Judgment and decision-making Flashcards
What are the 2 views regarding conceptualisations of probability in real life?
- Frequentists: Probability represents the average number of times a certain event occurs when many repetitions occur (long-run frequencies). As such, it is pointless to regard single events.
- Bayesians: Probabilities are statements about our state of knowledge or belief (lower probability, less less true a belief is).
What was the conclusion of Lichtenstein’s experiment where participants were asked to estimate occurrence of rare and common events?
People tended to over-estimate rare events and under-estimate common events.
What is the explanation for the estimation phenomenon?
- Rare events are over-represented in the environment compared to more common events (e.g. by media).
- Rare events become more available as a result.
- Increased availability means there is greater ease in accessing relevant examples, which seems to be what estimation is ultimately based on.
What is the availability theory behind estimating frequencies?
- The more available information is (the easier it is to access), the more likely that it will be over-represented.
- An individual seems to estimate frequencies based on how many examples come immediately into mind.
- This allows perception of frequencies to be skewed towards information that is easier to access.
What is the conjunction fallacy?
When availability bias produces estimations of probabilities whereby P(A) > P(A or B) since instances of A are more available than instances of A or B.
What is subadditivity?
When unpacking a category results in higher estimates of frequency for the category than when it was packed.
What is the explanation for subadditivity?
- When individual asked to judge frequencies for one category, it is done by trying to retrieve mental examples that fit into category and forming judgment based on those.
- Unpacking category makes information more available, allowing individuals to consider options that they may not otherwise consider when using own mental examples.
What is the “Natural frequency” theory of probability representation?
People have evolved to judge probabilities as natural frequencies as opposed to abstract fractions. In other words, we base judgments on numbers that are representitive of real world situations.
What is base-rate neglect?
When estimating probabilities, the base-rate (frequency of event in population) is ignored.
What is “Gambler’s fallacy”?
Belief that a run of one outcome increases the probability of a different outcome despite events being independent and probabilities are fixed.
What is the explanation for the “Gambler’s fallacy”?
- Representitiveness.
- People expect a local sequence of events to be representitive of the probabilities of those events occurring, thus when there is a run of one event, more emphasis is put on occurrence of another event as that would make sequence more representitive.
What are the aspects of Prospect theory for value judgement?
- There is a diminishing sensitivity to gains/losses, so that losing 2a is not as bad as 2 x a.
- There is a steeper relationship between loss and gain (typically twice) so that losing a is twice as bad as gaining a.
What is the endowement effect?
More value is assigned to an item if it is in one’s ownership.
What is the “preference reversal” paradigm?
Process whereby a is preferred to b, and c is added (which is clearly worse than b), there is a sift of preference towards b.
What is the explanation behind preference reversal?
When c is presented, it is much easier to justify choosing b over c than it is to choose a over b or a over c, so b is chosen more.
