Simple model of decison making…

Posted on November 22, 2010


Professor Wiggly: ” Yes, you can make predictions using the model. It’s based on the assumption that since we can’t get reliable information about the future, we make, and adjust, our predictions on the basis of the confidence (C) or bias we attach to our imaginary bridges and to subsequent information. It’s called an anchoring and adjustment model of decision-making under uncertainty. Let’s use Peter’s predictions about inheriting his Dad’s business as an example. We start out with Peter’s initial prediction ( anchor) that he will inherit 100% of the business. He’s seems pretty confident – he’s so sure that he’s not bothering to study very hard at university. He’s got a strong imaginary bridge into the future. But then his sister shows some interest  and works there during her summer holidays. Peter notices this but still doesn’t change his prediction – or modify his imaginary bridge, he manages this potential threat by believing that his sister won’t be a a problem, she’ll get married, have kids and so poses no threat – no adjustment to his original prediction or bridge is needed.  But then  Jenny  raises some questions. What if his sister inherits half the business and her husband is interested in helping run it as an equal partner? Ah ha, that could cause major problems, could require major adjustments to Peter’s imaginary bridge into the future.”

Peter: ” No way that’s going to happen. Dad want’s to keep the business in the family – if I’m going to run the business I need to have the majority of the shares – and I will – one way or another.”

Jenny: “So Professor how do we predict what will happen on the basis of the anchoring and prediction model?”

Professor Wiggly: ” The predictions depend on how much confidence Peter has in his initial prediction or imaginary bridge. If he has very high confidence then the model predicts that Peter will protect his imaginary bridge one way or another. For instance he’ll rationalize or ignore any subsequent information that threatens his imaginary bridge, or he may  actively work to strengthen it, e.g, start working on his mother to influence his father. In other words the model predicts that people with a strong anchor or high confidence in a particular belief or imaginary bridge will defend that belief or image of the future, will refuse to make adjustments. Only time will tell whether their high confidence was wise or foolish.”

Penny: ” What if he has only medium or weak confidence in his imaginary bridge? What does the model predict then?”

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