Deliberate v intuitive decision-making

Question 1

Difficult choices when …

Answer 1

1. Too many alternatives
2. Negative correlations - Force you to make trade-offs
3. Lack of information
4. High similarity amongst alternatives

Question 2

Choice strategies

Answer 2

1. Evaluate alternative by alternative v. evaluate attribute by attribute
2. Compensatory v. non-compensatory trade-offs
3. Exhaustive v. non-exhaustive
4. Elimination by aspects

Question 3

Order effects

Answer 3

Products on the right are preferred

Question 4

Bounded rationality is good if …

Answer 4

1. Not able to define alternatives, attributes and/or consequences
2. Decision costs are high

Question 5

Context in prospect theory

Answer 5

Can lead to errors because you change your reference point!

Question 6

What is prospect theory?

Answer 6

Alternative course of action with (a) one or more outcomes that (b) result in consequence values which (c) are weighted by decision weights

Question 7

Prospect theory - Overall value of prospect

Answer 7

= Sum of (weight(i) * value(i)

Question 8

Prospect theory - v(x)

Answer 8

1. If gains = x^0.88

2. If losses = -2.25 * (-x)^0.88

Question 9

What are the characteristics of prospect theory?

Answer 9

1. Reference level dependence - Depending on status quo or aspiration level
2. Gains and losses satiate
3. Loss-aversion

Question 10

What are the steps of prospect theory?

Answer 10

1. Valuation
2. Decision weighing (based on probability of occurence)
3. Integration

Question 11

Prospect theory - Decision weighing formula

Answer 11

π(p) = p*0.64 divided by {p^0.64 + (1-p)^0.64}^1/0.64

Question 12

Graph of decision weight function

Answer 12

1. Slope is steep near 0 because sensitivity to impossibility v low possibility
2. Crossover at 0.20 where people are surprisingly accurate at evaluation probabilities
3. From 0.20 to 0.75, the curve is too flat - People are not very sensitive to changes
4. From 0.75 onwards, the curve is steep again because of certainty effect