Kahnemann and Melnikoff

Question 1

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Reference dependence

Answer 1

• Perception is reference-dependent
• How we see or judge something on what we’re comparing it to now and what we’ve experienced before

Question 2

Reference dependence vs expected utility theory

Answer 2

• Incompatible with expected utlility theory
• EUT assumes reference independence—utility depends only on the final outcome, not on the decision-maker’s starting point.
• Reference dependence shows that utility is relative to a reference point, meaning context and initial states influence how outcomes are perceived.
• For example: two squares have the same brightness, but that does not appear so as the surrounding have other colors

Question 3

Expected Utility Theory

Answer 3

• People are rational in making their decisions
• They calculate the value of outcomes and weigh those completely rational
• Winning or losing 100 euros? There is a 50/50 outcome
• People choose the option that gives them the ‘most utility’ assuming they’re thinking logically

Question 4

Prospect theory

Answer 4

• Value is attached to changes, so people are not rational but loss aversive
• Loss weighs stronger than gains
• Winning or losing 100 euros? That is not a 50/50 decision since we know that we weigh losses stronger than gains
• People focus on what they fain or lose instead of their total money. The choices depend on what they compare it to, not the whole amount they have

Question 5

Standard utility theory

Answer 5

• Utility value is attached to wealth
• It is reference-ondependent, meaing the perceived value of wealth does not depend on the person’s starting point or context
• For example: gaining 10 euors always adds the same amount of utility, regardless whether the eprson starts with 100 eurps or 1000 euros.

Question 6

The interaction between S1 and S2

Answer 6

• Social psychology: system 2 was invented to regulate the irrational S1
• Cognitive psychology: system 1 is not inferior to system 2, but still error-prone - there is no strict distinction between systems 1 and 2: they go together, in concert

Question 7

Heuristics are linked to S1 and are not error prone

Answer 7

• System 2 continously monitors judgements and intentions that system 1 produces
• Errors of intuitive judgments involve both systems: system 1 that generates errors, and system 2 that fails to detect and correct it
• System 1 is not inferior to system 2
• System 1 is error prone
• Heuristics are linked to system 1 and are error-prone
• System 2 continously monitors the judgement and intentions of system 1

Question 8

The critique of dual systems theories

Answer 8

• The different features do not necessarily coincide: the characteristics can co-occur
• Effortful decisions may be unintentional and fast thinking is not necessarily unconscious
• The thought that system 2 corrects system 1 is dangerous oversimplification

Question 9

Evidence that S1 and S2 can co-occur

Answer 9

• Unconscious and intentional: playing the piano, typing, driving, languare production
• Unconscious and inefficient: problem solving is unconscious, but when there is cognitive overload, our ability to learnn or solve problems slows down
• Unconscious and inefficient: problem solving is unconscious, but when there is cognitive overload, our ability to learn or solve problems slows down
• Uncontrollable and inefficient: moral judgements (like feeling something is wrong) pop into our heads automatically, but deciding to act on it takes effort and thought
• Unintentional and controllable: actions like copying someone’s behavior or being eco-friendly might happen naturally without us meaning to, but we can choose to guide and control these actions
• Uncontrollable and intentional: some mental puzzles are hard to avoid thinking about, but we are actively try to solve them because we want to