Chapter 13 - Decision Making Flashcards
In making decisions Kahneman said there were two (which) kinds of processes?
- unconscious and conscious
Normative Theories
In an ideal world, how people SHOULD make decisions
Descriptive Theories
Theories relating to how people actually do make decisions in the real world
Base-rate information
the relative frequency with which an event occurs or an attribute is present in the population
Neglecting Base Rates
Tendency for people to ignore the base-rate information provided to them (Kahneman & Tversky 1972) Cab study showed this - people knew that there were more green than blue cabs yet believe the witnesses accounts
Representativeness Heuristic
The assumption that representative or typical members of a category are encountered most frequently
Example of Representativeness Heuristic Impact
someone’s description fitting the stereotype for an occupation. Rating the likelihood of that person occupying that position is likely to be higher than it should - ignore other relevant information
Conjunction Fallacy
Mistaken belief that the probability of a conjunction of two events has a higher likelihood of occurence than the likelihood of only one of them (Linda example)
Availability Heuristic
The assumption that the frequencies of events can be estimated accurately by the accessibility in memory
for example likelihood of murder judged more frequent due to coverage in the media
Do we always use the availability heuristic?
no - famous surname study
Gamblers Fallacy
the mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future, or that if something happens less frequently than normal during some period, then it will happen more frequently in the future (presumably as a means of balancing nature)
Heuristics
experience-based techniques for problem solving, learning, and discovery that finds a solution which is not guaranteed to be optimal, but good enough for a given set of goals
Planning Fallacy
Tendency for people and organizations to underestimate how long they will need to complete a task, even when they have experience of similar tasks over-running
Anchoring
cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions.
Clustering Illusion
tendency to erroneously consider the inevitable “streaks” or “clusters” arising in small samples from random distributions to be statistically significant.
Why do we fail to use base-rate information?
We prefer to use information that is representative of stereotypical things, information from our own experiences (representativeness heuristic)
Expected Utility
Expected utility = (probability of a given outcome) X (utility - subjective value - of the outcome)
Example of Expected utility?
taking the probability and subjective value into account, i..e the lottery. We know we have a better chance of winning 1 million rather than 10 so we pick that instead.
sunk-cost effect
Greater tendency to continue an endeavour once an investment in money, effort or time has been made
Example of sunk-cost effect
It is common for people who have invested in company shares to hold on tight to them as the market slumps, in the desperate hope that the shares will rise in price again.
Framing Effect
The influence of irrelevant aspects of a situation on decision making
According to prospect theory when are people subject to framing effect
when what is at stake has real value for the decision maker
Example of framing effect
1987 asian disease - Tversky & Kahneman told people that there was likely to be an outbreak in US - Prog A - 200 people saved Prog B - 33.33 % chance that 600 people saved and 66.66 % chance no one would be saved - participants mostly chose A even though on average both programs would save 200 people
