Exam 3 (Reasoning and Decision-Making) Flashcards
Normative
how people ought to reason; logical
Descriptive
how people actually reason
What are 2 examples of the flaws of descriptive reasoning?
- endowment effect
2. conjunction fallacy
Endowment effect
people tend to inflate the value of items they already own
Conjunction fallacy
concluding the probability of 2 things is higher than just 1 of those same things
What are the two types of logical reasoning?
deductive & inductive
Inductive reasoning
probabilistic inference
Deductive reasoning
drawing certain conclusions
Validity
conclusion follows from premise (form)
Truth
conclusion is true (content)
soundness
valid + true
Belief-bias effect
ex. dogs vs sharks having fur in syllogism
Inherent limitation (of logic)
only concerned with validity (not truth)
confirmation bias
when gathering possible solutions, we often seek positive answers
e.g. watson selection task - flip card
Logical fallacies
failures to follow rules of logic by drawing conclusions that are invalid
What have we found to happen when we make decisions in uncertain conditions? (3)
- irrational or inconsistent thinking
- we use judgment heuristics
- bounded rationality - this type of thinking may reflect adaptive limitations
What are the 3 theories of decision making?
- expected value
- expected utility theory
- prospect theory
Expected value
objective usefulness or value will determine decision
- $10 gamble 10% chance of $100 and 90% chance of $0
- frequently violated
Expected utility theory
subjective usefulness or personal value, not objective value
33% chance of 15 extra points, 44% chance of 5 extra
- can produce preference reversal
Prospect theory
- consequences are viewed in terms of change from a reference level ($1 vs $11, $1000 vs $1011)
- decision weights
- value function steeper for losses than gains
- loss aversion
Prospect theory proposes that decision weights tend to ____ small probabilities and ____ high probabilities.
Overweight, underweight
Losses are __x more painful as gains are pleasurable
2
What theory correctly predicts: most people picking option 1 & B, selling good investments too soon and losers too late, and why people are willing to pay high premiums for insurance?
Prospect theory
What are heuristics and weaknesses in judgment and decision-making?
- framing effects
- subjective probability
- availability heuristic