Exam 3 - Decision Making

Question 1

Rational Choice theory

Answer 1

The classical view that we make decisions by determining how likely something is to happen, judging the value of the outcome, and multiplying the two.

Question 2

Does the Rational choice theory hold true for humans?

Answer 2

No - we are humans, and are susceptible to irrational decisions.

Question 3

Are we good at estimating frequencies or probabilities?

Answer 3

Frequencies - humans are horrible at estimating probability, leading to errors.

Question 4

Availability bias

Answer 4

The concept that items that are more readily available are judged as having occurred more frequently.

Question 5

What does the availability bias cause us to do?

Answer 5

It makes us think there are more things than there actually are do to the familiarity of the items.

Question 6

Why does availability bias affect our estimates of frequency?

Answer 6

Because memory strenght and frequency are directly related - the more frequent something is, the more we estimate to be.

Question 7

Heuristics

Answer 7

A fast and efficient strategy that may facilitate decision making but does not guarantee that a solution will be reached.

Question 8

Algorithm

Answer 8

A well-defined sequence of procedure or rules that guarantees a solution to a problem

Question 9

Conjunction fallacy

Answer 9

When people think that two events are more likely to occur together than either individual event

Question 10

What causes the conjunction fallacy?

Answer 10

WHen people are provided more pieces of information, people believe that the probability increases when in fact the probability that each event being true DECREASES with each increasing event

Question 11

Representative Heuristic

Answer 11

A mental shortcut that involves making a probability judgement by comparing an object or event with a prototype of the object or event

Question 12

Prototype

Answer 12

The “best” or “most typical” member of a catagory - (i.e. what you think best represents a category, such as the traits that you think best define what a lawyer is like)

Question 13

Framing effects

Answer 13

A bias whereby people give different answers to the same problem depending on how the problem is phrased (or framed, or interpreted)

Question 14

Example of framing effect?

Answer 14

People being impressed whether if the drug has a 70% success rate, but would perceive the same drug as risky if told that it had a 30% failure rate.

Question 15

Sunk-cost fallacy

Answer 15

A framing effect in which people make decision about a current situation on the basis of what they have previously invested in the situation.

Question 16

Example of sunk-cost fallacy?

Answer 16

Playing a video game for over 4 years but unhappy about it and want to quit. One of the ways we continue to play is because of the “sunk-cost” of having played 4 years of it already. This makes one feel “obligated” to follow through because of this investment, even if it is something you don’t want.

Question 17

Optimism bias

Answer 17

A bias whereby people believe that, compared to other people, they are more likely to experience positive events and less likely to experience negative events in the future - sort of like “it can’t happen to me”

Question 18

Prospect theory

Answer 18

A theory that people choose to take on risk when evaluating potential losses and AVOID risk when evaluating potential gains
(see slide 8, lecture 2)

Question 19

Phases of prospect theory?

Answer 19

1) simplify the available information

2) Choose the prospect that they believe offers the best value

Question 20

Assumptions of prospect theory?

Answer 20

1) Certainty effect - when people make decisions, greater weight is given to a consequence that is a sure thing
2) Assumes that people compare decisions to a reference point
“Expected utility relative to a reference point rather than absolute outcomes”
3) Assumes people are more willing to take risks to avoid losses than to achieve gains (will take risk if it can ward of loss, but will not take risk if loss expected)

Question 21

Effect of prefrontal cortex on decision making

Answer 21

People with damage to the prefrontal cortex lack an emotional response to decision making, and tend to make riskier decisions

Question 22

How is insight and the unconscious related?

Answer 22

Insight tends to result from incremental thought from the unconscious mind

Question 23

Electrical activity in which area of the brain facilitates sudden insight?

Answer 23

Anterior cingulate - part of the frontal lobe

Question 24

Functional fixedness

Answer 24

The tendency to perceive the functions of objects as unchanging

Question 25

How does functional fixedness be a framing effect?

Answer 25

We are frame the objects as only good for one purpose, when in fact we don’t necessarily

Question 26

Means-ends analysis

Answer 26

A process of searching for the means or steps to reduce the difference between the current situation and the desired goal

Question 27

Increased activation in amygdala increases or decreases loss adversion?

Answer 27

Increase activation will increase loss adversion (adds emotion into response)

Question 28

If one has more activation in the orbitalfrontal cortex (OFC) and the Prefrontal Cortex (PFC), would you be more or less affected by framing effects?

Answer 28

Less activity, more affected by framing effect,
More activity, found to be less affected by framing affect,

(this is because the frontal cortex is responsible for decision making)

Question 29

How does susceptibility to the framing effect involve the emotional system?

Answer 29

The emotional system assesses value in terms of emotion and motivation, as well as in monetary terms. In other words, without emotional reactions to guide thinking, one would continue to make risky decisions