Midterm Review Flashcards
independant variable
The variable that is changed across conditions (by the researcher)
Plotted on x axis
e.g. in an experiment assessing asthmatics response time to ventolin dose, the dose of ventolin is the independant variable
Dependant variable
The outcome variable that is being measured
‘Dependant’ on independant variable
plotted on y axis
e.g. in an experiment assessing asthmatic response time to ventolin dosing, the response time to treatment is the dependant variable
Key points of Prospect Theory (3)
1) Malleable reference point - an individual views consequences in terms of changes from a reference level (status quo bias)
2) Individuals are loss averse - dysutility associated with a loss is larger than the utility associated with a gain of the same magnitude
3) Risk adverse - we are risk adverse when in gains mindset, risk seeking when in loss mindset
Implications of prospect theory (8)
1) Loss aversion - more dysutility from a loss, than utility from equal gain. e.g. consumers are more sensitive to price increases (loss) than price cuts (gain)
2) Loss framing - loss frame is much more motivating
E.g. credit card script example framing same decision as a loss vs. gain drastically changes outcome (loss frame much more motivating)
3) Reference dependance - reference point is malleable
E.g. Tiger woods is risk adverse
4) Expressions case - framing something as a ‘credit surcharge’ (loss) vs. a ‘cash discount’ (gain) makes consumers more likely to use cash
5) Risky prospects
6) Endowment effect - once you have something, foregoing it feels like a loss (and we are loss adverse)
7) Status quo bias - current baseline is seen as the reference point, and any change from that is perceived as a loss
8) Good news, bad news - better to integrate losses, and separate gains
Anchoring bias
we develop estimates based on an initial anchor (based on our available information) and adjust from there
E.g. have you seen more or less than 51 owls in your life? How many owls have you seen in your life?
Avaliability bias
Relies on examples that immediately come to mind
e.g. deadliest animal, immediately instinct is shark, when actually it is mosquito
Ease of Recall bias
ease of mental retrieval is used as proxy for likelihood/frequency
e.g. seeing all headache patients and thinking brain tumour
Misconceptions of chance bias
failure to recognize independance of events
e.g. HTHTTH vs. HHHTTT have equal probability
Inattention to mean regression bias
If any element of performance is random, extreme performers will regress to mean
We tend to overweight past performance in forecasting
e.g. intersection with high number of crashes, will likely regress to mean
The Curse of knowledge bias
once we have information, we find it nearly impossible to ignore it
e.g. jurors cannot ignore information already presented to them in court
Hindsight bias
It seems obvious in hindsight that an unpredictable event would happen
Present bias
individuals are more likely to chose want options over should options the sooner their choices will take effect
e.g. selecting groceries in advance to eat in a week, more likely to make healthy choices
Factors that influence want vs. should decisions
1) The fresh start effect
2) Cognitive load
3) Future lock in 0 choice now for future implementation
4) Licensing - giving yourself permission to make want choice, because in the future you will exert willpower (e.g. video rentals, choice of want movie, vs. should)
Commitment devices
tools used by a ‘planner’ to prevent the ‘doer’ from exhibiting present bias
e.g. antabuse for alcoholics
Define procedural justice
the way a decision was made
define distributive justice
The outcome of a decision (how much each person gets)
Factors that affect perception of procedural justice (4)
- Process control - the oppourtunity to present arguments/facts
- Neutrality of decision maker
- Trustworthiness - pureness of decision maker’s motives
- Standing - respect for individuals rights
Reference Transaction
A relevant precedent that is characterized by a reference price or wage
e.g. snow shovel prices increasing in snow storm
Principle of dual entitlement
- both parties in a transaction are entitled to their reference points
- gains by one party should not be financed by losses by the other party
Factors that alters our sense of fairness (5)
- procedural justice
- reference transaction
- framing effects (gains vs. losses)
- perception that profits are being protected
- perception that market power is being exploited
Three kinds of overconfidence
1) Overprecision - confidence interval too narrow
2) overplacement - all individuals think they are better than other individuals
3) Overestimation - we think our abilities are higher than they are
Causes of overconfidence
1) Avaliability - imagine paths to success but not to failure
2) Anchoring - anchor on the best forecast and adjust insufficiently for realistic constraints
3) Failure to appreciate the role of chance
4) Biases of knowledge and perspective - we focus on our abilities while neglecting the competition
5) motivated reasoning - rationalize that success is likely and failure is not
6) positive reinforcement - frequently rewarded for overconfidence
Bounded awareness
individuals systematically overlook critical, easily accessible and relevant information
e.g. Carter racing
Change blindness
extreme focus on one aspect of a situation causes us to miss other information in the periphery
e.g. gorilla video
Positive effects of goal setting (3)
1) Direct attention
2) greater effort
3) prolonged effort and increased persistence
Conditions that make goals effective (3)
- Commitment
- Feedback on goal
- Feasibility of goal
Negative effects of goal setting (5)
- Narrow focus causing neglect of non goal areas
- Potential rise in unethical behaviour to meet goal
- Distorted risk preferences
- Corrosion of organization culture (decreased cooperation)
- Reduced intrinsic motivation
Positive effects of plan making (3)
- Makes procrastination more difficult
- Obstacles anticipated and planned for in advance
- Forgetfulness less likely
Confirmation bias
Seeking evidence that confirms our prior beliefs and ignore or underweight evidence that contradicts them
Cognitive dissonance
A state of tension that occurs whenever a person holds two cognitions that are psychologically inconsistent
- Results in motivation to resolve dissonance
Escalation of commitment
Individuals tend to become committed to a previously selected course of action beyond the point prescribed by an optimal, rational model
e.g. Fog of war
Situations when nudges are most effective (5)
- Infrequent decisions
- Complicated market with lack of individual expertise
- Decision made when individual under high cognitive load
- Decisions made when incentives are poorly aligned with general welfare
- Situations with limited feedback
Process nudges
nudges which change the decision making process in order to help people meet their own goals
e.g. I ask you today if you are willing to start contributing to 401k next month
outcome nudges
nudges that move people towards and predetermined outcome selected by a benevolent planner
e.g. I default you into saving in a 401k but let you opt out
Characteristics Intervention that slow attention habituation (4)
- long intervals between repetitions
- intense stimuli
- exposure occurs at unpredictable intervals
- Content is dynamic (changes each time)
Injunctive social norms
What we should do
Descriptive social norms
What people actually do
5 Pathways to persistence
- Psychological habit - association leading to persistence
- Change in mental contents - changing false beliefs
- Recursive social processes - treatment leads other people to enduringly treat targets in ways that support behaviour change (e.g. solar panels on house)
- Change in future costs - one time intervention that reduces future costs (e.g. programming thermostat)
- Rip currents - treatment induces people to perform a behaviour that then exposes them to ongoing external processes that they would not have otherwise been exposed to
(e. g. getting someone to vote once, puts them on the voter registry, makes them more likely to vote in future)
