Judgement & Decision Making Flashcards
What is judgement?
Deciding on the likelihood/probability of various events using the incomplete information at hand.
What is decision-making?
Selecting one option from several alternatives.
- Factors for decision-making depend upon the importance of the decision.
What is problem solving?
Individuals must generate their own solutions rather than choosing from a set of presented options.
What are the three major pathways to judgement?
- Use of heuristics.
- Use of probability.
- Use of logic.
What are cognitive biases?
Systematic errors in judgement and decision-making. They can be due to:
- Cognitive limitations.
- Motivational factors.
- Adaptations to the limitations.
Cognitive biases are common in judgement.
What are decisional heuristics?
The simple mental operations that govern peoples assessment of probabilities and frequencies.
We tend to make judgement or take action in an illogical way.
What is saliency bias?
People are biased toward salient information even if salient cues contain less information.
What is confirmation bias?
The tendency to look for, recall, favour or interpret information that supports our existing beliefs. We reject information that goes against what we believe.
What is overconfidence bias?
When one’s belief in one’s ability exceeds reality.
What is fundamental attribution error?
The tendency to blame others when things go wrong, instead of looking objectively at the situation.
What is gambler’s fallacy?
False expectations that past events would influence the future.
What are heuristics?
A strategy that ignores part of the information, with the goal of making decisions more quickly.
- Speeds up the process.
- Mental shortcuts.
What are fast and frugal heuristics?
Decision-making strategies that prioritize speed and efficiency over accuracy, using minimal information and mental effort to make satisfactory, though not necessarily optimal, choices.
What are recognition heuristics?
When only one item is recognised, it is inferred that this item has a higher value.
What are representative heuristics?
Making a judgement as to how similar it is to other events as found in the general population.
- Judgement based on stereotypes.
What are availability heuristics?
The probability of events is evaluated by the ease with which relevant instances come to mind.
E.g. one of the most feared causes of death is by plane crash, but this is one of the most unlikely causes of death.
What are the common features of heuristics?
- Examining fewer options.
- Reducing effort.
- Simplifying the weighing up of cues.
- Examining fewer alternatives.
- Integrating less information.
What is the Bayesian theorem?
The assessment of the probability of something happening often changes when new information arrives.
What is the dual-process model?
Probability judgement depends on processing within two systems (Kahenman, 2003):
- System 1 - Simple decisions. Produces fast, intuitive, automatic, immediate and effortless thinking.
- System 2 - Complex decisions. Requires slower, analytical, rule-based thinking that requires greater cognitive effort.
System 2 can monitor, evaluate and rectify the decisions made by system 1.
What is the utility theory (von Neumann & Morgenstern, 1947)
Tries to explain expected rational behaviour.
What is the prospect theory?
Explains decision-making behaviours under conditions of risk and uncertainty.
What are the two phases in the prospect theory?
Phase 1 - Editing phase
- To break down a complicated decision into simpler decisions.
- Helps organsie and reformulate the options.
Phase 2 - Evaluation phase
- To choose between the available edited options. This has two elements:
1. Value function: The apparent monetary outcome of each option.
2. Weighting function: The objective probabilities of weight assigned to those values or options.
What is the framing effect?
The way in which the same decision problem is framed or described affects decisions.
What is the sunk-cost effect?
The tendency for people to pursue a course of action even after is has proved to be suboptimal, because resources have been invested in that course of action.
- Sunk costs should be irrelevant to current decisions. Only future costs should influence future decisions.
What is bounded rationality?
When the decision maker is bounded or restricted by a variety of constraints.
What are satisficing heuristics?
Choosing an outcome that is just good enough, rather than optimal.
- Stopping the decision making process when a satisfactory outcome is found.
Why is artificial intelligence useful in decision making?
- AI shows superior performance compared to existing strategies, especially when huge amounts of information must be processed for pattern finding.
- AI can improve operational efficiency, increases insights and enhances the decision accuracy of complex problems at the strategic level.
