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SUMMARY:The effect of decentralized behavioral decision making on system-l
 evel risk - Kim Kaivanto\, Lancaster University
DTSTART:20140204T150000Z
DTEND:20140204T160000Z
UID:TALK49519@talks.cam.ac.uk
CONTACT:Laurent Simon
DESCRIPTION:*Abstract:*\nCertain classes of system-level risk depend partl
 y on decentralized lay decision making. For\ninstance\, an organization’
 s network security risk depends partly on its employees’ responses\nto p
 hishing attacks. On a larger scale\, the risk within a financial system de
 pends partly on\nhouseholds’ responses to mortgage sales pitches. Behavi
 oral economics shows that lay decision\nmakers typically depart in systema
 tic ways from the normative rationality of Expected Utility\n(EU)\, and in
 stead display heuristics and biases as captured in the more descriptively 
 accurate\nCumulative Prospect Theory (CPT). In turn psychological studies 
 show that successful decep-\ntion ploys eschew direct logical argumentatio
 n and instead employ peripheral-route persuasion\,\nmanipulation of viscer
 al emotions\, urgency\, and familiar contextual cues. Signal Detection The
 -\nory (SDT) offers the standard normative solution\, formulated as an opt
 imal cutoff threshold\,\nfor distinguishing between good/bad emails or mor
 tgages. In this paper we extend SDT be-\nhaviorally by re-deriving the opt
 imal cutoff threshold under CPT. Furthermore we incorporate\nthe psycholog
 y of deception into determination of SDT’s discriminability parameter. W
 ith the\nneo-additive probability weighting function\, the optimal cutoff 
 threshold under CPT is rendered\nunique under well-behaved sampling distri
 butions\, tractable in computation\, and transparent\nin interpretation. T
 he CPT-based cutoff threshold is (i) independent of loss aversion and (ii)
 \nmore conservative than the classical SDT cutoff threshold. Independently
  of any possible mis-\nalignment between individual-level and system-level
  misclassification costs\, decentralized behav-\nioral decision makers are
  biased toward under-detection\, and system-level risk is consequently\ngr
 eater than in analyses assuming normative rationality.\n\n*Bio:*\nKim's re
 search issues from a core interest in decision making under risk and uncer
 tainty. He works with both normative and descriptive behavioural mathemati
 cal models as well as the associated empirical models\, and he designs and
  implements laboratory experiments for testing normative and behavioural h
 ypotheses. Kim's recent projects have addressed questions in the areas of 
 cyber security and financial decision making. Kim is Director of the recen
 tly established Lancaster Experimental Economics Laboratory (LExEL) and a 
 member of the LUMS Research Ethics Committee. 
LOCATION:Lecture Theatre 2\, Computer Laboratory\, William Gates Building
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