Finals: Module 4 Flashcards
are used to
select from among
choices or to evaluate
opportunities
Judgment and Decision
Making a
erroneous reasoning
Fallacy
– decision makers are fully informed regarding all possible options
for their decisions and of all possible outcomes of their decision options
The Model of Economic Man and Woman
> Allows for the psychological
makeup of each individual decision
maker
Subjective Expected Utility Theory
2 types of Classical Decision Theory
- The Model of Economic Man and Woman
- Subjective Expected Utility Theory
9 types of Heuristics
- Satisficing
- Maximizing
- Elimination by Aspect
- Representative
Heuristics - Availability Heuristics
- Anchoring bias
- Framing effect
- Fast and Frugal heuristics
- Single criterion
you have an ideal type of
criteria to a certain
requirement, need.
Single criterion
no time to initiate a
decision immediately;
employ a minimum of
time, knowledge, and
computation to make
adaptive choices in real
environments
Fast and Frugal heuristics
– people stick to what they hear or seen as something more heavily impacts them
Framing effect
people adjust their evaluations of things by means of certain reference points;
Anchoring bias
occurs when people rely
too much on pre
-existing information or the first information they find when making decisions
Anchoring bias
ex. buying something because its on sale but in reality it has the same price as before
Anchoring bias
information you use to
make a decision from
what you have seen
recently; prioritizing
infrequent events based
on recency and vividness
Availability Heuristics
ex. changing your type of transportation for your vacation from airplane because of the recent news about airplane crash
Availability Heuristics
- imaginary picture of people (Salient features)
- How obviously it is similar to or representative of the population from which it is derived
Representative
Heuristics
- Similar to stereotyping and Discrimination
- ex. guard deciding whether to let a man with tattoo enter the building since tattoo is associate with crimes
Representative
Heuristics
- making a decision in
3aspects (What is
cheap, what is good or
what is your favorite) - requirements to satisfy when deciding
Elimination by Aspect
ex. you have a requirement of having a wifi, parking lot, and swimming pool when choosing a place to stay for vacations
Elimination by Aspect
exhaustively seeks the best
Maximizing
accepts what’s good enough
- bare minimum
Satisficing
mental shortcuts that lighten the cognitive load of making decisions
Heuristics
3 types of Biases
- Illusory Correlation
- Overconfidence
- Hindsight Bias
an individual’s overvaluation of her/his skills, knowledge, or judgment
Overconfidence
People are predisposed to see particular events or attributes and categories as going together, even when they do not
Illusory Correlation
when people look at a situation retrospectively,
they believe they can easily see all the signs and events leading up
to a particular outcome
Hindsight Bias
5 Types of Fallacies
- Gambler’s fallacy
- Hot hand effect
- Sunk Cost Fallacy
- Opportunity Costs
- Group decision making
2 concepts under Group decision making
- Groupthink
- Devil’s Advocate
contradicts the current decision for others to be motivated against the decision made
Devil’s Advocate
a phenomenon characterized by premature decision making that is generally the result of group members attempting to avoid conflict
Groupthink
same personalities when it comes in deciding to a problem
Group decision making
the prices paid for availing oneself of certain opportunities
Opportunity Costs
represents the decision to continue to invest in something simply because one has invested for it for a long time but it’s not even
worth it anymore
Sunk Cost Fallacy
a belief that certain course of events will continue
Hot hand effect
a mistaken belief that the probability of a given random event, such as winning or losing a game of chance, in influenced by previous random events
Gambler’s fallacy
3 types of Reasoning
- Deductive Reasoning
- Inductive
- Conditioned
the process of drawing
conclusions from principles or more
general statements
Reasoning
weighing of utility
Subjective Utility
estimates of likelihood, rather than objective statistical computations
Subjective probability
