12. The Psychology of Choice

Question 1

People choose if they are t____ to choose

Answer 1

they are told to choose

Question 2

Reducing uncertainty can be done through what two things?
1. H____ testing
2. P____

Answer 2

1. Hypothesis testing
2. Prediction

Question 3

Choosing between alternatives involves what kinds of decision making?
R____ vs i____ decision-making

Answer 3

Rational vs irrational decision-making

Question 4

What is meant by “rational”?
Selecting o____

Answer 4

Selecting optimally

Question 5

What two things get optimised in normative/prescriptive models? How?
1. Expected v____ (object v____ * p____)
2. Expected u____ (s____ utility * p____)

Answer 5

1. Expected value - highest resource value = object value * probability
2. Expected Utility - highest psychological value = subjective utility * probability

Question 6

What do Kahneman & Tversky (1979) mean by in the Prospect Theory by:
1. Editing - select against a r____ point via h____
2. Evaluation - calculated a____ utilities * p____

Answer 6

1. Select against a reference point via heuristics (availability, anchoring, representativeness)
2. Calculate anticipated utilities x probabilities

Question 7

What is meant by loss aversion?
- Faced with a choice leading to g____, we are risk-a____, preferring a l____ expected utility with a h____ certainty
- Faced with a choice leading to l____, we are risk-s____, preferring a l____ expected utility if it can avoid l____

Answer 7

• gains, risk-averse, lower, higher
• losses, risk-seeking, lower, losses

Question 8

What is meant by probability weighting?
People attribute e____ weight to l____ probability events and i____ weight to h____ probability events

Answer 8

People attribute excessive weight to low probability events and insufficient weight to high probability events

Question 9

What is meant by the term Pseudodiagnosticity?
The belief that more information about c____ h____ is the most d____ c____

Answer 9

Belief that more information about current hypothesis is the most diagnostic choice

Question 10

How does the prospect theory explain the following in the “Behavioural Economics” task:
1. Loss aversion - choosing a low bet gives greater p____ c____ of g____, but selling a high bet gives greater p____ r____ of l____
2. Anchoring - p____ numbers determine degree to which people v____ the u____ of each bet

Answer 10

1. Choosing a low bet gives greater perceived certainty of gain, but selling a high bet gives greater perceived risk of loss
2. Precise numbers determine degree to which people value the utility of each bet

Question 11

What were the results of Ball et al?
- Classic effect of p____ r____ replicated
- No effect of t____ of b____ values –> not a____
- No effect of s____ vs g____ treatment –> not l____ a____

Answer 11

• preference reversal
• transparency, bet, anchoring
• selling, gift, loss aversion

Question 12

What do the results of Ball et al mean for the prospect theory?
P____ r____ may result from s____ between system 1 and systme 2 processes

Answer 12

Preference reversal may result from switching between system 1 and system 2 processes