Judgement and decision making

Question 1

Define judgement

Answer 1

• The ability to estimate and
  predict the character of unknown
  events – judgement underlies
  decisions
• Deciding on the likelihood of
  unknown events using
  incomplete information

Question 2

Explain decision making

Answer 2

-Assessing and choosing amongst multiple options
-If full information is unavailable – judgement is necessary
-Making choices by applying the laws of probability and by using heuristics.
-Factors involved in decision-making depend on the importance of the decision

Question 3

What are maximisers like?

Answer 3

they find and make the best decisions/solutions for their own maximum benefit i.e. the best deal
* Analyse, compare and exhaust
all options to make a decision
* Spending time and energy
* Revising and choosing
* Unhappier with decisions

Question 4

Define the law of probabilities in relation to decision making

Answer 4

the probability/likelihood of getting the following options then picking the option with the best choice (the expected utility)

Question 5

Explain the process of maximisers in the law of probability

Answer 5

-assigns value to options
-estimates the probability
-expected utility

Question 6

Expected utility calculation

Answer 6

value x probaility

Question 7

What are satisficers like?

Answer 7

• Evaluate a few options
• Acceptable, ‘good enough’ options
• Do not spend time and energy
• Move on after making decisions
• Happier with outcomes
  -humans tend to be satisficers usually

Question 8

Why are we satisficers and not maximisers?

Answer 8

Bounded Rationality (Herbert Simon)
* Rationality = limited by various factors e.g., do not have full information
* Cognitive limitations e.g. STM storage so all options can’t stay
* Deadlines, to make decisions

Question 9

How can we deal with bounded rationality?

Answer 9

heuristics

Question 10

Define heuristics

Answer 10

A strategy or process used in decision-making giving us
a good and acceptable solution, but not guaranteed to be the
most optimal or perfect however decreases the cognitive load

Question 11

Explain availability heuristics

Answer 11

-Misleading in decision making
* Prioritising irregular events based on recency and vividness e.g., more people scared of planes than cars even though cars have more crashes
* Risk-averse human behaviour (even if unlikely)

Question 12

Explain the rules of availability heuristics

Answer 12

1.If examples come to mind easily then it must happen frequently
2.The frequencies of events can be approximated by how easy/difficult it is subjectively to retrieve them from LTM
(easy accessible information)
* This is used to inform decision making

Question 13

What can easily accessible info be?

Answer 13

-more easily memorised info
-Something you have been affected by or has had a big impact on you
-Events that have happened more recently in your memory
- The availability heuristic is based on ease of retrieval. The easier something is to recall, the more likely you are to use it to form your beliefs and opinions

Question 14

When else can availability heuristics be used for excluding dangerous/risky events?

Answer 14

• Work decisions
• Voting
• Trusting your instinct or gut
  Mental shortcut - Not considering all facts with equal weighting = wrong assumptions / uneducated decision

Question 15

Why does Availability Heuristic happen?

Answer 15

-Human cognition takes these mental shortcuts to facilitate in decision making
-Easy accessible info = more appropriate and easier to use that
information to make decisions
-How easy it is to recall things from memory = recent, vivid and impact
-Easier to base decisions on recent events

Question 16

How can we avoid availability heuristic?

Answer 16

• Try not to make impulsive decisions or judgements – take some time to think about it
• Seek different sources
• Look at trends and patterns
• Consider the statistics

Question 17

Define gamblers fallacy

Answer 17

because something hasn’t shown up for a while (e.g., heads instead of tails) it must come up now so they bet on it i.e. the expectation that the possible outcomes will average out in small
samples

Question 18

Define the Law of Large Numbers

Answer 18

The average of the results obtained from a large
number of trials should be close to the expected value, and will tend to become closer as more
trials are performed. (e.g., 1000 coin tosses=more likely 50/50 chance heads or tails)

Question 19

Define representative heuristics

Answer 19

a mental shortcut that we use when estimating probability (more distributed looking e.g. lottery numbers we assume “more random”)

Question 20

Give an example of recognition heuristics

Answer 20

2 objects in front of us, and we have to pick one out of two:
* If we recognise one object and not the other recognised object = higher value
* Gigerenzer (2002) - individuals recognise one object but not
the other and no other info influences their judgement
* People can profit from inferences from missing knowledge

Question 21

How do people decide which heuristic to use in judgement or decision-making tasks?

Answer 21

Two step process (Kruglanski and Gigerenzer 2011):
1. The nature of the task and individual memory limits the no. of available heuristics
2. Individuals select one heuristic based on the likely outcome of using it and its processing demands

Question 22

Give 3 advantages of heuristics

Answer 22

1.Enables us to make fast decisions
2.Reduces demand on cognitive load
3.Usually acceptable solutions

Question 23

Give 2 disadvantages of heuristics

Answer 23

1.May lead us to a worse solution
2.Can mislead us – gamblers fallacy

Question 24

Define base rate neglect/fallacy

Answer 24

when people tend to ignore the base rate (i.e., general prevalence/disease frequency) in favour of the individuating information (i.e., information pertaining only to a specific case).

Question 25

Simply define prospect theory

Answer 25

How people form decisions under uncertainty relating to behavioural economics (tend to make choice with most perceived gains)

Question 26

True or false: Probability of a gain or a loss assumed to be
50/50 instead of actual probability presented AND the probability of a gain is typically perceived as
greater

Answer 26

True

Question 27

True or false: Losses cause a weaker emotional impact > a
potential gain

Answer 27

False, losses cause a greater emotional impact

Question 28

Explain the prospect theory Kahneman and Tversky (1979, 1984)

Answer 28

Potential gain=risk adverse (avoids risk)
Potential loss=risk seeking (takes risk)
*Certainty over risk – gains and losses are equal in likelihood
* Cause isolation effect=people focus on differences between options rather than similarities missing out on vital factors in decision making
* Fear of losses is greater than their joy of gains