Class 9: Decision Making Flashcards
1
Q
What is bounded rationality?
A
Bounded rationality is a concept introduced by Herbert A. Simon, which suggests that human decision-making is limited by the cognitive capacity of the decision-maker and the information available to them. It posits that individuals make decisions based on a limited understanding of the situation and their own cognitive constraints, rather than perfect rationality.
2
Q
True or false? Perception is reference-dependent.
A
True! The perceived attributes of a focal stimulus reflect the contrast between that stimulus and a context of prior and concurrent stimuli. The reference value to which current stimulation is compared also reflects the history of adaptation to prior stimulation.
3
Q
How is AI being used in the financial industry?
A
AI is being used in the financial industry for a variety of applications, including fraud detection, risk management, algorithmic trading, and customer service. AI algorithms can analyze large amounts of financial data quickly and accurately, enabling financial institutions to make better decisions and improve their services.
4
Q
In the Article ‘A Perspective on Judgment and Choice’, What did Tversky and Kahneman restrict the definition of framing effects to?
A
Discrepancies between choice problems that decision-makers, upon reflection, consider effectively identical.
5
Q
How is accessibility of thought determined?
A
Accessibility is determined by the characteristics of the cognitive mechanisms that produce the thought in conjunction with the characteristics of the stimuli and events that evoke it.
6
Q
What does the “rose-tinted spectacles” view of the past refer to?
A
The phenomenon that we tend to more easily and quickly recollect good decisions, rather than poor decisions.
7
Q
according to kahneman 2003, what is a core property of intuitive thoughts?
A
they come to mind spontaneously and effortlessly, under the appropriate circumstances
8
Q
What is the difference between the representativeness heuristic and the base rate fallacy? a) The representativeness heuristic is a cognitive shortcut that involves making decisions based on stereotypes, while the base rate fallacy involves ignoring general information about a population in favor of individual case-specific information. b) The representativeness heuristic involves making decisions based on probability, while the base rate fallacy involves ignoring probability in favor of anecdotal evidence. c) The representativeness heuristic involves making decisions based on the similarity between a particular case and a stereotype or prototype, while the base rate fallacy involves ignoring the overall frequency or probability of a particular event or group.
A
c) The representativeness heuristic involves making decisions based on the similarity between a particular case and a stereotype or prototype, while the base rate fallacy involves ignoring the overall frequency or probability of a particular event or group. The representativeness heuristic can be useful, but can also lead to errors if the similarity between a case and a prototype is given too much weight. The base rate fallacy can lead to errors if the overall frequency or probability of a particular event or group is ignored in favor of individual case-specific information.
9
Q
Accessibility is
A
The ease or effort at which mental content comes to mind
10
Q
What is transitivity?
A
Transitivity is the transference of an opinion (e.g. I prefer A to B and B to C, therefore I prefer A to C)
11
Q
Fill in the blank The experimental evidence shows that most people reject a gamble with even chances to win and lose unless the possible win is at least _ the size of the possible loss
A
Twice
12
Q
What does the term “loss aversion” refer to?
A
a phenomenon where losses are perceived as psychologically or emotionally more severe than an equivalent gains.
13
Q
What does prospect theory suggest?
A
people do not always make rational decisions based on maximizing expected utility, but instead make decisions based on subjective perceptions of gains and losses relative to a reference point,, rather than in absolute terms.
14
Q
____________ is a cognitive bias that describes people’s tendency to overvalue the likelihood of a small probability of an event to occur.
A
The possibility effect
15
Q
What is an example of attribute substitution?
A
Let’s say you’re trying to decide which type of pizza to order. You know you like pepperoni pizza, but you need to figure out which toppings would be best. In this case, you might use attribute substitution by assessing the pizza’s overall tastiness based on a related heuristic attribute that is more easily accessible in your mind, such as the restaurant’s reputation. You may assume that a highly-rated pizza restaurant will make a delicious pepperoni pizza, even though the restaurant’s overall rating may not be a direct measure of the pizza’s taste. This heuristic attribute of restaurant reputation becomes a substitute for the more complex and specific attribute of pizza toppings, which may require more effort to evaluate. By using this attribute substitution, you simplify the decision-making process and make a quick judgment based on a related, more easily accessible attribute.
16
Q
What are some of the key heuristics and biases that the paper discusses as examples of how human judgment can be influenced by factors outside of rational decision making?
A
availability heuristic, the representativeness heuristic, confirmation bias, and loss aversion (the tendency to weigh losses more heavily than gains).
17
Q
True / False : Framing effects are only restricted to desicion making.
A
FALSE
18
Q
What is the difference between satisficing and optimizing, and how do they relate to bounded rationality?
A
Satisficing involves finding a satisfactory solution that is good enough, while optimizing aims to find the best solution possible, with bounded rationality favoring the former.
19
Q
How can we test for System 1 or System 2 cognitive processes?
A
Since System 2 processes require effort and System 1 processes do not, coupled with the fact that we have limited mental capacities, we can disrupt System 2 processes by having participants do 2 mentally demanding tasks at the same time
20
Q
What does transitivity mean in rational decision making?
A
If a rational decision maker prefers A to B and B to C then they should prefer A to C.
21
Q
In Kahneman & Tversky early studies, what two related concepts were their research in Intuitive Judgment and Decision-Making based on?
A
Accessibility (ease of which thoughts came to mind) and Distinction between Effortless Intuition & Deliberate Reasoning.
22
Q
Fill in the blank: Loss aversion contributed to ______ bias.
A
Status-quo bias! Kahneman (2003) stated, “The reference point is usually the status quo, the properties of alternative options are evaluated as advantages or disadvantages relative to the current situation, and the disadvantages of the alternatives loom larger than their advantages”.
23
Q
True or False: The article argues that individuals have a limited capacity to process information, and are prone to cognitive biases and heuristics that can lead to suboptimal decisions.
A
True. This is one of the key arguments made in the article, which is based on the concept of “bounded rationality.”
24
Q
What is the framing effect?
A
The framing effect is a phenomenon where people’s decisions and judgments are influenced by the way information is presented or framed. For example, people may be more likely to choose a product that is described as 90% fat-free than one that is described as 10% fat, even though the descriptions are equivalent.
25
According to Kahneman and Frederick define what is attribute substitution?
A judgement is said to be mediated by a heuristic when the individual assesses a specific target attribute of a judgement object by substituting a related heuristic attribute that comes more readily to mind.
26
What is the endowment effect?
The maximum value that people pay to acquire a good is commonly much less than the minimum amount they would demand to get rid of it once they own it.
27
This is a demonstration of what? A familiar demonstration involves three buckets of water of different temperatures, arranged from cold on the left to hot on the right, with tepid in the middle. In the adapting phase, the left and right hands are immersed in cold and hot water, respectively. The initially intense sensations of cold and heat gradually wane. When both hands are then immersed in the middle bucket, the experience is heat in the left hand and cold in the right hand.
Prospect Theory
28
What is the formula for maximising expected utility?
U(O11) x P(S1) + U(O12) x P(S2) = Where O11 = A1 x S1, 012 = A1 x S2
29
In what ways do people's emotional states and contextual factors influence their choices and judgments?
People's emotional states and contextual factors can influence their choices and judgments in a variety of ways. For example, people may be more risk-averse when they are in a negative emotional state, or they may be more likely to choose a default option when they are pressed for time. Contextual factors such as the presentation of information or the social norms of a particular situation can also influence people's decisions.
30
As palmer's view,enhance the accessibility of changes and differences are one of the general property of ______.
perceptual systems
31
What is meant by bounded rationality?
Limited decision-making capacity
32
True or False: Heuristics are mental shortcuts that often lead to irrational decisions.
Answer: False Explanation: Heuristics are indeed mental shortcuts that people use to simplify complex decision-making processes. However, they do not always lead to irrational decisions. In many cases, heuristics can result in efficient and accurate judgments. The problem arises when heuristics are applied inappropriately or when they lead to systematic biases, which can then result in suboptimal or irrational decisions. Kahneman (2003) provides several examples of heuristics and their potential biases, such as the availability heuristic and the representativeness heuristic.
33
True or False: In his lecture on decision making, Tangen argues that we make decisions based on the most objective information available to us.
Answer: False
34
When one prefers A over B, B over C, and so also prefers A over C, this is calledÉ?
Transitivity
35
TRUE or FALSW: Attribute substitution allows people to make accurate judgments and rely less on heuristics or cognitive shortcuts.
False. Attribute substitution often leads to biased decision-making, as individuals replace complex judgments with more accessible ones, essentially relying on heuristics or cognitive for mental shortcuts.
36
What is the possibility effect?
As soon as something is remotely possible, we weight its extremely small probability disproportionately more than it deserves.
37
What is the main difference between expected value theory and expected utility theory?
Expected value theory focuses on the mathematical average of possible outcomes, while expected utility theory takes into account the psychological aspects and diminishing marginal utility of wealth or other outcomes.
38
Define Narrow framing
Narrow framing is a cognitive bias where individuals view problems/decisions in isolation, without considering the brader context or consequences, leading to suboptimal decision-making.
39
What is meant by natural assessment?
Attributes that are routinely and automatically registered by the perceptual system with minimal effort.
40
What is the affect heuristic ?
The affect heuristic is a mental shortcut that people use to make judgments and decisions based on their emotional reactions or feelings towards a particular stimulus
41
There are two important psychological caveats in the Expected Utility Theory. What are they?
1. The utility of money declines with increasing gains. 2. This utility depends on the amount of money a person already has.
42
What are some implications of bounded rationality?
Biases, heuristics, and loss aversion
43
Invariance
refers to the idea that our choices should not be influenced by irrelevant factors such as the way a problem is presented or framed
44
True or False: According to Kahneman, the best way to overcome the limitations of bounded rationality is to rely solely on logic and reason when making decisions.
False. While logic and reason are important tools for decision-making, Kahneman notes that they are not always sufficient to overcome the limitations of bounded rationality. Instead, he suggests a variety of strategies, such as breaking complex decisions into smaller parts and seeking out diverse perspectives, to help improve decision-making.
45
What is denominator neglect?
Denominator neglect is a cognitive bias in which people focus on the numerator (the quantity or frequency of an event) and ignore the denominator (the base rate or total number of opportunities for the event to occur). In other words, people tend to make judgments based on the frequency of an event without considering the overall context or probability of that event.
46
What is the term used by Kahneman to describe the cognitive process in which we make judgments or decisions based on our intuitive, automatic, and emotional thinking, rather than engaging in deliberate, analytical thinking?
System 1 thinking
47
True or False: Confirmation bias occurs when people actively seek out information that confirms their pre-existing beliefs and ignore information that contradicts them.
True. Confirmation bias is a tendency to search for, interpret, and remember information in a way that confirms pre-existing beliefs or hypotheses. People are more likely to seek out information that supports their beliefs and ignore information that contradicts them.
48
What attributes are unconsciously processed by System 1?
size, distance, loudness, similarity, whether A causes B or B causes A (causal propensity), how surprising something is, affective valence, and mood
49
True or False: Restricted rationality means that people's ability to make decisions is not limited by their cognitive abilities or information processing.
False. Bounded rationality means that people's ability to make decisions is limited by their cognitive abilities, information processing constraints, and the complexity of the task at hand.
50
True or False: According to Kahneman (2003), System 1 and System 2 are two separate cognitive systems that influence decision-making processes.
Answer: True Explanation: In the article, Kahneman (2003) introduces the dual-process theory, which posits that there are two cognitive systems at work in human judgment and decision-making: System 1 and System 2. System 1 is characterized by fast, intuitive, and automatic thinking, while System 2 involves slow, analytical, and deliberate reasoning. Both systems play a role in the decision-making process, with System 1 often providing the initial intuitive response and System 2 being responsible for monitoring and adjusting the judgments made by System 1 when necessary. This interplay between the two systems can help to explain some of the biases and cognitive limitations observed in human decision-making.
51
What were the main findings of the study regarding the acceptance of humorous advertising in different cultures?
The main findings of the study suggest that there are significant differences in the acceptance of humorous advertising across different cultures, and that the use of humor in advertising should be tailored to the cultural context.
52
In the Linda Problem, what two occupations (the main focus) are participants asked to compare the likelihood of Linda having?
A bank teller and feminist bank teller.
53
Are decisions and responses based on System 2 more accurate than System 1?
Not always! Skilled decision-makers or experts often do better when they trust their intuitions than when they engage in a detailed analysis, for example, a nurse recognising subtle signs of heart disease or a master chess-player intuitively knowing the best move.
54
What does the affect heuristic refer to?
The idea that emotions/emotional assessments can be significant determinants of our judgements, behaviours and evaluations.
55
What were Pascal and Fermat's defintion of rational choice
A choice that maximized the expected value of the decision maker
56
certainty effect
soon as something is probable rather than certain we weight its extremely large probability disproportionately less than it deserves
57
What is Prototype Heuristics roughly described as in the text?
The substitution of an average for a sum.
58
What is the significance of Kahneman's work on bounded rationality?
Kahneman's work on bounded rationality has provided insights into how people make decisions in real-world situations, and has challenged traditional economic models that assume perfect rationality. It has also had practical implications for fields such as public policy and marketing.
59
True or false: Perception is reference-dependent?
True! Kahneman (2003) stated, "The perceived attributes of a focal stimulus reflect the contrast between that stimulus and a context of prior and concurrent stimuli".
60
According to Kahneman's article, what is the difference between System 1 and System 2 thinking? A) System 1 thinking is conscious and deliberate, while System 2 thinking is automatic and intuitive. B) System 1 thinking is automatic and intuitive, while System 2 thinking is conscious and deliberate. C) There is no difference between System 1 and System 2 thinking.
Answer: B
61
What is an example of a cognitive bias discussed in Kahneman's article? A) The availability heuristic B) The sunk cost fallacy C) Both A and B
Answer: C
62
Doubt is a phenomenon for which system?
System 2
63
How could the availability heuristic affect prospect theory?
It could change the perceived frequency of a good or bad outcome, thus changing the probability to pick them.
64
What are the 3 cognitive features of Prospect theory?
'- Certainty: certainty of gains/loss - Isolation effects: when people focus on differences between options rather than similarities - Loss of aversion: when an individual's fear of losses is greater than their job of gains
65
What research method did the authors use to investigate the acceptance of humorous advertising across cultures?
The authors used a cross-cultural survey method to investigate the acceptance of humorous advertising across cultures.
66
What would appear more favourable to a patient: a) You have a 50% chance of survival. b) You have a 50% chance of mortality.
You have a 50% chance of survival.
67
What does the "Affect heuristic" involve?
Every stimulus evokes an affective evaluation, wheter the evaluation is conscious or not.
68
How can emotions influence decision-making?
Emotions can influence decision-making by shaping our preferences, priorities, and evaluations of outcomes.
69
How did Tversky and Kahneman's research challenge the statistical intuitions of experienced researchers?
Tversky and Kahneman's research found that the intuitive statistical judgments of experienced researchers did not conform to statistical principles, particularly with regards to the effects of sample size. This highlighted the persistent discrepancies between statistical intuition and statistical knowledge.
70
Fill in the blank. When pressed, people doing a mentally demanding activity are more likely to ________________
Blurt out whatever comes to mind
71
Who is Daniel Kahneman?
Daniel Kahneman is a psychologist and Nobel laureate who is known for his work on behavioral economics and decision-making.
72
True or False: Kahneman proposes that people rely on a system of thinking he calls "System 1," which is fast, intuitive, and emotional.
True. According to Kahneman, System 1 thinking is automatic, rapid, and often emotional, while "System 2" thinking is slower, more deliberate, and more logical.
73
What is the peak-end rule?
Peak-end rule is a cognitive bias that suggest people judge a experience that is based on its most intense point (which is the peak) and its end, rather than the overall experience.
74
True/False The accessibility of a thought is determined only by the characteristics of the stimuli and events that evoke it
FALSE
75
What is the basic principle of framing?
The passive acceptance of formulation given
76
TRUE OR FALSE: The possibility effect is when as soon as something is probable, rather than certain, we weight its extremely large possibility less than 'it deserves'
False - this is the certainty effect
77
What is the main concept introduced by Kahneman in the paper?
The main concept is bounded rationality, which refers to limitations in human decision-making due to cognitive constraints.
78
How does the reference point in Prospect Theory affect decision-making?
The reference point in Prospect Theory is the starting point from which people evaluate potential gains and losses. People tend to be risk-averse when evaluating potential gains relative to the reference point, and risk-seeking when evaluating potential losses relative to the reference point.
79
True or False: Natural Assessments are registered by the perceptual system or by System 2 with intention and/or effort.
False - Tversky and Kahneman (1983) explain the natural assessments are routinely and automatically registered by System 1 without intention or effort.
80
What is prospect theory and how does it challenge the traditional economic theory of rational decision-making?
Prospect theory proposes that people's decisions are influenced by the perceived value of potential gains and losses, and that they tend to be risk-averse when facing gains, but risk-seeking when facing losses. This challenges the traditional economic theory of rational decision-making, which assumes that individuals always make choices that maximize their expected utility.
81
(True/false)The present analysis of judgment implies that statistical training does not eradicate intuitive heuristics such as availability or representativeness but only enables people to avoid some biases under favorable circumstances
TRUE
82
What is the endowment effect?
A good is worth more when it is considered as something that could be lost or given up than when it is evaluated as a potential gain.
83
The key notion of the current intuitive judgements and preferences analysis is __? A,Accessibility B,Framing Effects C, Prospect Theory
A,Accessibility
84
T/F: Kahneman (2003) suggests that humans tend to rely heavily on System 2 thinking when making decisions.
False
85
True or false: Utility theory uses a linear function.
False. According to utility theory, utility has a curvilinear function.
86
True or false: when responding to a task, the functions of System 2 are inhibited if an individual is required to concurrently perform another demanding mental task.
True.
87
What is accessibility?
Accessibility is the case (or effort) with which particular mental contents come to mind.
88
What are the Five Determinants of Accessibility?
Stimulus salience, selective attention, specific training, associative activation, and priming.
89
________ is a descriptive model of decision-making that suggests individuals evaluate outcomes as gains or losses relative to a reference point and are more sensitive to losses than gains.
Prospect Theory
90
What is the definition of invariance, and why is it an essential aspect of the concept of rationality held in economic theory?
Invariance is a key concept in economic theory that refers to the idea that a rational decision-maker should not be influenced by irrelevant changes in the way a decision problem is presented. It is essential because it helps ensure that decisions are consistent and not affected by extraneous factors that do not affect the underlying tradeoffs involved.
91
How are the operations of System 2 defined?
The operations of System 2 are defined as being slower, serial, effortful, more likely to be consciously monitored and deliberately controlled.
92
What are the two types of test of Prototype Heuristics outlined in the Kahneman (2003) article?
Tests of Monotonicity, and tests of Extension Neglect.
93
Which of the following best describes the concept of bounded rationality discussed in the paper? A. The idea that humans always make fully rational decisions based on complete information. B. The notion that cognitive biases and heuristics play no role in human decision-making processes. C. The proposal that humans have limitations in their ability to process information and make fully rational decisions. D. The belief that all decisions made by individuals are always suboptimal.
C. The proposal that humans have limitations in their ability to process information and make fully rational decisions.
94
How can we decide whether a decision is good or bad?
A study by Yates, Vienott & Patalano (2003) asked people what made good decisions good ones and they found that good decisions rated higher on the quality dimensions than bad ones. Good decisions resulted in better outcomes and that is the essence of how they were measured as either good or bad.
95
According to Kahneman's research, what is the impact of cognitive biases on our judgments and choices?
Cognitive biases can lead to systematic errors in our judgments and choices, causing us to deviate from rational decision-making and make suboptimal choices.
96
What is denominator neglect?
Denominator neglect is when an individual focuses their attention on the numerator and the potential for success with it rather than looking at the denominator and the chance it could fail.
97
Which two related concepts are reviewed in the context of early studies of intuitive judgment and decision-making conducted with Amos Tversky? a) Availability and rationality b) Heuristics and biases c) Accessibility and deliberation d) Intuition and percepts
b) Heuristics and biases
98
What is the role of heuristics in decision-making?
They allow for quick decision-making, but can lead to biases and errors
99
True or False: according to the study done by Yates et al. (2003) as explained in the decision-making lecture video, good decisions ranked higher on the quality dimension compared to bad decisions.
True. The good decisions were rated at an average of 3.6, while the bad decisions were rated at an average of -2.4, with good decisions being further than the neutral point and overall rating higher than bad decisions being bad.
100
What is the name of the effect when we over estimate the value of a result becoming an absolute certainty. For example going from 98% to 100%
The certainty effect - going from 98%-100% is perceived higher than going from 40%-42% even though they are both only a 2% increase.
101
Why is it that when people are presented with two options that ultimately lead to the same outcome, they are more likely to go for the "certain option"?
This is because outcomes that are certain are overweighted relative to outcomes of high or intermediate probability.
102
What is the name of the assumption that preferences are not affected by variations of irrelevant features of options or outcomes?
Extensionality and invariance
103
Your friend Susie bought her very first lotto ticket today. She is now planning which house she will buy when she wins! What effect is Susie falling victim to?
The possibility effect: as soon as something is remotely possible (e.g., winning a jackpot $5 million lottery!), we weight its extremely small probability disproportionately more than it deserves.
104
What is denominator neglect? A) where people focus too much on the denominator and ignore the numerator of a fraction or ratio. B) where people focus too much on the numerator and ignore the denominator of a fraction or ratio. C) where people give equal weight to both the numerator and denominator of a fraction or ratio. D) where people underestimate the importance of both the numerator and denominator of a fraction or ratio.
B) where people focus too much on the numerator and ignore the denominator of a fraction or ratio.
105
What is the role of heuristics and biases in the context of bounded rationality?
Heuristics simplify decision-making tasks, while biases are systematic errors, both resulting from limitations in cognitive processing.
106
TRUE OR FALSE? Intuition is always associated with poor performance.
This is FALSE. Intuition can also be powerful AND accurate.
107
TRUE/FALSE: The certainty effect occurs when something appears to be remotely possible (e.g.an increase from 0% to 5% chance), so we weight its extremely small probability disproportionately more than it deserves" "
FALSE. This is the possibility effect. The certainty effect is when something is probable rather than certain (e.g. 95% compared to 100% chance), so we weight its extremely large probability disproportionately less than it "deserves"
108
What factors determine the accessibility of an intuitive thought?
The accessibility of a thought is determined jointly by the characteristics of the cognitive mechanisms that produce it and by the characteristics of the stimuli and events that evoke it.
109
What are the axioms of rational decision making?
Ordering of alternatives & Transitivity
110
Explain the affect heuristic.
Every stimulus elicits an affective response, even if unconscious.
111
true/false: a large scale study. by Leboeuf and Shafir (2003), examined an walkers claim that framing effecting are reduced.
TRUE
112
Name a main finding of Tversky and Kahneman's (1971) research on the casual statistical judgments of statistically sophisticated researchers
The intuitive statistical inferences and their estimates of statistical power showed a striking lack of sensitivity to the effects of sample size
113
Description: Accessibility manipulation
Answer: Accessibility manipulation is a technique used in research to bring a particular concept or idea to the forefront of a participant's mind.
114
T/F According to the two-system view, intuition is categorized by slow effortful processing and contains conceptual representations that can be triggered by language.
False Intuition is a system 1 process that is fast and effortless
115
What is a core property of an intuitive thought?
Under the appropriate circumstances, they come to mind spontaneously and effortlessly.
116
What is the framing effect.
The framing effect is a cognitive bias where individuals decisions are being influenced by how the information is framed and presented. the same information presented in different ways often can lead to different decisions.
117
Describe the operations of System 1
Typically fast Automatic Effortless Associative Implicit (not available to introspection) Emotionally charged Governed by habit
118
What is the endowment effect?
The maximum amount that people pay to acquire a commodity is usually much lower than the minimum amount that they demand to part with it once they own it.
119
What is a criticism of expected utility theory that was addressed in the lecture?
That expected utility theory does not consider that the same amount of money will have different value based on how much someone had to begin with, for example a begger compared to a billionaire.
120
Which of the following is an example of the confirmation bias? a) Reviewing multiple sources of information before making a decision b) Only seeking out information that confirms pre-existing beliefs c) Being open to changing one's mind based on new evidence
b) Only seeking out information that confirms pre-existing beliefs. This bias can prevent individuals from considering alternative viewpoints and can lead to overconfidence in one's own beliefs.
121
What is the significance of context and framing in decision-making, as explained by Kahneman?
Context and framing can impact decision-making by influencing how choices are presented, and how information is structured and emphasized.
122
Define the possibility effect
The possibility effect is the tendency to weight an extremely small probability of an event to occur more than it deserves". This explains risk-seeking with gamblers that offer small probabilities of positive outcomes. "
123
True or False. Extensional variables, like sums, obey monotonicity, but violations of monotonicity can occur when an extensional attribute is judged by a prototype attribute. This is the strongest source of support for the hypothesis that prototype attributes are being substituted for extensional attributes in important tasks of judgment and choice, and conjunction errors, which violate monotonicity, have been demonstrated in the Linda problem and in other problems of the same type.
TRUE
124
True or False? The probability of an outcome has no effect on the quality of a decision
FALSE
125
A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?. What percentage of Princeton students incorrectly offered an immediate impulse
50% of Princeton students said 10c
126
Why is Bernoulli's model of utility flawed?
It assumes that the utility that is assigned to a given state of wealth does not vary with the decision maker's initial state of wealth
127
True/False: The central concept of the present analysis of intuitive judgments and preferences is accessibility
True
128
What are the four features of the value function in Prospect Theory?
The four features are (1) It is concave in the domain of gains (2) it is convex in the domain of losses (3) the function is sharply kinked at the reference point and steeper for losses than gains (4) the functions in the two domains are well approximated by power functions with similar exponents
129
True or False: One of the functions of System 2 is to monitor the quality of both mental operations and overt behavior
TRUE
130
What are the two axioms of rational decision making? Describe them briefly.
1. Ordering of alternatives - Rational decisions makers should be able to compare any two alternatives and prefer one to the other, or be indifferent between them. 2. Transitivity - If a rational decision maker prefers A to B, and B to C, then that person should prefer A to C.
131
Name a factor that determines accessibility
Physical salience
132
T/F: According to Prospect Theory, the pleasure of winning $500 is greater than the displeasure of losing $500.
False!
133
In the 'Two-System View', the operations of the first system are___, while the operations of system two are___: a)are slower, serial, effortful, more likely to be consciously monitored and deliberately controlled; typically fast, automatic, effortless, associative, implicit, and often emotionally charged b) typically fast, automatic, effortless, associative, implicit, and often emotionally charged; are slower, serial, effortful, more likely to be consciously monitored and deliberately controlled
Typically fast, automatic, effortless, associative, implicit, and often emotionally charged; are slower, serial, effortful, more likely to be consciously monitored and deliberately controlled
134
System 2 has many functions, but according to Gilbert (2002) and others, one of them is to monitor the qaulity of both:
Mental operations and overt behaviour
135
I classical decision theory, which three aspects are utilised to evaluate the quality of a decision?
1. The outcome (good or bad) 2. The probability of the intended outcome. 3. The extent to which taking a particular course of action is beneficial for a given decision maker at a given point in time.
136
What are the two axioms of rational decision-making?
The two axioms are (1) Ordering of alternatives, which states that decision-makers should be able to compare two alternatives and (2) Transitivity, which states that if a decision-maker prefers A to B, and B to C, then they should prefer A to C
137
True or False. The central concept of the present analysis of intuitive judgments and preferences is accessibility, which refers to the ease with which particular mental contents come to mind.
TRUE
138
What is the certainty effect?
As soon as something is probable, rather than certain, we weight its extremely large probability disproportionately less than it deserves.
139
What is the concept of bounded rationality, as described by Kahneman?
Bounded rationality is the idea that human decision making is constrained by cognitive limitations, imperfect information, and the complexity of the world. It suggests that people make decisions that are "good enough" rather than optimal, and that decision making is a process of satisficing rather than maximizing.
140
Fill in the blank: According to Kahneman, the human brain often relies on shortcuts or ____________ to make decisions, which can lead to errors in judgment.
Answer: Heuristics
141
Define the "Illusion of Control".
The illusion of Control---A cognitive bias where individuals overestimate their ability to control outcomes that are largely determined by chance or external factors.
142
Describe the operations of system 2
Slower Effortful More likely to be consciously monitored and deliberately controlled flexible and rule governed
143
True or False: The article suggests that cognitive biases and heuristics are always detrimental to decision-making.
False. While cognitive biases and heuristics can lead to suboptimal decisions, they can also be useful and adaptive in certain situations.
144
True or False. The central concept of the present analysis of intuitive judgments and preferences is accessibility.
True. Accessibility is the central concept in the analysis of intuitive judgments and preferences. It refers to the ease with which particular mental contents come to mind and can influence the process of intuitive decision-making.
145
What is the role of heuristics in decision-making, and how do they impact rationality?
Heuristics are mental shortcuts used to simplify decision-making. While they can be useful in conserving cognitive resources, they can also lead to biases and errors in judgment.
146
Percepts and intuitive thoughts are both characterised by: a) Conscious awareness and deliberate reasoning b) Slow and effortful processing of information c) Rapid and automatic processing of information d) A reliance on external stimuli for their formation.
c) Rapid and automatic processing of information
147
True or False: According to Kahneman, people always make rational, best decisions.
False. Kahneman argues that traditional models of decision making assume that people always make rational and optimal choices, but do not accurately reflect how people actually make decisions in real life.
148
True or False: When Kahneman tested researchers on intuitive statistics, their intuitions about sample size with sufficient power were accurate
False: Kahneman demonstrated that though the researchers spent much time doing statistics in the field, their intuitions did not coincide.
149
What are the three stages of decision-making proposed by Kahneman?
The three stages are: (1) editing, where options are considered and framed, (2) evaluation, where options are evaluated and compared, and (3) choice, where a decision is made.
150
What is Attribute substitution?
A heuristic that can influence a person's judgement by causing them to evaluate a specific target attribute of a judgment object and substitute it with a related heuristic attribute that is more easily accessible in their mind.
151
What is meant by Two-System View?
The development of Dual-process theory, a.k.a System 1 Thinking Fast, System 2 Thinking Slow
152
What is the expected utility theory?
expected utility theory is a decision-making theory that helps individuals choose among different alternatives by assessing the probability of each outcome and the utility associated with it.
153
According to the video by Professor Tangen, what was Nicolaus Bernoulli's contribution to the literature surrounding decision making?
Expected values do not reflect how people actually make choices.
154
What do the determinents of accessibility include?
The notions of stimulus salience, selective attention, specific training, associative activation, and priming.
155
Describe the characteristics of system 1 thinking
typically fast, automatic, effortless, associative, implicit (not available to introspection), often emotionally charged, governed by habit and therefore difficult to control or modify
156
What are the two tests of Prototype Heuristics?
Extension neglect and violations of monotonicity
157
what is the basic principle of framing?
passive acceptance of the formulation given
158
What does prospect theory suggest?
Prospect theory suggests that people are risk-averse when considering gains, but risk-seeking when considering losses.
159
What is the concept of "bounded rationality" according to the paper?
According to the paper, "bounded rationality" refers to the idea that human rationality is limited by various factors, such as cognitive limitations, time constraints, and the complexity of the environment. As a result, people often make decisions that are less than perfectly rational or optimal.
160
How does Kahneman distinguish between two systems of thinking?
Kahneman differentiates between System 1 and System 2 thinking. System 1 is fast, automatic, and intuitive, while System 2 is slower, more deliberative, and effortful. System 1 relies on heuristics, which are mental shortcuts that can lead to biases and errors, whereas System 2 is more analytical and reflective.
161
What 3 points makes a decision good or bad?
1. Outcome is good or bad 2. The probability of the outcome 3. The extent to which taking particular course of action is beneficial for the given decision maker at that point in time.
162
True or False: The author suggests that we should identify false positives and bring them in as we're pursuing research.
Answer: True Explanation: The author suggests that as we're pursuing research, it's important that we identify some of those false positives and bring them in.
163
What are the two cognitive systems Kahneman discusses in the paper?
Kahneman discusses System 1 (intuitive, fast, automatic) and System 2 (slow, deliberative, analytical).
164
What are some potential consequences of relying too heavily on heuristics and biases when making decisions?
Overreliance on heuristics and biases can lead to poor decision-making outcomes. For example, people may ignore relevant information or overlook important details if they are relying too heavily on heuristics. Biases can also lead people to make decisions that are inconsistent with their values or goals.
165
What are the two tests of prototype heuristics?
extension neglect and violations of monotonicity.
166
(True/false) Principles of accessibility determine the relative power of the cues to which the monitoring functions of System 2 respond
TRUE
167
True or False: Kahneman argues that emotions and affective states never have an impact on decision making.
False. Kahneman argues that emotions and emotional states sometimes lead people to make irrational or undesirable decisions.
168
True or False. The perceived brightness of an area is solely determined by the light energy that reaches the eye from that area.
False. The perceived brightness of an area is not solely determined by the light energy that reaches the eye from that area. Rather, it is also influenced by a reference value (often called adaptation level), which is influenced by the luminance of neighboring areas. Therefore, the statement that the perceived brightness of an area is solely determined by the light energy that reaches the eye from that area is false.
169
What is loss aversion?
it is a cognitive bias where individuals tend to feel the pain of losses more greatly than they feel the pleasure of gains. This may lead to risk of aversion and give a tendency to hold onto what one has, even if it may not be the best option.
170
True or False. Accessibility refers to the ease with which particular mental contents come to mind, and is influenced by the characteristics of the cognitive mechanisms that produce the thought and the stimuli and events that evoke it.
TRUE
171
What is meant by "perception is reference dependent"?
The way individuals perceive and interpret sensory information is influenced by the context or reference point in which it is presented. In other words, people's perception of a particular stimulus is not solely based on the physical characteristics of that stimulus, but is also influenced by their expectations, experiences, and the surrounding environment.
172
What is the attribute substitution model of heuristic judgment?
The attribute substitution model of heuristic judgment is a model presented by Kahneman and Tversky that suggests that when faced with a difficult question, people often substitute it with an easier question that is related but not the same, and use the answer to the easier question as a proxy for the answer to the original question. This leads to systematic errors in judgment.
173
transitivity
if a rational decision maker prefers A to B and B to C then that person should prefer A to C
174
What is the difference between bounded rationality and classical rationality?
Classical rationality assumes individuals have unlimited cognitive capacity and can make optimal decisions based on complete information, while bounded rationality acknowledges that individuals have limited cognitive capacity and must rely on heuristics and biases to make decisions.
175
Prospect theory, in contrast, is concerned with outcomes includes in all terms, and the value function presumably reflects an anticipation of the valence and value of the emotions that are experienced at moments of transition from one state to another,is this statement true or false?
FALSE
176
The certainty effect is when...
individuals place more importance to outcomes that have a higher probability of occurring, even if the outcomes are uncertain, compared to outcomes that have a lower probability of occurring but are more certain.
177
Can AI be biased?
Yes, AI can be biased if it is trained on biased data or programmed with biased algorithms. This can lead to discriminatory outcomes and reinforce existing social inequalities. It is important to ensure that AI is developed and deployed in an ethical and unbiased manner.
178
Every week, Zoe buys a Powerball ticket. Once she has bought that ticket, Zoe obsesses about what she will buy with the money when she wins. Zoe never fails to buy a ticket, even though some weeks it is more than she can really afford. Zoe is demonstrating the a) probability effect b) potentiality effect c) possibility effect; or d) Powerball effect
c) possibility effect - as soon as something is remotely possible, we weight its extremely small possibility disproportionately more than it deserves.
179
What are the axioms of rational decision making?
1. Ordering of alternatives - compare any two alternatives and prefer one or the other, or be indifferent between the two 2. Transitivity - If A is preferred to B, and B is preferred to C, then A should be preferred to C
180
What is the difference between system 1 and system 2 cognitive processes?
System 1: typically fast, automatic, effortless, associative, implicit, and often emotionally charged and are governed by habit (hard to modify) System 2: slower, serial, effortful, likely consciously monitored and controlled (relatively flexible and potentially rule governed)
181
What is the key concept behind making intuitive judgments
Accessibility
182
What is the Endowment Effect
The maximum amount that people pay to acquire a good is commonly much less than the minimal amount they demand to part from it once they own it.
183
What is the definition of Attribute Substitution by Kahneman and Frederick (2002)?
A judgment is said to be mediated by a heuristic when the individual assesses a specified target attribute of a judgment object by substituting a related heuristic attribute that comes more readily to mind.
184
According to Kahneman's article, what is bounded rationality?A) The notion that human decision-making is always perfectly rational B) The idea that human decision-making is limited by cognitive biases and heuristics C) The concept that human decision-making is purely emotional
Answer: B
185
What is the effect on an individual when an event's probability increases from 0-5%
The probability effect occurs, that is, one weighs the probability by an inappropriate amount of than it actually deserves" "
186
True or False: intuition is a part of System 1 thinking?
True.
187
True or False: According to the article, traditional economic models that assume individuals are perfectly rational are realistic and accurate.
False. The article argues that such models are unrealistic and that a more realistic approach to modeling human behavior is needed.
188
What is prospect theory?
Prospect theory is a theory of decision making that suggests people's decisions are influenced more by the potential gains or losses associated with an outcome rather than the overall value of that outcome.
189
What are Framing Effects?
Refers to how the presentation of the same information can elicit different responses based on how it is presented.
190
What is the concept of calculating the chance of bets to determine decisions?
Expected utility to calculate the probability effects of the decision.
191
Which of the following is false regarding the value function? a) The function is sharply kinked at the reference point b) It is convex in the domain of gains, favouring risk aversion c) it is convex in the domain of losses, favouring risk seeking d) it is steeper for losses than for gains
B is false - It is concave in the domain of gains, not convex
192
Fill in the blank: The author suggests that if we don't have the clear specificity of how is it that we could do brand-new materials to test the exact same phenomenon that we would all agree on, then we should default to the __________ solution of starting with original materials and revising until we think these are the best case for what it is we might do to try to replicate the phenomenon.
Answer: pragmatic
193
True or false? Denominator neglect occurs when people often pay too much attention to numerators and inadequate attention to denominators.
True.
194
What is bounded rationality?
Bounded rationality is the idea that human decision-making is limited by cognitive constraints, such as a limited ability to process information, biases, and emotions.
195
True or false: Intelligent people are necessarily better at cognitive self-monitoring.
False.
196
What were the 3 factors outlined in the video that help to asses whether a decision is 'good' or 'bad'?
1. Whether the outcome is good or bad 2. The probability of the outcome 3. The extent to which a particular course of action is beneficial to the decision-maker at a given point in time
197
True or False: The paper proposes that bounded rationality is a concept that describes how individuals always make suboptimal decisions.
False. The paper suggests that bounded rationality is a concept that describes how individuals may make suboptimal decisions due to their cognitive limitations, but it does not imply that all decisions are always suboptimal.
198
What is the difference between judgements and choices, according to Kahneman?
Judgements are evaluations of objects, events or people based on specific criteria. Choices involve selecting one option from a set of alternatives. Judgements are typically more subjective and involve less explicit decision-making, while choices are more explicit.
199
T/F: According to Kahneman (2003), one of the main advantages of heuristics is that they always lead to accurate and optimal decisions.
False
200
True or False: Kahneman's (2003) bounded rationality theory is based on the idea that human decision-making is always completely rational.
Answer: False Explanation: In the article "A perspective on judgment and choice: Mapping bounded rationality," Kahneman (2003) argues that human decision-making is not always completely rational. Instead, he proposes the concept of bounded rationality, which suggests that individuals have cognitive limitations and biases that impact their judgment and decision-making processes. This means that people's choices are often influenced by heuristics, intuitive judgments, and other factors that may not always lead to optimal outcomes.
201
An automatic affective valuation heuristic, where the emotional core of an attitude works as the main determinant of many judgments and behaviors.
Affect heursitic
202
What are some examples of natural assessments according to Tversky and Kahneman?
size, distance, loudness, similarity
203
What is the difference between machine learning and deep learning?
Machine learning is a subset of AI that involves the use of algorithms to enable machines to learn from data and improve their performance over time. Deep learning is a type of machine learning that involves the use of artificial neural networks with multiple layers to process complex data.
204
True or False: Two distinct modes of thinking in human cognition, where System 1 thinking is automatic, intuitive, and quick, while System 2 thinking is more deliberate, effortful, and slow.
TRUE
205
What is the difference between normative and descriptive theories of decision-making?
Normative theories of decision-making provide an ideal model for how people should make decisions, while descriptive theories describe how people actually make decisions in practice.
206
Define accessibility in the contextof judgement and decision making.
Accessibility is the ease of which a thought comes to mind.
207
True or False: The availability heuristic is a mental shortcut that involves making judgments based on the ease with which examples come to mind.
True. The availability heuristic is a cognitive shortcut where people make judgments based on how easily they can recall or remember examples. For example, if someone is asked to estimate the likelihood of a particular event, they may use the availability heuristic and base their answer on how easily they can recall similar events from memory.
208
according to kahneman 2003, determinants and consequences of accessibility help explain what?
prospect theory, framing effects, the heuristic process of attribute substitution, and the characteristic biases that result from the substitution of nonextensional for extensional attributes.
209
What is the difference between intuitive and deliberate thought processes?
Intuitive thought processes are automatic and rapid, while deliberate thought processes are slower and more deliberate. The author discusses the accessibility of different judgments and responses in relation to these two modes of cognitive function.
210
According to Kahneman's perspective on judgment and choice, which of the following is a characteristic of bounded rationality? A) Ability to process unlimited information B) Objective decision-making C) Rationality not influenced by emotions D) Limited cognitive capacity
Answer: D) Limited cognitive capacity
211
Which of the following is a key factor influencing decision-making according to the paper? A. Emotions and gut feelings B. Complete information and rationality C. Lack of cognitive biases and heuristics D. Perfect accuracy in processing information
A. Emotions and gut feelings
212
research conducted by kahneman and tversky has been guided by what idea?
that intuitive judgments occupy a position perhaps corresponding to evolutionary history between the automatic operations of perception and the deliberate operations of reasoning
213
What is the Asian disease problem, and how does it illustrate the violation of invariance?
The Asian disease problem is a thought experiment that illustrates violations of invariance in decision-making. It involves presenting individuals with two options for responding to an outbreak of a deadly disease: a guaranteed saving of a certain number of lives, or a risky option that has a chance of saving more lives but also a chance of saving fewer. When the problem is framed in terms of lives saved, most people choose the guaranteed option. However, when the problem is framed in terms of lives lost, most people choose the risky option. This violates invariance because the underlying tradeoffs are the same in both cases, but the way the problem is presented leads to different choices.
214
Which two systems are used in the two-system view of decision making
Intuition and Reasoning
215
What is the role of emotions in decision-making, and how can they sometimes lead to biases?
Emotions can influence decision-making, leading to biases such as the framing effect and the sunk cost fallacy.
216
Intuitive thoughts come to mindÉ A) Spontaneously and effortlessly. B) Deliberately and laboriously.
A! Spontaneously and effortlessly.
217
Fill in the blank: The assumption that preferences are more affected by variations of irrelevant feature of options or outcomes has been called_____
extensionality and invariance
218
What it the endowment effect?
People tend to value items that they own more than ones they do not.
219
What are the two caveats that differentiate Expected Utility Theory from Expected Value Theory?
1. the utility of money declines with increasing gains 2. this utility depends on the amount of money a person already has
220
True or false: One of the key insights of prospect theory, developed by Kahneman and Tversky, is that people are risk-neutral in their decision-making.
False. Prospect theory suggests that people are risk-averse when it comes to gains (i.e., they are more willing to take small, sure gains than larger, uncertain gains) but risk-seeking when it comes to losses (i.e., they are more willing to take larger risks to avoid losses).
221
What is bounded rationality?
Bounded rationality refers to the idea that people's decision-making abilities are limited by cognitive and environmental factors.
222
What is the definition of the adjective in heuristic attribute?
It refers to the attribute that is substituted in a particular judgment in attribute substitution.
223
How did McNeil, Pauker, Sox, and Tversky induce different choices between surgery and radiation therapy?
McNeil, Pauker, Sox, and Tversky induced different choices between surgery and radiation therapy by framing the decision problem in terms of survival rates versus mortality rates. When the decision problem was presented in terms of survival rates, most participants chose surgery. However, when the problem was presented in terms of mortality rates, most participants chose radiation therapy. This demonstrates the influence of framing effects on decision-making.
224
True or false: the framing effect has an impact on decisions people make in relation to risk?
True. The Asian disease example in the Kahneman paper showed people were persuaded by the way options were framed as to the perceived level of certainty or risk to a high stakes situation.
225
What is the definition of bounded rationality?
Bounded rationality refers to the idea that decision-makers have limited cognitive abilities and resources, which prevent them from making perfectly rational decisions.
226
True/False The acquisition of skill can selectively increase the accessibility of useful responses and productive ways to organize information
TRUE
227
What is the endowment effect?
The endowment effect is the tendency to value an object more if you own it than if you don't.
228
According to Kahneman, the phenomenon of doubt comes from which System of thinking (i.e., System 1 or System 2)?
System 2.
229
What is the difference between "expected utility theory" and "prospect theory"?
Expected utility theory assumes that people make decisions based on the expected value and probabilities of different outcomes, while prospect theory suggests that people's decisions are influenced by the way that outcomes are framed, such as whether they are described in terms of gains or losses.
230
What does attribution substitution mean?
A judgment is said to be mediated by a heuristic when the individual assesses a specified target attribute of a judgment object by substituting a related heuristic attribute that comes more readily to mind.
231
Define the term loss aversion.
When directly compared, individuals perceive potential losses to be more severe than potential gains. E.g. when times are good voters consider everything they have to lose by electing a new government
232
What do Tversky and Kahneman (1983) mean by "natural assessments"?
assessments that we make routinely and automatically using our perception or System 1, without intending to do so. Examples include: Size, distance, or similarity.
233
In the video what was the rose tinted spectacles referencing to?
When looking at the past the good decisions stand out more and are more easily recollected.
234
If a rational decision-maker prefers white chocolate to dark chocolate and dark chocolate to milk chocolate, they should prefer white chocolate to milk chocolate. This demonstrates the axiom of _________.
transitivity: if a rational decision-maker prefers A to B and B to C then that person should prefer A to C
235
T/F: Kahneman (2003) argues that one of the primary reasons for bounded rationality is that humans have a limited capacity for attention and cognitive processing
True
236
True or False: The Possibility Effect refers to the tendency to weight an extremely large probability disproportionately less than we should because it is probable rather than certain
False: this explanation is actually the Certainty Effect. The Possibility Effect, however, is when we weight an extremely small probability disproportionately more than we should because it is remotely possible
237
What is the difference between a risk and an uncertainty?
A risk is a situation where the probability distribution of potential outcomes is known, while an uncertainty is a situation where the probability distribution is unknown.
238
Which of the following is an example of the availability heuristic? a) Making a decision based on the first piece of information that comes to mind b) Analyzing all available options before making a decision c) Consulting with an expert before making a decision
a) Making a decision based on the first piece of information that comes to mind. This heuristic relies on easily accessible information, rather than a thorough analysis of all available information.
239
Is the affect heuristic, the idea that every stimulus evokes an affective evaluation, always conscious?
No
240
What is the explanation of reference dependent?
The perceived attributes of a focal stimulus reflect the contrast between that stimulus and a context of prior and concurrent stimuli.
241
What were the four countries included in the study, and how were they selected?
The four countries included in the study were Australia, China, South Korea, and the United States. These countries were selected based on their cultural and economic diversity.
242
What defines System 1 and System 2?
System 1 processes are typically fast, automatic, effortless, associative, implicit, and often emotionally charged; they are also governed by habit and are therefore difficult to control or modify. System 2 processes are slower, serial, effortful, more likely to be consciously monitored and deliberately controlled; they are also relatively flexible and potentially rule governed
243
Give a definition for the accessibility of thoughts
the ease (or effort) with which particular mental contents come to mind
244
Van Neumann and Morgenstern when discussing expected utility theory, were more interested in the _____ rather than ______ implications of their theory and set about a set of rules for testing rationality.
Mathematical; Behavioural
245
Can the role of physical salience in accessibility be overcome?
Yes, with instruction.
246
What are some cognitive constraints that limit people's decision-making abilities?
Some cognitive constraints that limit people's decision-making abilities include limited attention, limited working memory, and the tendency to rely on heuristics and biases.
247
True or False: In the two-system view outlined in the Kahnemanpaper (2003), System 1 refers to perception, and System 2 refers to intuition and reasoning.
False. System 1 refers to intuition and System 2 refers to reasoning.
248
Puzzles like the bat and ball example are predictors of
intolerance of delay and cheating behaviour
249
True/False The term "accessibility" was proposed only in the context of memory research
FALSE
250
What does the concept of accessibility mean in the terms of intuitive judgements and preferences?
The ease with which particular mental contents come to mind.
251
True or False: The two-system view distinguishes intuition from reasoning
TRUE
252
When choosing between 2 different vehicles, _______ ________ occurs when a person may prioritize a less important attribute (comfortable seats) over more important attributes (reliability and safety) when making a decision, because the less important attribute is easier to evaluate and compare
Attribute Substitution - a cognitive bias in which people substitute a complex decision with a simpler one, leading to potentially suboptimal decisions
253
True or False: Possibility effect describes how people tend to overestimate the likelihood of rare events to occur, simply because they are possible. This function explains risk-seeking with gamblers that offer small probabilities of positive outcomes
TRUE
254
True or false? Psychologically, the relationship between utility and wealth is linear.
False. It's a curvilinear relationship, explained by the fact that receiving $10 instead of $0 gives you a greater boost than receiving $1010 instead of $1000.
255
What is the role of prospect theory in the paper's perspective on judgment and choice?
The theory suggests that people do not simply choose between options based on their objective value, but instead evaluate outcomes in terms of gains and losses relative to a reference point. This reference point can be influenced by factors such as prior experiences or expectations, and can have a significant impact on how people make decisions. The paper argues that by understanding the ways in which people deviate from perfect rationality in this and other ways, we can gain a more realistic and nuanced understanding of human judgment and choice.
