Decision biases:Preference reversals & other effects

Question 1

Heuristics

Answer 1

Cognitive shortcuts… very helpful they do not guarantee optimal outcomes

Question 2

Biases

Answer 2

Systematic deviations from the normative principles

Question 3

Cognitive illusions

Answer 3

difficult to be eliminated, persistent and very common

Question 4

Preference reversals

Answer 4

The ordering of two options changes as a function of some experimental manipulation.
irrelevant for the normative theory.
 some factors distort preferences 
→Framing of the description
→Response mode compatibility
→Evaluability

Question 5

Mental Accounting

Answer 5

We are naïve “accountants”(Thaler, 1980)
We write down the consequences of our decisions in black and in red depending on whether we count them as gains or losses with respect to some reference point
→Gain and losses are considered separately
→Losses are weighed more than gains

Question 6

Status quo effect

Answer 6

people are biased toward the status quo, toward things as they are (mental accounting)

Question 7

Sunk-cost effect

Answer 7

People act as though the very commitment they have made requires them to keep going (mental accounting)
Once you have determined that the best course of action for the future is to change plans,time, effort and money you have spent in the past does not matter one bitDecisions should be made on the basis of future consequences