Heuristics and Biases Flashcards
Define Judgements
Estimates of liking, quantity, similarity, or risk, “Value for money”, etc.
Define Judgement Heuristics and give 4 examples.
Mental rules/shortcuts for making judgements.
Anchoring
Availability
Decoy
Framing
Describe the Anchoring Heuristic and give examples
Our tendency to use reference points when making judgements.
- Prices in other countries
- Past (or potential future) prices
- “Suggestions” (especially when combined w/ influence).
- Answers to prior Q’s can influence subsequent answers.
Examples:
- Lottery winners’ satisfaction with life decreases, whilst paraplegics satisfaction with life increases. People’s anchors for a “good life” change over time.
- MIT students shown several products, then offered opp to buy item at price = their SS’s last 2 digits (random price), then asked max price they’d pay. Those w/ higher SS bid more, since they didn’t know true value + anchored to SS.
- 2 groups of students asked if Turkey’s population greater than 35M (1) or 100M (2), and then estimate Turkey’s pop. Group 2 estimates > Group 1 estimates due to anchoring to previous question.
- Credit cards raise purchases when:
- High credit limits
- Many credit cards.
Describe the Availability Heuristic and give examples
Our tendency to deem vivid info as more important/true than less vivid info for probability (& other) judgements.
- Vivid info raises perceived probabilities of risk.
- Vivid info creates more “dependable” associations.
- ST benefits more vivid than LT benefits.
Examples:
- Images/Imagery (e.g. stories) more vivid than words/numbers.
- Illusory Truth Effect: Glitch in human psyche equating repetition with truth.
- People still go to lottery cause we see on tv the winners, never the losers.
- Food plate > Food pyramid as it’s easier to visualize when eating.
- Displaying fish brings “freshness” to mind.
- Bills bigger than coins & cards, making them easier to visualize money and loss (spend less with bills).
Describe the Decoy Heuristic and give examples
Middle/In-between/compromise options weigh more when “decoys” are present.
Examples
- Adding more expensive 3rd option makes “mid-option” look more attractive.
Describe the Framing Heuristic and give examples
(–) info weighs more than (+) info in judgements.
- (–) info repels more than (+) info attracts.
- Losses loom larger than gains, people seek loss aversion.
Examples:
- Granting removable/withdrawable concessions/benefits.
- Preferring 75% lean over 25% fat.
Define bias and judgement bias
Bias
Gap between actual probability & perceived probability.
Judgement Biases
Gaps between rational & actual judgement.
List 6 judgement biases
- Confirmation Bias
- Sunk Cost Bias
- Overconfidence Bias
- Status Quo Bias
- FOMO/FOBO Bias
- Peak-End Bias
Define Confirmation Bias and give examples
Tendency to focus on later info to confirm our initial expectations.
- Anchoring: 1st impressions/stereotypes/expectations used as anchors for our opinions on people/activities/etc.
Examples:
- Few letters in a word form expectation of the word, which our mind uses to subconsciously “fill the blanks”.
-
Echo Chamber Effect: Ideas following your world view repeated to you, whilst ideas against world view aren’t
(or avoided entirely). - Placebo Effect: Individuals expect pill will better their condition and their body acts accordingly.
Define Sunk Cost Bias and give examples
Tendency to escalate commitment to course of action to which we’ve already made some commitments (e.g. time, $, effort).
- Rationally, we should consider future marginal costs & benefits of actions going forward.
- Framing: Loss aversion tempts us to consider past costs that can’t be recovered.
- Availability: Future marginal costs & benefits aren’t as vivid.
Examples:
- People remain in casino even when losing money as they seek to recover money.
- Banks continuing to lend money to troubled borrowers.
- Holding out to failing stock rather than reduce losses & invest in more promising stock.
- Expensive players often fielded more regardless of their performance.
- Firm A rarely sells an acquired firm losing money (unless it’s for a lot).
Define overconfidence bias and give examples
Tendency to be more confident in our own abilities than is warranted by facts.
- Availability: Occurs when (+) outcomes more vivid than costs.
Examples
- Believing we’ll win the lottery.
- Believing we’ll get best grade.
- Believing we’ll get/stay married.
- Countered by making costs vivid (e.g. Anti-… Signs, etc.)
Is overconfidence necessarily bad?
We’re motivated to get best for ourselves, which biases our self-confidence to initiate tasks, but may lead to greater disappointment than was otherwise forseeable.
Define Status Quo Bias and give examples
Tendency to stick w/ what we already have/do.
- Anchoring: We are anchored to our routines.
- Framing: Loss aversion makes familiar options “safer”.
Examples
- Eating same food every day/week
- Drinking same drink every day/week.
- Keeping default/standard options.
Define FOMO/FOBO Bias and give examples
Fear that option currently considered isn’t “best” option available, thus we look/rely on familiarity/routines or postpone.
- Framing: Loss aversion makes us scared of making wrong choice → anticipated regret.
- Availability: Familiarity/routine are more vivid & thus considered “safer to buy”.
- Anchoring: We are anchored to familiar brands.
Examples:
- Offering very wide array of choices is more vivid, but rarely leads to purchase due to effort required to process, which leads to anticipated regret of making wrong choice.
- Offer smaller assortments to reduce FOBO.
Define Peak-End Bias, what heuristics does it use, and give examples.
Tendency to focus on peaks and ends to judge experiences.
- Availability: Occurs as mind has limited processing capacity, so only most vivid info stored.
- Confirmation Bias: Ends are important as it’s used to confirm initial expectations.
- Other factors: surprise, action, emotions, memorabilia (check article).
Examples:
- We remember best/worst moments of a trip.
