Problem 7: Judgment & decision making Flashcards
What is base rate information? And what happens if you neglect it?
Base rate information: frequency of something in a whole population
Neglect –> incorrect judgment
What is a heuristic?
strategy for making decision making quicker, you ignore some information so that you can make a quick decision
Satisficing + ex.
selecting an option as soon as it is good enough, can be done with unimportant choices. Ex. choosing a salty snack
Representativeness heuristic + ex.
Belonging to a specific category because it is typical. Ex. lawyer vs engineer description
Elimination by aspects + ex.
elimination factors until you get to the choice. Ex. choosing uni
Availability heuristic + ex. + by what can it be influenced
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
Affect heuristic
Using a person’s emotional response to judge.
Recognition heuristic + ex.
Choosing an option because you recognise it. Ex. Milan versus Modena, which has a bigger population
Anchoring and adjustment heuristic + ex.
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
Limitations for heuristics:
- they are vaguely defined
- not all inaccurate judgments are due to heuristics
- explanations and research are still missing
- lab setting vs real life results are different
What is a bias?
a thinking error
illusory correlation + ex.
thinking there are correlations between 2 things while there is none, ex. blonde and dumb –> confirmed by experience
overconfidence
Overvaluing your own skills, knowledge and judgment
Hindsight bias + research
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
what is a fallacy?
a mistaken belief based on unsound arguments
gambler’s fallacy
loosing multiple times –> expect to win (change)
hot hand fallacy
scoring multiple times in a match –> will continue because you are on a winning streak
Conjuction fallacy
2 separate events coinciding have more chance than just one happening on its own.
What is the probability statement in a conjuction fallacy?
The second option has such a high probability that that makes you think the second option must be true
What is the hypothesis statement in a conjunction fallacy?
the probability of something happening is actually high
What is the sunk cost fallacy?
choosing another investment because you want to regain the costs of the previous unsuccessful ones
What is expected utility theory? What are the limitations?
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?
What is prospect theory / descriptive approach? (Kahnemen & tversky) What is choice making influenced by?
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.
How can we improve decision making? (dual process theory)
More of system 2 processing instead of system 1 processing
