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
Framing effect
decisions influenced by how problems are framed (gains vs losses)
- for gains we take the sure thing
- for losses we take the risk
Framing ignores ___ theories but follows ____ theory
Utility, prospect
Subjective probability and 3 types
belief that usual odds don’t hold - superstition
- Gamblers fallacy
- probability matching
- representativeness heuristic
Gambler’s Fallacy
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”
Probability matching
tend to select based on relative frequency of events rather than to maximize success
- 80 red, 20 blue balls
Representativeness heuristic
tend to see more representative outcomes as more likely
- ex. flipping a penny and thinking one order will be statistically different
Availability heuristic
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?
What are problems with heuristics? (6)
- unrepresentative exposure
- analogy
- simulation heuristic
- anchoring and adjustment
- sub-optimal choice heuristics
- sunk costs
Unrepresentative exposure
Accessibility
E.g. media coverage
Analogy
use solution to another ‘similar problem’
e.g. do they grow much corn in OH?
Simulation heuristic
judge situations on ease with which you imagine alternatives
- e.g. unskilled teenage driver
Anchoring and adjusment
strategy of starting from an initial estimate or anchor, then adjusting it
ex. first impression
ex. Ghandi’s age
Sunk costs
~unrecoverable resources already invested affect future decisions
What is EMT (Error Management Theory)
biased reasoning strategies can be adaptive - humans have evolved towards making the least costly error
Smoke detector principle
better to have one kind of error than another
What supports EMT?
- women underestimate men’s commitment, men overestimate
- positive bias about ourselves - we are willing to take chances
