lecture 2 and class notes: heuristics and biased part 1 Flashcards
what are judgments
Estimates that we make
We make estimates about time, quantity
Important bc they influence decisions
four judgment heuristics people use to make decisions
availability, framing, anchoring, decoy
availability
Says that vivid (easily recalled) information is more important than less vivid information for risk/ probability judgments
ex: planecrash in the news, insurance goes up
We dont focus on the statistical probaility, we focus on things that come to mind quickly
The availability heuristic can also be used for other judgments like time, money, quantity and liking judgments
ex: seeing a line that moves thats more zig zag, rather paying with credit then cash, long and tall glass vs short and wide
vivid info is like pictures, memorable , videos
restaurants use it–> display fresh food at the front
framing
Framing says that negatives repel more than positives attract
We dont like negative statememtns we like positive statements
There are some exceptions where the negative is more attractive bc the negative has some unique association
Framing says that we are hotwired to pay attention to loss
ex: seeing percents like 5% failure and 95% success. even though it means the same we dont like the world failure
AKA prospect theory
anchoring
We use anchors (reference points) when making judgmemts
The discount is set against a higher reference price
Anchoring and framing can happen together. Ex: a service you get at the start for low price for four months and then after those months bc of framing you will want to pay more to keep the service
common in pricing (donations), super powerful, seen in installemet pricing
decoy
People prefer the middle option→ we want the best of both worlds
having three options then introducing a third option to try and make one of the other options more appealinf
judgment bias
Using a heuristic can lead to a judgment bias
The gap between rational and actual judgment
Actual probability vs percieved probability → actual you can get, its small and close to zero but if you talk to people about the chance about being shot in toronto, they will give you a percieved prob that is higher
There is a gap between the actual prob and the perceived prob→ things that are vivid impact our judgments
distance bias
Ex: doing a project that is due at the end of the semester, undereistamte the amount of work we have to d for it
Space bias: people on zoom and people in person. Pay more attention to the people in person
TIME AND SPACE
for space: Distance Bias: They are more likely to choose a nearby grocery store (focusing on the details of convenience and quality) over a store that is further away, even if the distant store offers better prices or selection because the immediate details of the closer store are more accessible in their thinking
Distance bias is a cognitive bias that leads people to prioritize or value things, people, or experiences that are physically or psychologically closer to them
coherence bias
People see order in randomness
Coherence bias is a thinking error where people tend to make information fit into a consistent story or pattern, even if that means overlooking contradictions or ignoring certain facts. Our brains prefer simple, logical stories, so we automatically try to connect pieces of information in a way that makes sense to us, even when the full picture is more complex or messy (chat)
we look for patterns even though a situation outcome can be due to luck
Imagine a recruiter is hiring for a job and meets a candidate who went to a prestigious university, speaks confidently, and has impressive references. The recruiter quickly forms a coherent picture of the candidate being highly qualified. However, the candidate’s actual job experience is limited, and some of their skills don’t match the job’s requirements. Because the recruiter’s story of a “perfect” candidate fits so well, they overlook the gaps in the person’s qualifications and hire them, even though a more thorough review might have revealed they weren’t the best fit.
WE LIKE SIMPLE
peak end bias
Go to a concert or holiday, when are you happiest? People like an event if it ends on a high note
People like an extended event if it ends on a high note
We judge an event based on its peak point or its end instead of the whole event
Imagine you go on a week-long vacation. Most of the trip is enjoyable but relatively average. However, on the second-to-last day, you have an amazing time—perhaps you go on a thrilling boat ride and enjoy a perfect sunset on the beach. On the last day, everything goes smoothly as you relax and have a delicious meal before heading home.
When you later think about the vacation, the enjoyable peak (the boat ride and sunset) and the pleasant end (the relaxing last day) dominate your memory. You tend to remember the vacation as an incredible experience, even though most of the trip was average
Lack of availability during goal pursuit
difficulty of visualizing long-term growth
two versions of the availability heuristic
true vs important
Both versions can lead to biased thinking, but the true availability heuristic relies on repeated exposure, while the important availability heuristic is often based on the strength of a single impactful experience
repeated advertising claims are easily remembered and accepted as truth
Repeated advertising claims work because they take advantage of the illusory truth effect and the brain’s tendency to favor familiarity over critical evaluation. While repetition can make claims more memorable and trusted, it can also lead to misjudgments when consumers accept statements without questioning their validity. Being aware of this cognitive bias and actively seeking out important and verifiable information helps consumers make more informed choices.
prospect theory
Loss Aversion: People tend to experience the pain of a loss more intensely than the pleasure of a comparable gain. For example, losing $100 feels worse than the joy of gaining $100.
Reference Points: Decisions are made relative to a reference point, rather than absolute outcomes. A person’s perception of whether an outcome is framed as a loss or a gain depends on where they are starting from.
Diminishing Sensitivity: As the magnitude of gains or losses increases, people’s sensitivity to changes in outcomes diminishes. For example, the difference between gaining $10 and $20 feels more significant than the difference between gaining $1,010 and $1,020.
when something is risky, we avoid the risk and we like sure outcomes
when its framed as a loss, we take the risk bc we dont want to have a loss
we like sure gains
Risk aversion is more likely in the face of potential gains, while risk-seeking behavior tends to occur when people face potential losses.
recommend price
Recommended Price” acts as Anchor/Reference Point
becomes the anchor and we compare everything to it
If a product’s recommended price is $100, any discount below that amount (e.g., $80) seems like a good deal because the $100 figure has anchored the consumer’s expectations. Even if the product is worth $70 or less, the initial anchor makes $80 seem reasonable or even favorable.
