CHP 12 - Decision Making and Behavioral Economics Flashcards
The mistaken belief that the joint probability of two events is more probable than a single one
Conjunction fallacy
a mental shortcut that people use to judge the probability of an event based on how much it resembles what they consider to be atypical example of that event
Representativeness Heuristic
Gambler’s fallacy is?
“streaks” must eventually even out in order to be representative, however it is incorrect because each turn is independent to prior turn
People judge the frequence or probability of an event based on how easily examples can be recalled or remembered (ease of retrieval)
Availability Heuristic
The cognition bias where individuals rely too heavily on an initial piece of information when making decisions
Anchoring Effect
What is linguistic fleuncy?
how easily and smoothly language is processed and understood
What were the results of Alter & Oppenheimer (2006) results study regarding linguistic fluency and stock selection?
Companies with fluent names performed better at 1 day and 1 week duration
The likelihood to choose the more expensive option if there are three options than if there were two
Decoy Effect
T/F: A loss is more devastating than the equivalent gain is gratifying
True
is a cognitive bias where people make different decisions based on how the same information is presented
Framing Effect
T/F: We are good at predicting the intensity and duration of our response towards an event
False
T/F: We are good at predicting whether our reaction will be positive or negative in response to an event
True
What were the results of Dunn, Wilson, & Gilbert (2003) study regarding affect forecasting?
Both groups were equally happy in their dorm rooms despite it being in an desirable or undesirable location. Students with undesirable dorm rooms had greater misprediction
What are some variables that affect decision making? - four total
1) Gender
2) Personality
3) Age
4) Cognitive styles
T/F: Group decision making reduces critical thinking
True