decision making: uncertainty and risks

Question 1

heuristic

Answer 1

mental shortcut or rule of thumb that can be used to get a quick and mostly accurate response in some situations but may lead to errors in others

Question 2

bias

Answer 2

deviations from rationality (errors) that are caused by using heuristics

Question 3

what are the three categories of biases

Answer 3

• biases that affect how we interpret information
• biases that affect how we judge frequency (how often something happens)
• biases that affect how we make predictions

Question 4

availability heuristic

Answer 4

estimate the probability of an event based on the ease at which it can be brought to mind

leads us to overestimate the probability of events based on how salient they are in our minds

Question 5

representativeness heuristic

Answer 5

tend to make inferences on the basis that small samples represent the larger population they were drawn from
- related to stereotypes, schemas, and other pre existing knowledge structures
- basing judgements of group membership based on similarity

Question 6

base rate neglect

Answer 6

when you fail to use information about the prior probability of an event to judge the likelihood of an event

Question 7

conjunction fallacy

Answer 7

false belief that the conjunction of two conditions is more likely than either single condition

Question 8

anchoring and adjust heuristic

Answer 8

judgements are too heavily influenced by initial values

people start off with one value and adjust accordingly from there

Question 9

regression to the mean

Answer 9

when a process is somewhat random (i.e. weak correlation), extreme values will be closer to the mean (i.e. less extreme) when measured a second time

Question 10

illusionary correlations

Answer 10

people tend to see causal relationships when there are none

related to our understanding of the roles of reward and punishment on learning

Question 11

bounded rationality

Answer 11

idea that there is a limitation to our cognitive capacity caused by both environmental constraints and individual constraints

Question 12

satisficing

Answer 12

people are satisficers: look for solutions that are “good enough”

Question 13

ecological rationality

Answer 13

see heuristics not as a “good enough” approach, but as the optimal approach

given the right environment, a heuristic can be better than optimization or other complex strategies - better than more deliberate strategies

Question 14

when does regression towards the mean happen

Answer 14

where there is not a perfect correlation

Question 15

why do we use heuristics

Answer 15

because we are boundedly rational

Question 16

why does the conjunction fallacy arise

Answer 16

because people use the representativeness heuristic

Question 17

perceptual decision making

Answer 17

objective (externally defined) criterion for making your choice

Question 18

value based decision making

Answer 18

subjective (internally defined) criterion) for making your choice - depends on motivational state and goal

ie. what do I want for dinner?

Question 19

risk

Answer 19

taking an action despite the outcome being uncertain

specific to value based decision making

Question 20

ambiguity

Answer 20

can be defined when you have incomplete information about the consequences

Question 21

extremes in risk taking

Answer 21

stagnant living or addiction and impulsivity

Question 22

how can we frame risks

Answer 22

as gains or losses

Question 23

risk premium

Answer 23

difference between expected gains of a risky option and a certain option

Question 24

risk averse

Answer 24

decision maker has positive risk premium
- need a chance at winning a lot more than a certain option to select the risky option

Question 25

risk neutral

Answer 25

decision maker has zero risk premium - no difference in the options

Question 26

risk seeking

Answer 26

decision maker has negative risk premium - doesn't need the chance at winning more than the certain option to gamble

Question 27

behavioural economics

Answer 27

how do people act arised from the gap between assumptions made by classical economic theories and how people actually act

Question 28

the framing effect

Answer 28

inconsistent risk preference depending on the framing (loss vs gains) of the problem people are risk averse when the options are described as gains people are risk seeking when the options are described as losses

Question 29

endowment effect

Answer 29

once ownership is established, people are averse to give it up people are averse to losses

Question 30

prospect theory

Answer 30

describes how people behave - what people do instead of what people should do predicts that we have different risk patterns depending on the probability and losses and gains two major parts: - shape of utility function - shape of probability weighting function

Question 31

utility

Answer 31

subjective value assigned to an object context dependent utility is assigned to a monetary amount as a function of someone's current state (reference point) and not in absolute value (not inherent) deviations from reference point will determine risk preference

Question 32

utility function

Answer 32

first part of prospect theory mathematical function that describes how people map money to satisfaction/treat gains and losses losses loom larger than gains - linked to the framing effect describes extra satisfaction you get from gaining a dollar when you only have $1 compared to when you have $1million

Question 33

probability weighting function

Answer 33

describes how people understand likelihoods extremity pf event related to perceived probability availability of an option changes the perceived frequency of the option means that people tend to overestimate rare events and underestimate mundane events

Question 34

dual process theory

Answer 34

it is thought that there are two systems for making decisions system 1: fast, effortless, automatic, intuitive, emotion - heuristics and biases - limbic system (emotions) system 2: slow, deliberative, effortful, explicit, logical - rational choice

Question 35

prediction error

Answer 35

the difference between what you predicted would happen and what actually happened drive learning (reinforcement learning) can be positive or negative

Question 36

mood affect real world gambling

Answer 36

changes in mood predict risky decision making ---- when people are happy they are more likely to gamble

Question 37

changes in mood and assesment of risk level

Answer 37

negative mood increase people's estimated frequency of negative events

Question 38

risky choices

Answer 38

related to affective (as opposed to deliberative) decision making - activity in brain areas implicated in emotional processeing

Question 39

modus ponens

Answer 39

affirming the antecedent idea that if we observe the antecendent is true, we can conclude that the consequent is true

Question 40

modus tollens

Answer 40

denying the consequent occurs when we observe the consequent is false and conclude that the antecedent must be false as well

Question 41

expected utility hypothesis

Answer 41

classical economic theory idea that assumes when people are faced with multiple options, they will choose the one that returns the highest likely value

Question 42

propositions

Answer 42

possible facts about the world - can be true or false and can refer to properties of the external world or about our own experiences

Question 43

deduction vs induction

Answer 43

deduction - conclusion follows logically from the initial premises induction - relies on generalizing from a certain set of information and extending it to make an informed guess

Question 44

syllogism

Answer 44

a kind of reasoning in which a conclusion is derived from two or more propositional statements most common: categorical syllogism, which consists of three statements: two premises and one conclusion

Question 45

conditional or hypothetical syllogism

Answer 45

contain a conditional claim, which states a rule that relates two propositions if P, then Q P=antecedent Q= consequent

Question 46

What we tend to do when evaluating syllogisms (evans)

Answer 46

we have a mistaken tendency to try to confirm a syllogism as valid versus establishing that it is invalide

Question 47

what is the key to testing a rule (watson)

Answer 47

check cases that have the potential to prove it wrong or falsify it checking cases that may be consistent with it but that can't disprove it have no utility in testing whether the rule is true

Question 48

belief bias

Answer 48

a tendency to rate conclusions that are more believable as more valid

Question 49

atmosphere effect

Answer 49

a tendency to rate conclusions as more valid when the qualifying words in the premises match those in the conclusion

Question 50

mental models

Answer 50

mental simulation of the world, based on descriptions in the syllogism - if it involves concrete concepts, people will generate visualizations of the sentences and then mentally explore them to see whether the model breaks down

Question 51

generalization

Answer 51

refers to cases in which we extrapolate from a limited number of observations to draw a conclusion about the broader population or category

Question 52

statistical syllogism

Answer 52

going from observations about a group to an inference about an individual

Question 53

argument from analogy

Answer 53

when we observe that two things share some set of properties and conclude that they must share a different property

Question 54

one shot learning

Answer 54

when a concept is learned from a single example - requires a lot of inductive reasoning

Question 55

bayesian inference

Answer 55

mathematical model for incorporating existing beliefs, called the prior, with new data, in order to make an educated inference

Question 56

status quo bias

Answer 56

a tendency to leave things as they currently are, rather than making a change shown by samuelson and zeckhauser's inheritance study

Question 57

emotional factors in decision making

Answer 57

integral emotions: directly related to the decision incidental emotions: not directly related to the decision but that happen to be the state of the person at the time they are making the decision