Social Psychology And Economic Behavior: Heuristics And Biases In Decision Making Judgement

Question 1

Pursuit of pleasure iland the avoidance of pain explain all human behavior

Answer 1

Hedonic Utility

Question 2

Computation of utility as the net balance of pleasure and pain.

Answer 2

Hedonic calculus

Question 3

Who criticized the approach of hedonic calculus?

Answer 3

William James, 1890

Question 4

Two types of utility

Answer 4

Ordinal and Cardinal Utility

Question 5

It is easier to measure because it is based on ranking options.

Answer 5

Oridnal utility

Question 6

It is based on rating options on a utility scale

Answer 6

Cardinal Utility

Question 7

It was the dominant theory of decision making.

Answer 7

Subjective expected utility (SEU)

Question 8

It deviates from the common rule or regularity

Answer 8

Anomalies

Question 9

are relative concepts and are evaluated from a reference point.

Answer 9

Gains and losses

Question 10

Receiving an unexpected inheritance (windfall income) will be regarded as a

Answer 10

gain

Question 11

Not receiving an end-of-the-year bonus may be considered a

Answer 11

loss

Question 12

losses are more painful than gains are pleasurable.

Answer 12

Prospect theory

Question 13

the attractiveness of an alternative depends on the final outcome.

Answer 13

utility theory

Question 14

care about changes in outcomes and about the final outcomes themselves.

Answer 14

Decision makers

Question 15

They show that a negative framing of a problem (in terms of losses and victims) gives other reactions than a positive framing.

Answer 15

Tversky and Kahneman (1981)

Question 16

In this, people are more willing to accept a risk to avoid a loss than (in positive framing) to get an equivalent gain.

Answer 16

negative framing

Question 17

is the comparison of one’s present welfare with welfare in the past.

Answer 17

Personal reference

Question 18

developed the welfare function of income. In this research, people answer questions such as ‘Which income level do you consider to be sufficient for yourself?’ They assign income levels to evaluations such as ‘excellent’, ‘sufficient’, ‘insufficient’ and ‘poor’.

Answer 18

Van Praag (1971)

Question 19

• adapts their consumption level to the new reference point.

Answer 19

Preference shift

Question 20

continuously changing preferences and satisfactions.

Answer 20

Hedonic treadmill

Question 21

is the comparison of one’s personal welfare with the welfare of relevant others.

Answer 21

Social reference

Question 22

• people compare their job and their income with the jobs and incomes of other people. If their friends or colleagues earn more with similar jobs, people get dissatisfied with their income.

Answer 22

Reference shift

Question 23

a selfless concern and behavior to improve the welfare of others.

Answer 23

Altruism

Question 24

• people show altruistic behavior in their donations to charities and their allocation of money.

Answer 24

Ultimatum game

Question 25

They summarize these fairness judgements by the principle of dual entitlement. Consumers have the entitlement (right) to the terms of reference transactions using historical market prices and posted prices.

Answer 25

Kahneman, Knetsch and Thaler (1986)

Question 26

seems to be a basic motivation of people. Neurologists claim that a potential loss activates the amygdala part of the brain. This part of the brain is the activation centre for danger. is the basic characteristic of prospect theory.

Answer 26

Loss aversion

Question 27

Investors don’t like to sell their stocks with a loss. Investors keep their losing stocks too long, hoping that the value will increase.

Answer 27

Disposition effect

Question 28

Survival frame

Answer 28

positive framing

Question 29

Morality frame

Answer 29

Negative framing

Question 30

• is the tendency of individuals to increase the value for themselves and others by integrating and segregating gains and losses.

Answer 30

Hedonic framing

Question 31

means here that the gains and losses are given or told at the same occasion without a time interval for the recipient to adapt to a new reference point, for instance a loss and a gain on the same day (same time without interval, short period, same day, below two weeks).

Answer 31

Integration

Question 32

means here that the gains and losses are given or told with a time interval long enough for the recipient to adapt to a new reference point. (naka adjust sa new reference point).

Answer 32

Segregation

Question 33

four cases of hedonic framing:

Answer 33

Segregation of gains, Integration of losses, integration of a loss with a larger gain, Segregation of a gain from a lager loss

Question 34

According to prospect theory, an integrated gain has a smaller positive utility (value) than two or more separate gains.

Answer 34

Segregation of gains

Question 35

shorter time interval. People prefer to receive one credit card statement of payments rather than separate statements for each payment

Answer 35

Integration of losses

Question 36

The recommendation is thus to inform people about a loss in combination with informing them about a larger gain. People will be less upset about the loss if the loss is perceived as a diminished gain.

Answer 36

Integration of a loss with a larger gain

Question 37

• The recommendation is to facilitate the acceptance of a loss by also telling people separately about a smaller gain. This effect is also called ‘silver lining’, referring the silver line of the sun (good news) behind a cloud of heavy rain (bad news). The rules and recommendations of hedonic framing provide an interesting description of how people would like to see the world be organized, trying to increase their positive utility/value and to decrease their negative utility/value.

Answer 37

Segregation of a gain from a larger loss

Question 38

• the effect of keeping what you have

Answer 38

Endowment effect

Question 39

If offered a number of options, most people prefer the standard or default option or the option they already possess.

Answer 39

Status-quo bias

Question 40

are the costs already invested in a project (account). Later we may discover that project is less likely to be successful, for instance because a competitor comes on the market with a superior product.

Answer 40

Sunk costs

Question 41

There is a clear distinction in this title between people who are impatient and impulsive in spending their money and those who are less impatient and invest their money.

Answer 41

Time preference

Question 42

Gains are discounted more than losses. People want more compensation (WTA) for delaying a gain than they are willing to pay (WTP) for delaying a loss.

Answer 42

Sign effect

Question 43

small sums of money are discounted more than large sums of money. People want relatively more compensation (WTA) for delaying a small than a large sum of money.

Answer 43

Magnitude effect

Question 44

Delay-speed-up asymmetry- People want more compensation (WTA) for delaying a gain than they are willing to pay (WTP) for speeding it up. People want more compensation (WTA) for speeding up a loss than they are willing to pay (WTP) for delaying it.

Answer 44

Delay-speed-up asymmetry

Question 45

• People prefer this with an increasing utility over deteriorating sequences with a decreasing utility. Duties first and then pleasure. Consumers want to take the regular restaurant first and then the best restaurant (savoring).

Answer 45

Improving sequences

Question 46

What are the 4 effects of time preference?

Answer 46

Sign effect, magnitude effect, delayed speed up asymmetry, improving sequences