chap 12 decision making Flashcards
Decision making
assessing and choosing among several alternatives
Algorithm
a procedure or rule that is guaranteed to yield the correct answer.
Heuristic
a procedure that often yields the correct answer, but is not guaranteed to.
Bias
a tendency to preform in a certain way regardless of the information provided.
Kahneman & Tversky
People are capable of making correct, logical judgements and decisions.
In everyday situations, people often use simpler and quicker heuristics.
Which leads to frequent errors in judgement and decision making.
The Representativeness Heuristic
We judge that a sample is likely if it is similar to the population from which it was selected.
Tend to be happier with a big decision with less time.
Law of small numbers
People expect small samples to resemble the populations they’re drawn from, which is a fallacy.
General hospital delivers 45 births per day, while the Infant Clinic delivers 15 births per day. Is a day with 60% male births more likely to occur at General Hospital or the Infant Clinic? Or is it equally likely?
infant Clinic, the small sample because 60% male is not representative of USA birth rates = more deviation.
The “hot hand” effect
misperceiving random streaks as increased probabilities.
Base-Rate Neglect
hoof beats, thinks horses not zebras.
Base rate
how often an item occurs in the population
likelihood ratio
whether the description is more likely to apply to population A or B.
Bayes’ theorem
judgements should be influenced by two factors, the base rate + likelihood ratio
Base-rate neglect
Tendency to ignore overall likelihood that an event will occur, or that a case will belong in a given category. Emphasize representativeness and underemphasizes important information about base rates.
Frank is a meek and quiet person whose only hobby is playing chess. He was at the top of his class and majored in philosophy. Is Frank more likely to be a librarian, or a businessman?
Businessman. It is very unlikely that anyone becomes a librarian.
Conjunction Rule
the probability of the conjunction of two events cannot be larger than the probability of either of its constituent events.
Which probability is greater?
The p(heart attack) or p(heart attack over age 55)?
p(heart attack) is greater.
Heart attack over 55 is a subset
availability heuristic
estimate frequency or probability in terms of how easy it is (available) to think of relevant examples.
True frequency “contaminated” by recency. (familiarity)
conjunction fallacy
people judge the probability of the conjunction of two events to be greater than the probability of a constituent event.
Judge representative instead of statistical probability.
Is the letter “r” more likely to appear in the first position of a word, or the 3rd position of a word?
3rd position. Recall for 1st position is more frequent.
If the recall is easy, then the event “must” be frequen
Ross & Sicoly (1979) - Interviewed married couples about their responsibility for various household activities.
Both spouses tended to claim greater responsibility.
Anchoring and Adjusting Heuristic
When making an estimate, we begin with a first approximation (anchor) and then we make adjustments to that number on the basis of additional information.
The framing effect
outcome of a decision can be influenced by how the choices are framed.
- The background context of the choice :
Kahneman & Tvyersky (1984) lost ticket / $20 study. - The way in which a question is worded.
People prefer 75% lean ground beef over 25% fat.
The hindsight bias
The “I knew it all along” bias.
maximizers
tend to experience more regret, more depressive symptoms
satisficers
“it will suffice.”
expected utility theory
assumes that people are basically rational. (expect rationality)
utility
refers to outcomes that achieve a persons goals
risk aversion
tendency to avoid taking risks.
expected utility
p(outcome) x utility of outcome.
ex: Lottery ticket has a .01 chance of winning.
EU = .01 x 200 = $2
prospect
evaluation of outcomes defined on gains and losses rather than expected utility.
People are risk seeking in losses.
