Judgement under Risk + Uncertainty

Question 1

What is a Heuristic?

Answer 1

Rule of Thumb / Mental Shortcut

- Reduces Effort to make Judgements – BUT can lead to Bias

Question 2

What are the 3 main Heuristics?

Answer 2

Representativeness
Availability
Anchoring + Adjustment

Question 3

What are the 2 components of the Representativeness Heuristic?

Answer 3

Insensitivity to Prior Probability

Insensitivity to Sample Size

Question 4

What are the Rules of Probability?

Answer 4

Addition (Disjunction) Rule

Multiplication (Conjunction) Rule

Question 5

What is the Disjunction Rule?

Answer 5

Addition Rule

Pr(A or B) = Pr(A u B) = P(A) + P(B) - Pr(A n B)

Question 6

How do you show that A and B are Independent?

Answer 6

Pr(B|A) = Pr(B)

Question 7

How do you show that A and B are Mutually Exclusive?

Answer 7

Pr(A n B) = 0

Question 8

What is Pr(not-A)?

Answer 8

1 - Pr(A)

Question 9

What is Bayes Rule?

Answer 9

Pr(A|B) = [Pr(B|A) x Pr(A)] / Pr(B)

=> [Pr(B|A) x Pr(A)] / [Pr(B|A) x Pr(A) + Pr(B|not-A) x Pr(not-A)]

Question 10

What is the Representativeness Heuristic?

Answer 10

Probabilities are evaluated to degree that A is Representative + Similar to B

Question 11

What is Prior Probability?

Answer 11

(Base Rate)
Has no effect on Representativeness - BUT should have Major Effect on Prob.
- Considerations of Base Rate freq. do NOT affect similarity of a description to the stereotypes of Engineer or Lawyer
– If ppl Evaluate Prob. by Repres. –> Prior Prob. will be Neglected

Question 12

What is Base Rate Neglect?

Answer 12

Failing to consider Base Rate –> Over/Underestimate

Representativeness –> Neglecting important parts of Bayes Rule - e.g. Base Rate - p(Hypothesis)

Question 13

What is Insensitivity to Sample Size?

Answer 13

Ppl assess Likelihood of Sample Result by Similarity of result to the Population Parameter
- Fail to appreciate Role of Sample Size
Representativeness –> Judged Prob. of Sample Statistic will be Independent of Sample Size

Question 14

What is the Law of Large Numbers?

Answer 14

Over large no. of Trials - Empirical Prob. of an event will approach its True Prob. (Exp. Value)
- Very large samples from a Prob. Dist. very accurately reflect Prob. in the Distribution

Question 15

What is the Law of Small Numbers?

Answer 15

Sampling Theory –> Smaller Sample MORE likely to deviate from True Prob.
- Ppl mistakenly apply Law of Large no. to Small Samples
Representativeness –> Misconceptions of Importance of Sample Size
Overgeneralise from Small samples to Dist.

Question 16

What is Gambler’s Fallacy?

Answer 16

Mistaken belief that 2 Outcomes are Dependent when they are NOT

Question 17

What is the Consequence of LoSN in Gambler’s Fallacy?

Answer 17

False belief Sequence of Independent draws from a Dist.

- Outcome not occurred in a while so is more likely to come up next draw

Question 18

What is Hot Hand Fallacy?

Answer 18

2 Independent events are Considered Dependent

- Player’s chance of hitting a shot is Greater following a hit than a miss on previous shot

Question 19

What is Conjunction Fallacy?

Answer 19

Pr(A n B) is beloved to be Greater than P(A)

• Similarity between Linda + a Feminist Bank Teller > Similarity between Linda + Bank Teller
• • Similarity Relations do NOT follow Conjunction Rule

Question 20

What is Anchoring?

Answer 20

Ppl begin process of Estimation w/ whatever info readily appears in their minds
- Initial Anchor heavily influences final estimates

Question 21

What is Adjustment?

Answer 21

Reassess the initial answers based on rough notions of what is a not-too-silly answer

Question 22

What is System 1?

Answer 22

Intuitive System uses Heuristics that sometimes get things wrong from POV of Conscious Reasoning
- It is adaptive

Question 23

What is System 2?

Answer 23

Conscious Reasoning slow but a Sophisticated process

• Very flexible + can be changed + improved by learning
• • BUT can only concentrate on 1 thing at a time + requires effort to control

Question 24

What are the unintended side effects of generally Adaptive Processes?

Answer 24

Errors + biases in Judgement

Question 25

How do ppl tend to estimate Conjunctive + Disjunctive Events?

Answer 25

Overestimate Prob. of Conjunctive Events
- Overall Prob. < Success Prob. at each stage
Underestimate Prob. of Disjunctive Events
- Overall Prob. > Success Prob. at each stage

Question 26

What is the Availability Heuristic?

Answer 26

Assess freq. of a Class/Prob. of event by ease w/ instances/occurrences that can be brought to mind
– Classes whose Instances are more easily retrieved –> Overestimates