Class 2: Making Better Decisions

Question 1

System 1

Answer 1

Hot, fast, automatic and effortless, stereotypic, implicit, bounded. use system 1 thinking for most decisions in life

Question 2

System 1 Strengths

Answer 2

• Many basic needs: babies, berries and bears
• constantly constructs reality
• gets you out of bed and across the street

Question 3

System 1 Limitations

Answer 3

• cannot turn it off
• is primed for action and will try to take over
• lousy for complex problems that require multiple, ordered steps

Question 4

System 2

Answer 4

Cool, slow, deliberate and effortful, logical, explicit, rational. system 2 thinking should influence most important decisions.

Question 5

System 2 strengths

Answer 5

• when system 1 has no answer, it steps in
• uses multiple criteria and performs tough calculations
• you can solve a wide range of problems using it

Question 6

System 2 limitations

Answer 6

system 2 gets winded

• it can o complicated tasks but not a lot of them
• sometimes it will simply listen to system 1
• could lead to “analysis paralysis”

Question 7

System 2 decision-making framework

Answer 7

1. define the problem
2. identify the criteria
3. weigh the criteria
4. generate alternatives
5. rate each alternative on each criterion
6. compute the optimal decision

Question 8

heuristic

Answer 8

cognitive “rule of thumb” that we use to make guesses or quick estimates

Question 9

Bias

Answer 9

inappropriate application of heuristics resulting in systematic error in measurement, estimates, and decisions

Question 10

Availability heuristic

Answer 10

• Assessing the likelihood of an event given its “availability” in memory
• events that are vivid, evoke emotion and are easily imagined will be more available

Question 11

Representativeness heuristic

Answer 11

-looking for traits that correspond with previously formed stereotypes (ie what we already know) when making a judgement

Question 12

Selection bias

Answer 12

aka survivorship bias, sampling on the DV

issues: do not observe counter-factual, confuses correlation with causation

Question 13

Retrievability bias

Answer 13

the more easily you can grab something from memory:

• the more likely you will think it is to occur
• the more likely you will apply that knowledge

Question 14

Anchoring bias

Answer 14

individuals make estimates based on whatever information is provided (even if the information is irrelevant) and typically make insufficient adjustments from the anchor when establishing a final value

Question 15

Overconfidence

Answer 15

People tend to be overconfident of the infallibility of their judgements and do not sufficiently acknowledge uncertainty

Question 16

Regression to the mean

Answer 16

Individuals tend to ignore the fact that extreme events tend to regress to the mean on subsequent trials

Question 17

Conjunction Fallacy

Answer 17

Individuals falsely judge that two events co-ocurring are more probably than a more global set of occurrences of which the conjunction is a subset
–occurs because the conjunction appears more representative and better matches stereotypes

Question 18

Framing effects (Prospect Theory)

Answer 18

• Losses loom larger than equivalent gains
• choices will change based on framing of the issue even when the set of options are equivalent
• risk averse when things are framed as gains
• risk seeking when things are framed as losses

Question 19

When is a heuristic more likely to become a bias?

Answer 19

• in face of complexity
• when we are not aware of it
• when stressed, tired, or rushed