Samenvatting Lectures Rational Thinking & Decision Making 2025/2026

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Full Summary – Rational Thinking & Decision
Making
Contents
1 / Introduction.........................................................................................2
Lecture..................................................................................................2
2 / The Great Rationality Debate..............................................................4
Lecture..................................................................................................4
3 / A Model of the Mind.............................................................................8
Lecture..................................................................................................8
4 / Intuition & Reflection.........................................................................11
Lecture................................................................................................11
5 / Logic & Confirmation bias.................................................................14
Lecture................................................................................................14
6 / Heuristics & Evidence........................................................................19
Lecture................................................................................................19
7 / Belief updating & Bayes’ rule............................................................22
Lecture................................................................................................22
8 / Motivated cognition...........................................................................24
Lecture................................................................................................24
9 / Judgements & Algorithms..................................................................27
Lecture................................................................................................27
10 / Forecasting & Overconfidence........................................................31
Lecture................................................................................................31
11 / Expected utility...............................................................................34
Lecture................................................................................................34
12 / Decision biases & Debiasing...........................................................37
Lecture................................................................................................37
RATIONALITY TOOLBOX..........................................................................41

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1 / Introduction
Lecture
Decision-making
It draws on psychology and economics, and its core focus is ‘how people
make judgments and choices’

Decision-making under uncertainty
Occurs when people have to make decisions when there is no correct
answer.
 A different decision leads to a different outcome.

For example:
- Do I want kids? What should I study?
- Gambling: there is a risk, but there is also a reward – no matter
whether you gamble or not.
o Heads = you pay me €10; Tails = I pay you €1
- Do I get a surgery?
o Choice between no surgery (some (40% - 99% functioning) vs.
risky, expensive surgery (outcomes range from 10% - 99%
functioning).

A person must decide what they value in each possible outcome.

Decision-making Theories

Making a decision is influenced by many prior
cognitions, each influencing the next.
- Thinking & feelings
- Beliefs & reasoning
- Judgements & forecasting
- Decision-making
Which leads to the final:
- Decision

There are many models/theories created on the topic of decision-making:

 Normative models
 How people should make decisions (what is ‘rational’)
o It is derived from mathematics, statistics, or logic
o E.g. Expected Utility Theory
 Descriptive models
 How people actually decide
o Derived from empirical research
o E.g. Prospect Theory
 Prescriptive models

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 How to improve decisions while accounting for real human
behaviour.
o E.g. nudging

Better decision-making
The goal is to build a ‘rationality toolbox’.

Barriers Tools
Thinking & Reasoning Confirmation bias Logic
Motivated reasoning Bayes’ rule
Judgement & Overconfidence Calibration training
Forecasting Heuristics Wisdom of the crowd
Decision-making Outcome bias Expected utility
Sunk costs Opportunity costs

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2 / The Great Rationality Debate
Lecture
The core question is ‘are humans rational or irrational?’.
- Rational side: humans have achieved extraordinary things with
brainpower.
- Irrational side: ~50% of Americans believe in psychic healing.

The paradox of rationality
Humans can be extremely smart (science, technology, achievements). Yet,
humans also hold false beliefs and make poor decisions.

What is rationality?
Common-sense definition  knowing what is true and what to do.
There are 2 key components:
 Instrumental/practical rationality – using knowledge to achieve
goals.
 Epistemic rationality – beliefs aligning with reality; using sound
rules for reasoning.
o It is about whether our beliefs are true or not.

Rationality is about how (not what) to think and decide.
- It tells you what to do, given your goals/preferences.

Critiques of rationality
- Stereotype: rational people are “overthinkers”.
- Misconception: emotions should be ignored.
o In reality, ignoring emotions would itself be irrational.
o Emotions shape preferences, while reason helps to achieve
them.
- Intuitions often align with reason; “gut feelings” aren’t necessarily
irrational.

The Great Rationality Debate – Core questions
- Are humans mostly rational or irrational?
- What does optimal decision-making look like?
- How do people make decisions?
- How large is the disconnect? / How big is the gap between
rationality and behaviour?
- Can we help people make better decisions?

There are 5 perspectives in the debate:

1. The Rational Actor (~1930s)
o Economic view: Homo economicus (/human decision making)
o Theories:
 Expected Utility Theory – decisions under uncertainty

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 Game Theory – tries to formulate how people (should)
make decisions in certain situations.
o Assumptions of the rational actor:
 Stable preferences  file drawer model (there is a file
stating your preference of something)
 Full cost-benefit analysis of all options.
 Choose the option that maximizes benefits.
o Criticism: over idealised, assumes perfect rationality.

2. Heuristics & Biases (~1970s)
o Pioneered by Tversky & Kahneman
o Tested rational actor assumptions  found systematic
deviations.
o Key ideas:
 Heuristics  mental shortcuts
 Biases  consistent errors from rationality – decisions
you wouldn’t make through rationality, but do because
of heuristics.
o E.g.: Framing effects  choices depend on how problems
are presented.
o Prospect theory  people’s
decisions deviate from expected
utility theory.
 People are risk-averse for
gains,
but risk-seeking to avoid
losses.
 Greater weight on potential
loss.
 People tend to prefer a
sure gain over a risky but potentially larger one—
for example, choosing $1,000 for sure instead of a
50% chance at $2,000. But with losses, the
pattern reverses: many would risk a 50% chance
of losing $2,000 rather than accept a guaranteed
$1,000 loss.
 Shows how humans are pretty irrational.

3. Naturalistic decision-making (~1990s)
 Pushback against “humans are always irrational”
 Studies real-world (decision-making) experts (e.g. firefighters,
chess masters) – intuitions are often very accurate, if they are
formed in kind environments.
o Kind environments
 Valid cues & predictability
 E.g. seeing a shark on a movie poster could
mean it’s a horror movie.
 Lots of immediate feedback