Thinking and Deciding

CONCLUSION 387
quality. The numbers 1–3 on the horizontal axis represent the utility of price. The
prices are evenly spaced in the left graph, but the utilities are unevenly space. The
utilities are not a linear function of price. The ratings A–E are themselves derived
from an internal psychological scale of overall utility (combining price and quality),
represented by the numbers on the vertical axis. The ratings are evenly spaced, but
the overall utility scale is not. This has to do with the way the subject translates
utilities into responses, which is also nonlinear. The figure on the right shows what
happens after conjoint analysis. Instead of curved lines, all the lines are now straight.
Both axes now represent utility. (The ratings and prices are omitted, but they would
now be unevenly spaced if they were included.) The conjoint analysis procedure
essentially figures out what the utility functions would be if the utilities were additive
and the response was some function of the total utility.
Conclusion
People use various heuristics to make quantitative judgments, such as representativeness,
anchoring and adjustment, and averaging. They also attend to different factors
on different occasions. This leads to random variation. As a result, when judgments
of the same type are made repeatedly, and when simple models are possible, then
formulas do better than people, despite the fact that formulas are incapable of considering
all possible factors.
People often resist this possibility because they are overconfident about their
judgments. Increased awareness of our limitations as judges and decision makers
ought to improve our mutual tolerance of one another, and it can also lead to increased
acceptance of new methods for decision making.