Lecture 14 Flashcards
Process accounts
Whereas descriptive theories say we choose B, process accounts say how we get from A to B
Endowment effect
We value items we own more than items we don’t because of status quo bias and loss aversion. This causes a price gap for selling - buyers and sellers both focus on what they have to give up
Query Theory
A descriptive theory that explains how/why defaults influence our choices. If we assume that preferences are constructed, then when we are faced with a decision we ask ourselves a series of questions. We tend to start with the default; the earliest tend to get most of the answers. Explains the Endowment/Default effect as we tend to ask “what’s good about the default” before asking about the alternative
Default effect
If option A is the default, we have more thoughts about/reasoning for it than subsequent options and prefer it.
Influencing choices
Can eliminate endowment effect for sellers and create for buyers by getting them to consider the pros of the alternative first
Effects of process on decision
Very important as order can impact choices
Decision Architecture
Tailoring the presentation of a choice in such a way as to influence the decision.
Decision modes
Qualitatively different strategies for approaching decision situations. How decision approached can impact final choice. Different modes are different conceptually, neurologically. Can operate at same time, agree or disagree.
Analytical decision making
Closer to System 2 (Rational) than System 1 (Automatic). Includes cost-benefit-based decision making
Cost-benefit-based decision making
Explicit weighting and combination of likelihood and desirability of outcomes in various compensatory and non-compensatory ways (compensatory = disadvantages of one attribute can be made up for by the advantages of another attribute). Requires time, cognitive resources but heuristics can reduce. Goal = make best decision given situational constraints. Suited for material goals.
