertise. 

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So maybe we can start with maybe
an example of a silly decision 

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that we might make. 
Yeah. 

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OK, so one example stems from 
what's known as the sunk cost 

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effect then, and I'll just give 
you a little story here. 

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So when I was in high school, a 
group of friends of mine and I 

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decided that we're going to go 
to this movie called Ernest Goes

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to Camping. 
I can't actually believe I still

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remember the name of this movie,
by the way. 

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But so we decided to go to this 
movie called Ernest Goes to Camp

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and yeah, we paid for $4.50 or 
whatever the ticket price was 

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at. 
The Wow 450, it's pretty good, I

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know. 
Well, you know, it was about an 

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hour's wage back then, maybe a 
little bit more than an hour. 

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So we paid our our 450 per 
person to get into the movie. 

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And of course we walk in and any
rational person would know you 

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shouldn't go to a movie called 
Ernest Goes to Camp. 

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And so they were like 3 people 
in this massive movie theater. 

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Lo and behold, and to surprise, 
to the surprise of probably no 

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one else but us, the movie was 
horrible. 

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Now the rational thing to have 
done would have been to. 

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Like just get up and leave, 
right? 

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Because of course we weren't 
enjoying ourselves the the movie

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wasn't worth the price. 
But instead we persisted for 

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some time. 
I think we probably lasted 

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through about half the movie 
before we decided just pull the 

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plug, right? 
But what this demonstrates is 

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this tendency to continue to 
invest time, energy and effort 

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into events or activities that 
or you take no enjoyment. 

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In right, right, you'd already 
invested into the activity, 

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right? 
Right. 

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And there's, there's hundreds of
examples of this type of 

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behavior. 
I mean, just think about past 

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relationships. 
How many times have you been in 

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a relationship and you persist 
in that relationship, not 

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because you're getting anything 
out of it, but because you've 

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already invested some amount of 
time in fostering that 

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relationship? 
Right, exactly. 

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Yeah. 
And of course you can call up 

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any federal budget and see that 
there are projects in there that

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continue to be funded, not 
because they have any benefit 

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for the government, but because 
we've already invested in the 

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the project. 
So those are. 

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That's one example, yeah. 
Fascinating. 

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Yeah. 
I've also heard of this effect 

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called the endowment effect. 
What is that? 

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And maybe can you give some 
examples? 

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Yeah, yeah. 
No, this isn't a fascinating an 

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effect if you ask me. 
So the idea behind the endowment

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effect is, is that we tend to 
place more value on things that 

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are already in our possession. 
And you know, here's just a kind

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of a silly example is say you 
buy a lottery ticket. 

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So you might spend 3 bucks for 
that lottery ticket. 

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Now once you take ownership of 
that ticket, it now takes on a 

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special meaning to you, right 
then, right. 

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Part of this is, is that, you 
know, if that happens to be the 

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ticket that wins, you're going 
to really regret, Oh yeah, 

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having traded. 
It away. 

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Oh, you'd feel terrible. 
You would totally feel terrible.

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And so ultimately what this 
leads to is this sort of 

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irrational behavior that if 
someone comes up to you and 

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offers you 10 bucks to buy that 
ticket off you, most people in 

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this situation will tend to 
decline that offer. 

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Even though that's irrational, 
right? 

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Yeah, even though you could buy 
three additional tickets and 

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have a dollar leftover 4 pack of
gum with that $10. 

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Yeah, the rational thing would 
totally be to take the money, 

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right? 
Buy three more and then you 

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increase your probability of 
winning. 

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Yeah, yeah. 
So, so these are these are some 

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examples. 
And you know what, you know, you

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started this off with this idea 
of, you know, a silly decision, 

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but but they can have some 
pretty consequential effects. 

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So just to give you an example 
of a sunk cost effect that was 

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actually a life or death 
situation back in the, I want to

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say early 90s, but it might have
been before that a group of 

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firefighters that ultimately 
ended up dying before they made 

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it to a safe area. 
This was a a forest fire in 

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Colorado and you know, they have
this group of firefighters who 

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parachute into hot zones and 
their goal is to set up fire 

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lines to prevent the spread of 
fire. 

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So in this particular case, the 
fire spread more quickly than 

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they anticipated. 
The wind shifted and they were 

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instructed to get out of there 
as fast as they could. 

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And so of course they have their
pre planned routes to get to 

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these so-called safe zones. 
And of course when they are 

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parachuting in, they're also 
parachuting in with, you know, 

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100 lbs of gear, you know, a 
chainsaw, their axe, their 

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safety gear and a variety of 
other things. 

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And so, of course, they're 
trained to you pack it in, you 

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pack it out. 
In this particular case, many of

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these firefighters died within 
100 or 200 yards of the safe 

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zone. 
And in almost every case, they 

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were still carrying their gear. 
And they invested all that time 

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carrying it. 
Right. 

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And you just have to imagine 
that had they been willing to 

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drop that gear, they probably 
would have moved much more 

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quickly and made it to the safe 
zone, right? 

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So this is often times cited as 
an example a real world. 

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Example consequential 1. 
Consequential of the of the sun 

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cost effect so. 
So how does how does this cost 

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effect relate to this idea of 
heuristics? 

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Yeah. 
So when we talk about 

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heuristics, we often times talk 
about it hand in hand with this 

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notion of a bias. 
And biases are defined relative 

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to so-called optimal models or 
rational models. 

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And and in in the field of 
judgment decision making, we 

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often sometimes point to say 
economic models like subjective 

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expected utility and probability
models like Bayes theorem as the

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optimal objective models. 
And so when people are deploying

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heuristics, often times those 
heuristics lead to outcomes that

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are consistent with the optical 
model. 

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But if you set up the decision 
problem in a particular way, you

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can get people to deviate from 
those optimal models. 

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In fact, one of the ways you can
identify that people are using 

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heuristics is by virtue of the 
biases that they lead to, right?

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So you can set up these very 
predictable environments in 

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which people engage in a 
behavior that is inconsistent 

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with the optimal model. 
So that's, that's the 

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relationship and with the 
endowment effect and with the 

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sunk cost effect, these are 
examples of where people are 

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often engaging, engaging in 
decisions that are counter to 

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what the optimal model, 
subjective expected utility 

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would suggest they should do. 
Right. 

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And so that's really what the 
sunk the sunk cost fallacy 

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really shows us, right? 
Right, exactly. 

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So we discussed the debate 
between Kahneman and Giga Renzer

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earlier. 
What was Giga Renzer's main 

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critique of the heuristics and 
biases literature? 

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Well, there were actually 2 
primary critiques, so 1 is that 

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in In Gigrinser's view, the 
heuristics and biases literature

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lacked a unifying theory. 
You know, in science we often 

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times aspire to have theories 
that sort of connect different 

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phenomena, right? 
Then one of the problems with 

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the heuristics and biases 
literature is that heuristics 

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tended to live or exist 
independent of other heuristics.

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Now, this is problematic because
if you want to predict when 

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people are going to behave in a 
particular way, you need to know

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what heuristic they're using a 
priori. 

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In the heuristics and biases 
literature, one of the critiques

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that goes along with this idea 
of a lack of a unifying theory 

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is you can't anticipate what 
heuristic will be deployed A 

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priori. 
And this is because there's no 

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sort of overarching theory that 
can lead us to make those 

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predictions. 
And so the lack of the unifying 

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theory was, you know, if a 
serious issue from a science 

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perspective, right from a theory
development perspective. 

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But he also had another critique
and that was if I can channel my

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inner eager answer, of course, 
or I think that he felt that 

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there was too much emphasis on 
the bias side. 

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OK, so eager ends are worried 
that that many of the empirical 

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demonstrations of heuristics 
used artificial tasks. 

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This is a valid critique because
diversity and Kahneman would 

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intentionally set up these 
situations where the cognitive 

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system would be tricked 
essentially into making the 

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wrong decision right, hence 
revealing the existence of 

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these. 
Were pretty artificial then. 

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Yeah, pretty. 
Artificial and and so your 

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answer kind of thought that this
was sort of a artificial and be 

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kind of constructed to make 
people look bad. 

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And So what he wanted to do was 
focus more on the benefits of 

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heuristics. 
And so he sort of recast this 

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sort of framework, heuristic 
framework within this concept of

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ecological rationality. 
And so, you know, can you talk a

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little bit more about like what 
he proposed as the alternative 

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then? 
Right. 

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So, so this idea of ecological 
rationality is this idea that 

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the mind is essentially adapted 
to the environment in which it 

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operates. 
So you can think about this as a

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a system in which we're engaging
in trial and error, we're 

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getting feedback on those 
decisions and over time our 

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minds going to adapt to the 
environment that's in. 

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And so in Geer Enzer's 
perspective, if the mind is 

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adapted to function in a 
particular environment, we need 

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to study those behaviors in that
environment. 

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And So what he proposed was an 
all sort of alternative model 

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that focused on adaptive 
decision making. 

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And so in fact, he has this tool
kit called the Adaptive Tool 

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Kit. 
And within it he proposes a set 

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of very simple heuristics that 
arguably are adapted to the 

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environments in which they were 
developed. 

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Now, obviously if you try to 
deploy one of these heuristics 

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in an environment in which it 
wasn't adaptive, it's going to, 

201
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you know, fall on its face, 
right? 

202
00:10:16,520 --> 00:10:18,880
To the extent that the decision 
maker is operating in an 

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00:10:18,880 --> 00:10:22,880
environment in which those 
decisions, decision algorithms 

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00:10:22,880 --> 00:10:25,040
were adapted, they should do 
pretty well. 

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00:10:25,040 --> 00:10:27,840
And so he proposed a set of what
he called one reason decision 

206
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making algorithms. 
So two of the more widely known 

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ones are what's known as the 
recognition heuristic. 

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And the idea here is, is that 
faced with two alternatives, say

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1 is a particular stock that is 
a well known company and the 

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00:10:41,160 --> 00:10:44,840
other is a stock that is from a 
less well known company. 

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00:10:44,880 --> 00:10:48,120
You look at those and you think,
ah, I know what Walmart is, but 

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00:10:48,120 --> 00:10:50,600
I don't know what ABC Industries
is. 

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00:10:50,800 --> 00:10:53,440
Most people will choose to 
invest their money in Walmart 

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because it's a known recognized 
brand, right? 

215
00:10:56,120 --> 00:10:59,160
And so this is be an example of 
the recognition heuristic. 

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00:10:59,600 --> 00:11:01,680
Another one is what he called 
the take the best heuristic. 

217
00:11:01,680 --> 00:11:04,040
And the idea here is that, you 
know, we go through life 

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learning contingencies between 
cues and events. 

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When it comes time to make a 
decision, we essentially have an

220
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ordering of predictive cues and 
we start with the most 

221
00:11:13,960 --> 00:11:15,960
predictive when we determine 
whether or not we can make a 

222
00:11:15,960 --> 00:11:18,360
decision based on that queue. 
If not, we go to the second 

223
00:11:18,360 --> 00:11:21,000
queue, in the third queue and so
forth until we make a decision. 

224
00:11:21,000 --> 00:11:23,840
So, but ultimately the decision 
is only made on the basis of a 

225
00:11:23,840 --> 00:11:26,320
single queue. 
Now one might ask how do these 

226
00:11:26,320 --> 00:11:30,240
differ from the heuristics and 
biases of old, right? 

227
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So Gigeirnzer put a lot of 
emphasis on accuracy and what he

228
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showed was that for heuristics 
that were adapted to particular 

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00:11:39,120 --> 00:11:42,240
context, they would actually 
outperform the so-called optimal

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model, right? 
So an optimal model might be 

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something like utilizing as much
information as possible to make 

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a decision. 
So this is what's called a 

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compensatory model. 
And then what Geiger answer 

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would do is pit his one reason 
decision making algorithm 

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against a compensatory model 
that uses all the information. 

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And most of these tests, quite 
frankly, would show that the one

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reason decision making model as 
he developed it would be as good

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or better than the more complex 
compensatory model, which goes 

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to show that even though, you 
know, heuristics and biases 

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program, we focused on this 
departure from optimality. 

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There are ways to sort of think 
about heuristic mechanisms where

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we're really thinking about, you
know, how are they adapted to 

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support our functioning, right, 
Right. 

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Well, Mike, this has been really
fascinating and you know, this 

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is such a relevant topic, right?
So if you want to learn more 

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about these topics, you know, 
there's some really great 

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resources online. 
This is one of the most studied 

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topics, right, in psychology. 
So till next time. 

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What do you see? 
Faces in the moon? 

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00:12:52,480 --> 00:12:56,960
Simon Illusion. 
What makes tune? 

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00:12:58,560 --> 00:12:59,960
What makes tune? 
What I hear? 

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Where did you go? 
Do you wanna? 

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We're cracking the show. 
This podcast is a joint effort 

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00:13:32,240 --> 00:13:36,240
of Abby Nicholas, Ben Jones, 
Mike Doherty and me Joey 

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00:13:36,240 --> 00:13:38,760
Barnett. 
Huge thank you to SUNO AI for 

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00:13:38,760 --> 00:13:41,160
the music. 
If you enjoyed this episode, be 

257
00:13:41,160 --> 00:13:44,320
sure to subscribe, share it with
your friends, or send us an 

258
00:13:44,320 --> 00:13:47,400
e-mail at Cracking the Show on 
psychology@gmail.com. 

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00:13:47,560 --> 00:13:51,840
That's cracking the Show on 
psychology.onebiglongword@gmail.com.

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00:13:52,000 --> 00:13:53,760
And who knows, maybe one of us 
will respond on. 

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00:13:58,880 --> 00:14:03,880
Psychological science. 
We're cracking the show. 

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00:14:04,840 --> 00:14:22,360
On psychological science. 
I've forgotten what the name of 

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that the fire was, but it's 
called the S Canyon Fire and you

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can look it up. 
They have a very detailed report

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on what went wrong there. 
That's in. 

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Colorado, Yeah, Yeah. 
It's a S Canyon fire in 

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Colorado. 
You know, the the endowment 

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effect is remarkably common. 
It's like it's the type of thing

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that leads to, you know, people 
holding, you know, who have 

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garage sales marking up the 
prices to a point where the 

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prices far exceed, you know, 
people's willingness to pay. 

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You know, this is really funny. 
This kind of reminds me, I have 

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a a relative who has really old 
music music equipment and not 

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the valuable kind, but just like
really old music audio 

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equipment. 
You know it's values probably 0,

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00:15:03,120 --> 00:15:05,280
right? 
And you know, they keep, insist 

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00:15:05,280 --> 00:15:08,520
they keep, they keep it because 
they keep insisting that it has 

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value and that they could sell 
it for a lot. 

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00:15:10,320 --> 00:15:12,960
But in reality, it's, it's 
basically worth nothing because 

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it's so it's so obsolete, right?
Makes you wonder if this is the 

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underlying mechanism that drives
people to be hoarders. 

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00:15:20,240 --> 00:15:21,480
Yeah. 
Maybe it is. 

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00:15:21,480 --> 00:15:23,800
It probably, you know, it 
probably is because I mean, 

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that's exactly what happened 
with with this situation. 

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You know, they ended up just 
keeping it and then accumulates 

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00:15:28,920 --> 00:15:30,880
more and more and more. 
You're on to something.