4 - Heuristics & Biases Flashcards
What is the contrast effect?
An unconscious bias that happens when two things are judged in comparison to one another, instead of being assessed individually.
E.g., a sports announcer of average height looks short when interviewing a basketball player, but tall when interviewing a jockey.
What is the primacy effect?
If subjects are asked their impressions of someone based on a series of attributes, then what is described first will often dominate. When events are separated by a small passage of time, primacy effect generally dominates over recency.
What is the recency effect?
When items are temporally sequential, rather than first impressions dominating, a recency effect can instead be observed. In other words, what comes last has greater impact. When events are separated by a nontrivial passage of time, recency effect generally dominates over primacy.
What is the halo effect?
The tendency for an impression created in one area to influence opinion in another. For example, essays are viewed as being of higher quality when written by someone judged to be physically attractive.
What is a heuristic?
Any approach to problem solving that employs a pragmatic method that is not fully optimized, perfected, or rationalized, but is nevertheless “good enough” as an approximation or attribute substitution. Where finding an optimal solution is impossible or impractical, heuristic methods can be used to speed up the process of finding a satisfactory solution. Heuristics can be mental shortcuts that ease the cognitive load of making a decision.
What are familiarity and related heuristics?
Heuristics which induce people to exhibit preferences unrelated to objective considerations.
What is familiarity?
The tendency to favour options we recognize or find familiar, which “feels” safer or more comfortable. This mental shortcut often leads people to choose the known over the unknown, even when the unknown might be objectively better. People are more likely to accept a gamble if they feel they have a better understanding of the relevant context, that is, if they feel more competent.
What is home bias?
Investors disproportionally allocating more to local assets compared to their share in the global market, even if international diversification could reduce risk.
What is ambiguity aversion?
The preference for known probabilities (risk) over unknown probabilities (uncertainty), even if the expected outcome is the same
What is the diversification heuristic?
People like to try a little bit of everything when choices are not mutually exclusive. Many people have a hardwired preference for variety and novelty. Variety-seeking also makes your choice simpler, thus saving time and reducing decision conflict.
