Problem 7: Judgment & decision making

Question 1

What is base rate information? And what happens if you neglect it?

Answer 1

Base rate information: frequency of something in a whole population
Neglect –> incorrect judgment

Question 2

What is a heuristic?

Answer 2

strategy for making decision making quicker, you ignore some information so that you can make a quick decision

Question 3

Satisficing + ex.

Answer 3

selecting an option as soon as it is good enough, can be done with unimportant choices. Ex. choosing a salty snack

Question 4

Representativeness heuristic + ex.

Answer 4

Belonging to a specific category because it is typical. Ex. lawyer vs engineer description

Question 5

Elimination by aspects + ex.

Answer 5

elimination factors until you get to the choice. Ex. choosing uni

Question 6

Availability heuristic + ex. + by what can it be influenced

Answer 6

frequencies of events are estimated based on how easily they can be retrieved from memory. Ex. amount of words starting with K vs having K as third letter.
Availability can be influenced by recency & familiarity

Question 7

Affect heuristic

Answer 7

Using a person’s emotional response to judge.

Question 8

Recognition heuristic + ex.

Answer 8

Choosing an option because you recognise it. Ex. Milan versus Modena, which has a bigger population

Question 9

Anchoring and adjustment heuristic + ex.

Answer 9

you have an initial option (anchor), which influences how much you adjust you choice (adjustment). Ex. selling a guitar, depending on the initial price people will bid more
ex. 8x7x6x5x4x3x2x1= … vx 1x2x3x4x5x6x7x8 = …, for the first one, people estimate more than for the second one

Question 10

Limitations for heuristics:

Answer 10

1. they are vaguely defined
2. not all inaccurate judgments are due to heuristics
3. explanations and research are still missing
4. lab setting vs real life results are different

Question 11

What is a bias?

Answer 11

a thinking error

Question 12

illusory correlation + ex.

Answer 12

thinking there are correlations between 2 things while there is none, ex. blonde and dumb –> confirmed by experience

Question 13

overconfidence

Answer 13

Overvaluing your own skills, knowledge and judgment

Question 14

Hindsight bias + research

Answer 14

When looking at the past, you knew you were able to predict that; when in fact you were not able to predict that. Research: story about relationship that ended in marriage vs that ended in rape, both groups said they could predict the outcome

Question 15

what is a fallacy?

Answer 15

a mistaken belief based on unsound arguments

Question 16

gambler’s fallacy

Answer 16

loosing multiple times –> expect to win (change)

Question 17

hot hand fallacy

Answer 17

scoring multiple times in a match –> will continue because you are on a winning streak

Question 18

Conjuction fallacy

Answer 18

2 separate events coinciding have more chance than just one happening on its own.

Question 19

What is the probability statement in a conjuction fallacy?

Answer 19

The second option has such a high probability that that makes you think the second option must be true

Question 20

What is the hypothesis statement in a conjunction fallacy?

Answer 20

the probability of something happening is actually high

Question 21

What is the sunk cost fallacy?

Answer 21

choosing another investment because you want to regain the costs of the previous unsuccessful ones

Question 22

What is expected utility theory? What are the limitations?

Answer 22

we base our choices on expected outcomes and probability of them occurring
Limitations:
- it does not describe how me make choices
- do we really have the ability to predict consequences?

Question 23

What is prospect theory / descriptive approach? (Kahnemen & tversky) What is choice making influenced by?

Answer 23

we base our decisions on gains vs losses.
Decision making can be influenced by framing, the background context of a choice. When we focus on gains, we are more risk averse. When we focus on losses, we are more risk seeking.

Question 24

How can we improve decision making? (dual process theory)

Answer 24

More of system 2 processing instead of system 1 processing