Framing Effects, Prospect Theory, Loss Aversion, Biological Bases of Decision Making under Uncertainty

Question 1

Framing Effects

Answer 1

A cognitive bias that affects how people decide between options based on how they are presented.

Question 2

Loss Aversion

Answer 2

An important aspect of everyday economic life that suggests that people have a tendency to stick with what they have unless there is a good reason to switch. The loss aversion is a reflection of a general bias in human psychology (status quo bias) that make people resistant to change.

Question 3

Prospect Theory

Answer 3

A theory of decision making that tries to explain how people’s decisions are influenced by their attitudes toward risk, uncertainty, loss, and gain. It asserts that people are influenced by a systematic inability to evaluate probabilities correctly and in most cases are motivated more strongly by the fear of loss than by the prospect of making the equivalent gain.

Question 4

What is the Sunk-Cost Fallacy?

Answer 4

A cognitive bias that makes you feel as if you should continue pouring money, time, or effort into a situation since you’ve already “sunk” so much into it already. This perceived sunk cost makes it difficult to walk away from the situation since you don’t your resources wasted.

Question 5

What are the neural correlates underlying Framing Effects?

Answer 5

The left anterior cingulate cortex (ACC) and the right inferior frontal gyrus (IFG).