Chapter 3 Decision-Making: Descriptive Models and Choice Architecture Flashcards
Prospect theory
– decision-making processes consist of an editing phase and an evaluation phase
– major elements in the evaluation phase are the value function and the weighting function
Prospect Theory (Value function & Weighting function)
• Value function
– describes the relationship between objective outcomes (gain or loss relative to a reference point) and their subjective values
– concave in the gains region and convex in the loss region (‘S-shaped’)
– steeper in the loss region
– “loss aversion”: losses are experienced more strongly than gains of the same size
• Weighting function
– describes the relationship between objective probabilities and subjective decision weights
– low probabilities receive higher weights, medium to high probabilities lower weights
Endowment-effect
– a good immediately becomes more valuable after a person has taken possession of it
Sunk cost effect
– more likely that an endeavour is continued when resources have already been invested, even when these resources are irretrievable
Mental accounting
– people record the costs and benefits of various operations, and
– remember and settle them in event-specific ways
Bounded rationality
– human ability to behave rationally is limited
Satisficing principle
– in complex decision situations, decision-makers act within the limits of bounded rationality and
– are content with a satisfactory alternative instead of the optimal alternative
Implicit favourite model
– decision-makers spontaneously choose one option,
– then search for confirmation that this was the correct choice
- Decision makers often not aware that they already have made their choice
- Decision criteria isolated after the choice and calibrated to match the selected alternative
Groupthink
– groups make suboptimal decisions
– occurs in highly cohesive(zusammengehörende) groups
– leads to suboptimal solutions through failure to define goals, selective information processing, insufficient evaluation of consequences and poor implementation plans
– isolated from other information Sources
– charismatic leader favours a certain solution
– high self-censorship and pressure to conform
– invulnerability overestimated, collective rationalisation
Muddling through (durchwursteln)
– decisions are taken in a step-by-step, incremental process
RAWFS-Model
– describes decision-making processes in uncertain decision situations
– application of the tactics Reduction, Assumptionbased reasoning, Weighing pros and cons, Forestalling and Suppression
Risk defusing operator
– actions aimed at reducing the risk that negative consequences of a decision will occur
Mindspace
• Components:
– Messenger: who communicates Information
– Incentives(Anreize): responses shaped by mental shortcuts and loss aversion
– Norms: what others do
– Defaults(Standards/Voreinstellungen): pre-set Options
– Salience(Auffälligkeiten): what is novel and seems relevant
– Priming: small cues influence information processing and behaviour
– Affect: emotional associations
– Commitment: consistency with public promises, reciprocity
– Ego: act in ways that make us feel better about ourselves
EAST
• Components:
– Easy: people are more likely to do what is easy
– Attract: people are attracted by what catches their attention and what appears attractive
– Social: people follow the herd
– Timely: interventions are more likely to influence behaviour before habits have been formed or when undesired behaviour has been disrupted
Nudges (EAST/MINDSPACE)
– attempts to structure decisions in a way that induces rational behaviour without curtailing individual freedom
– encourage or steer behaviour, but without mandating or instructing, and ideally without the need for financial incentives or sanctions
