Exam 2 Flashcards
Spurious Correlations
When to factors are correlated, but that doesn’t mean there is causation.
Availability
We predict probability of event by ease with which we can recall similar example
Bayes Rule
If you observe new evidence you revise you estimate
Heuristics is
A general rule of thumb for complex judgements
Representativeness
Stereotyping
Regression to the Mean
Smaller samples are more likely to stray from the mean
Anchoring and Adjustment
Biased. Start with a reference point, and make adjustments to reach your estimate
Noisy Data is When the
Initial condition uncertain
Endowment Effect
We demand more for what we have, and less for what we want
Mental Accounts
Refers to money, we use money differently if say, it’s from a tax refund
Planning Fallacy
We make unrealistic plans
Why we’re overconfident?
We remember the hits, forget the misses
Intuitive Judgement
We give more weight to intuition than evidence (moneyball)
Precision
Closeness of two values
Third Variables
A possible unknown third variable that is affecting the correlation between the other two variables
Chaos is
nonlinear patterns.
Selection Bias is
We look for cases that confirmed out pre-conceived hypotheses.
Endogeneity is
Was it the chicken or the egg?
Example: Economic development causes democracy or democracy causes economic development?
Confirmation Bias is
We selectively attend to information that conforms with our beliefs.
Out of Sample is
A prediction made with the wrong data (housing)
Risk is
Something you an put a price on. you know the odds and can account for it (poker)
Uncertainty is
Unmeasurable. You have no idea of the odds because it’s complex (butterfly effect)
Chaos Theory
Mathematics studying behavior of dynamic systems sensitive to initial conditions
Rating Agencies Confused?
Uncertainty with risk
Accuracy is
Closeness of a value to the known value