Cognitive Biases series: Disjunction effects

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Gist

When peo­ple do not know with cer­tainty if an event A will occur or not, and if they have to make a deci­sion based on event A occur­ring, then they may post­pone their deci­sion until they know with cer­tainty if A has occurred, even if they would have made the same deci­sion whether or not A had occurred. As clearly put:

“We call the above pat­tern a dis­junc­tion effect. A dis­junc­tion effect occurs when peo­ple pre­fer x over y when they know that event A obtains, and they also pre­fer x over y when they know that A does not obtain, but they pre­fer y over x when it is unknown whether A obtains or not.“1

Dis­junc­tion effects are at play in many decision-making sit­u­a­tions and can influ­ence how long peo­ples are tak­ing to decide, and even the deci­sions themselves.


Origins

To under­stand intu­itively what a dis­junc­tion effect is, let’s look at the fol­low­ing example:

“For another exam­ple of non­con­se­quen­tial rea­son­ing, imag­ine that you have agreed to bet on a toss of a coin in which you have equal chance to win $200 or to lose $100. Sup­pose that the coin has been tossed, but that you do nit know whether you have won or lost. Would you now want to play this gam­ble for a sec­ond time? Alter­na­tively, how would you feel about accept­ing the sec­ond gam­ble if you knew that you lost $100 on the first gam­ble? And finally, would you play the sec­ond gam­ble hav­ing dis­cov­ered that you won $200 on the first gam­ble? We have shown that, con­trary to STP, a major­ity of respon­dents accepted the sec­ond gam­ble both after hav­ing won as well as hav­ing lost the first, but a major­ity rejected the sec­ond gam­ble when the out­come of the first was not known. This pattern—accept when win, accept when lose, but reject when do not know—was the sin­gle most fre­quent pat­tern of pref­er­ences exhib­ited by our sub­jects.“1

Another exam­ple stud­ied by Shafir and Tver­sky is a mod­i­fied ver­sion of the prisoner’s dilemma where the sub­ject is play­ing one-round-only PD with an unknown oppo­nent. The twist is that he is some­times given the deci­sion of the oppo­nent (whether (s)he com­petes or coop­er­ates). What is observed is that, when the choice of the oppo­nent is known, the sub­ject chooses “com­pete” the vast major­ity of the time, regard­less of whether his oppo­nent has cho­sen “com­pete” or “cooperate”.

When he does not know, how­ever, the pro­por­tion of sub­jects choos­ing to “coop­er­ate” is ris­ing sig­nif­i­cantly. Shafir and Tver­sky attribute this to an effort by the sub­ject to make his best to bring a mutu­ally ben­e­fi­cial sit­u­a­tion. When the sit­u­a­tion is played out how­ever, this argu­ment is no longer valid and the choice is made purely from an indi­vid­ual per­spec­tive. This is the same mech­a­nism that makes us vote, even though we know our impact won’t change the result, but make us totally unin­ter­ested in vot­ing as soon as the out­come is known.

Another expla­na­tion put for­ward is the following:

“Alter­na­tively, peo­ple may con­sider all the rel­e­vant out­comes but, due to the pres­ence of uncer­tainty, may not see their own pref­er­ences very clearly.“1

At Stake

Strat­egy

Strate­gists must take care of Dis­junc­tion Effects and not delay­ing deci­sions just in the face of uncer­tainty around what is con­sid­ered a key event. Often times, even though the event is indeed key, the deci­sion taken is the same even after dif­fer­ent out­comes. They would in effect delay a deci­sion in order to wait for an event to be real­ized or not, even though this does not affect their final deci­sion. Put it another way:

“One result of non­con­se­quen­tial deci­sion mak­ing is that peo­ple will some­times seek infor­ma­tion that has no impact on their decision.“

Sub­jects are in effect will­ing to pay for infor­ma­tion that is not going to change their choice, but merely going to clar­ify their rea­sons for choosing.

Mar­ket­ing

If you put your clients in front of a choice where the uncer­tainty on the out­come of an event is lead­ing to a dis­junc­tive choice, you risk delay­ing your client’s choice, and thus risk los­ing him or her entirely if con­di­tions change dur­ing this delay. Price struc­tures in par­tic­u­lar can lead to such effects.

Cor­po­rate

Some man­agers can fall prey to this effect and choose to delay deci­sions before what is con­sid­ered a deci­sive event, even though exter­nal con­di­tions and fixed con­straints mean that heir choice will be the same regard­less of the out­come of the deci­sive event.

Actionable ?

Tver­sky and Shafir show that “once peo­ple are made aware of their pref­er­ences given each pos­si­ble out­come, the sure-thing prin­ci­ple is no longer vio­lated.“2 Thus explicit analy­sis and descrip­tion of the dif­fer­ent pos­si­ble sce­nar­ios along with the dif­fer­ent course of actions decided in each case would tend to, at least, reduce the risk to fall into this trap.

More details

Dis­junc­tion effects go against the sure-thing prin­ci­ple (STP). “The sure-thing prin­ci­ple says that if we pre­fer x to y given any pos­si­ble state of the world, then we should pre­fer x to y even when the exact state of the world is not known. […] STP is an impor­tant impli­ca­tion of the con­se­quen­tial­ist view. It cap­tures a fun­da­men­tal intu­ition of what it means for a deci­sion to be deter­mined by the antic­i­pated con­se­quences. It is a cor­ner­stone of Expected Util­ity The­ory.“1

References

  1. (1992) Shafir, E., & Tver­sky, A. Think­ing through uncer­tainty: Non­con­se­quen­tial rea­son­ing and choice. Cog­ni­tive Psy­chol­ogy, 24, 4, 449–474. [] [] [] []
  2. (1992) Tver­sky, A., & Shafir, E. The dis­junc­tion effect in choice under uncer­tainty. Psy­cho­log­i­cal Sci­ence, 3, 5, 305– 309. []
In this series:
  1. Cog­ni­tive Biases series: Dis­junc­tion effects
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  • Louis-Pierre
    Making a decision needs courage.

    Worrying too much won’t do any good, mostly because it can swallow up your courage and leave you with nothing else than an empty soul and shaky hands.

    LPG
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