Judgements & Decision Making

Question 1

What are the 2 processes involved in making a judgement.

Answer 1

• Algorithm

- Heuristic

Question 2

What is an Algorithm?

Answer 2

A systematic rule that is guaranteed to produce the correct solution.

Question 3

What is a heuristic?

Answer 3

A mental shortcut, rule of thumb, that will produce a good enough estimate, or be correct most of the time.

Question 4

What is the availability heuristic?

Answer 4

Describes our tendency to use information that comes to mind quickly and easily when making decisions about the future.

Question 5

What is Base Rate Neglect?

Answer 5

Ignore prior knowledge when estimating probable outcomes

Question 6

What are Representative heuristics?

Answer 6

• Events that are representative of a class are assigned a high probability of occurrence
• People tend to give more weight to anecdotal (personal) information, compared to statistical information
• Go with how well an item fits with other existing data

Question 7

Define Normative approaches to decision making.

Answer 7

Consider how people should make decisions given perfect information.
- Imply that people’s choices should be consistent, and based on the probability of an outcome as well as its expected utility.

Question 8

Define prescriptive approach to decision making

Answer 8

Consider how people actually make decisions and define the heuristics (or rules) by which decisions are made.

Question 9

What is prospect theory?

Answer 9

• People are loss aversive.

- People are much more sensitive to potential losses than potential gains.

Question 10

Define Reasoning

Answer 10

Reasoning can be defined as the mental processes by which people derive conclusions from a given set of premises.

Question 11

What is bounded Rationality?

Answer 11

Decisions limited by human capacity to absorb and analyse information.