Lecture 2 concepts

Question 1

Loss aversion

Answer 1

A cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining

Question 2

Anchoring bias

Answer 2

People tend to reply on the first piece of information they are given about a topic. The anchoring bias/effect occurs when our exposure to an initial piece of information influences our perception of subsequent information.

Question 3

Framing effect

Answer 3

The way in which people solve a problem is dependent on how that problem is phrased or framed. Equivalent information can be more or less attractive depending on what features are highlighted.

Question 4

Base rate fallacy

Answer 4

When provided with both individuating information, which is specific to a certain person or event, and base rate information (which is objective, statistical information), people often assign greater value to the specific information and ignore the base rate information altogether. (Think of the example of Jack, who is either a Professor of Psychology or a Professor of Chinese Literature).

Question 5

Conjunction fallacy

Answer 5

Probabilities of combinations and categories are overestimated. People tend to think in prototypes and stereotypes and ignore probability theory. (Think of the example of Linda, who is either just a bank teller or a bank teller and active in the feminist movement)

Question 6

Availability bias

Answer 6

People have a tendency to be guided by information that is recent, frequent, psychological salient (negative/extreme), or easily imaginable rather than actual odds or factual information. (Example: after 9/11, a lot of travellers in the US avoided airplanes and travelled by car, despite the chance of an airplane crash being very small)

Question 7

Mental set

Answer 7

Characterises the tendency of people to stick to solutions that have been effective in the past, and failing to acquire and implement new knowledge. This can lead to missing or ignoring alternative solutions.

Question 8

Functional fixedness

Answer 8

Refers to the tendency of people to think about the functional usability of an object only according to its familiar functionality for the user.

Question 9

Effectiveness of functional fixedness and mental set

Answer 9

They are desirable if you want to find a quick solution to your problem and if your solution has proven to be effective or reliable for a similar problem. They are not desirable if the problem is new and out-of-the-box thinking is necessary.

Question 10

Hot hand fallacy

Answer 10

The tendency to believe that someone who has been successful in a task or activity is more likely to be successful again in further attempts. It derives from the saying that athletes have “hot hands” when they repeatedly score, causing people to believe that they are on a streak and will continue to have successful outcomes. However, a string of recent good luck does not alter the overall probabilities of events occurring.

Question 11

Overconfidence effect

Answer 11

Refers to how a person’s subjective confidence in their judgments is greater than the objective accuracy of those judgments, especially when confidence is relatively high. Overconfidence has been defined in three distinct ways:
1. Overestimation of one’s actual performance
2. Overplacement of one’s performance relative to others
3. Overprecision in expressing unwarranted certainty in the accuracy of one’s beliefs

Question 12

The Dunning Kruger effect

Answer 12

Consists of three stages:
1. Child’s hill
1) Pretty damn sure you know a whole lot and feeling great about it, 2) Questioning whether you actually know that much, 3) Acknowledging that you don’t know that much.

2. Insecure canyon
   4) Feeling ashamed and embarrassed about not knowing that much

3) Grown-up mountain
5) Realising that knowing how little you know is the first step in becoming someone who actually knows stuff

Question 13

Optimism bias

Answer 13

Refers to our tendency to overestimate our likelihood of experiencing positive events and underestimate our likelihood of experiencing negative events

Question 14

Negativity bias (pessimism bias)

Answer 14

Refers to our tendency to remember the negative things, while forgetting the positive things easier. We are focusing our attention on negative information instead of positive information.

Question 15

Status quo bias (conservatism bias)

Answer 15

Tendency to resist in changing our behaviour and staying stuck in the same routines / making the same decisions

Question 16

Hindsight bias

Answer 16

Our tendency to look back at an unpredictable event and think it was easily predictable. It is also called the ‘knew-it-all-along’ effect

1st level: memory distortion
2nd level: inevitability belief
3rd level: foreseeability belief

Question 17

Bandwagon effect

Answer 17

Refers to our habit of adopting certain behaviours or beliefs because many other people do the same. Example: Solomon Asch’s conformity experiment (1951)

Question 18

In-group & out-group bias

Answer 18

Explains how people tend to favour and positively relate to members of a similar group, while the out-group bias explains how we tend to devaluate and target members of other groups

Question 19

Outgroup homogeneity bias

Answer 19

The tendency of people to see members of the out-group as “all alike”

Question 20

Confirmation bias

Answer 20

Examples:
1. Not seeking out objective facts
2. Interpreting information to support your existing belief
3. Only remembering details that uphold your belief
4. Ignoring information that challenges your belief