Exam 3 (Reasoning and Decision-Making)

Question 1

Normative

Answer 1

how people ought to reason; logical

Question 2

Descriptive

Answer 2

how people actually reason

Question 3

What are 2 examples of the flaws of descriptive reasoning?

Answer 3

1. endowment effect

2. conjunction fallacy

Question 4

Endowment effect

Answer 4

people tend to inflate the value of items they already own

Question 5

Conjunction fallacy

Answer 5

concluding the probability of 2 things is higher than just 1 of those same things

Question 6

What are the two types of logical reasoning?

Answer 6

deductive & inductive

Question 7

Inductive reasoning

Answer 7

probabilistic inference

Question 8

Deductive reasoning

Answer 8

drawing certain conclusions

Question 9

Validity

Answer 9

conclusion follows from premise (form)

Question 10

Truth

Answer 10

conclusion is true (content)

Question 11

soundness

Answer 11

valid + true

Question 12

Belief-bias effect

Answer 12

ex. dogs vs sharks having fur in syllogism

Question 13

Inherent limitation (of logic)

Answer 13

only concerned with validity (not truth)

Question 14

confirmation bias

Answer 14

when gathering possible solutions, we often seek positive answers
e.g. watson selection task - flip card

Question 15

Logical fallacies

Answer 15

failures to follow rules of logic by drawing conclusions that are invalid

Question 16

What have we found to happen when we make decisions in uncertain conditions? (3)

Answer 16

1. irrational or inconsistent thinking
2. we use judgment heuristics
3. bounded rationality - this type of thinking may reflect adaptive limitations

Question 17

What are the 3 theories of decision making?

Answer 17

1. expected value
2. expected utility theory
3. prospect theory

Question 18

Expected value

Answer 18

objective usefulness or value will determine decision

• $10 gamble 10% chance of $100 and 90% chance of $0
• frequently violated

Question 19

Expected utility theory

Answer 19

subjective usefulness or personal value, not objective value
33% chance of 15 extra points, 44% chance of 5 extra
- can produce preference reversal

Question 20

Prospect theory

Answer 20

• 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

Question 21

Prospect theory proposes that decision weights tend to ____ small probabilities and ____ high probabilities.

Answer 21

Overweight, underweight

Question 22

Losses are __x more painful as gains are pleasurable

Answer 22

2

Question 23

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?

Answer 23

Prospect theory

Question 24

What are heuristics and weaknesses in judgment and decision-making?

Answer 24

• framing effects
• subjective probability
• availability heuristic

Question 25

Framing effect

Answer 25

decisions influenced by how problems are framed (gains vs losses)

• for gains we take the sure thing
• for losses we take the risk

Question 26

Framing ignores ___ theories but follows ____ theory

Answer 26

Utility, prospect

Question 27

Subjective probability and 3 types

Answer 27

belief that usual odds don’t hold - superstition

1. Gamblers fallacy
2. probability matching
3. representativeness heuristic

Question 28

Gambler’s Fallacy

Answer 28

thinking that a departure from what occurs on average or in the long term will be corrected in the short term
- “due for a win”

Question 29

Probability matching

Answer 29

tend to select based on relative frequency of events rather than to maximize success
- 80 red, 20 blue balls

Question 30

Representativeness heuristic

Answer 30

tend to see more representative outcomes as more likely

- ex. flipping a penny and thinking one order will be statistically different

Question 31

Availability heuristic

Answer 31

rely on what is readily brought to mind to make judgments

- words of 4 or more letters, are there more than begin with R or that have R in the 3rd position?

Question 32

What are problems with heuristics? (6)

Answer 32

1. unrepresentative exposure
2. analogy
3. simulation heuristic
4. anchoring and adjustment
5. sub-optimal choice heuristics
6. sunk costs

Question 33

Unrepresentative exposure

Answer 33

Accessibility

E.g. media coverage

Question 34

Analogy

Answer 34

use solution to another ‘similar problem’

e.g. do they grow much corn in OH?

Question 35

Simulation heuristic

Answer 35

judge situations on ease with which you imagine alternatives

- e.g. unskilled teenage driver

Question 36

Anchoring and adjusment

Answer 36

strategy of starting from an initial estimate or anchor, then adjusting it

ex. first impression
ex. Ghandi’s age

Question 37

Sunk costs

Answer 37

~unrecoverable resources already invested affect future decisions

Question 38

What is EMT (Error Management Theory)

Answer 38

biased reasoning strategies can be adaptive - humans have evolved towards making the least costly error

Question 39

Smoke detector principle

Answer 39

better to have one kind of error than another

Question 40

What supports EMT?

Answer 40

• women underestimate men’s commitment, men overestimate

- positive bias about ourselves - we are willing to take chances