Task 5 - Decision-Making

Question 1

Judgment

Answer 1

Individuals using various cues to draw inferences about situtations and events

• > evaluated in terms of accuracy
• > component of larger decision-making process

Question 2

Decision-Making

Answer 2

Individuals choosng amongst various options

• > evaluated in terms of consequences of decisions
• > involves problem-solving

Question 3

Bayes’ theorem

Answer 3

probability of event, based on prior knowledge of conditions that might be related to the event

Question 4

Base-rate information

Answer 4

relative frequency with which an event occurs, or an attribute is present in the population
-> people take it less into account than they shold

Question 5

Fast-and-frugal heuristics

Answer 5

involve rapid processing of relatively little information

Question 6

Judgment components

Answer 6

• Bayes Theorem
• Base-rate information
• fast-and-frugal heursitics
• > judgment task performance less related to intelligence and cognitive ability

Question 7

Heuristics

Answer 7

• Representativeness
• Availability
• Take-the-best (fast-and-frugal)

Question 8

Representativeness Heuristic

Answer 8

Assumption that representative or typical members of a category are encountered most frequently
-> conjunction fallacy

Question 9

Conjunction fallacy

Answer 9

Mistaken belief that combination of two events is more likely than one of the events on its own

Question 10

Availability heuristic

Answer 10

Assumption that frequencies of events can be estimated accurately based on how easy or difficult it is to retrieve relevant information from long-term memory

• > availability by recall
• fluency mechanism (judgin by how easy relevant instances are brought to mind)

Question 11

Take-the-best heuristic (fast-and-frugal)

Answer 11

take the best ignore the rest: assuming that most valid cue is the one that comes to mind quickest): e.g. estimating Cologne larger than Berlin because it has a cathedral

• Search rule
• Stopping rule
• Decision rule
• Recognition heuristic

Question 12

Search rule

Answer 12

searching cue in order of validity (e.g. name recognition)

Question 13

Stopping rule

Answer 13

Stopping after finding a discriminatory cue (only applying to one of the possible answers)

Question 14

Decision rule

Answer 14

choosing the outcome

Question 15

Recognition heuristic

Answer 15

Using knowledge that only one out of two objects is recognized to make judgment

Question 16

Heuristics advantages

Answer 16

• fast
• robust: can be used regardless of limited usefulness when information is sparce
• saves resources: we don’t like thinking hard when we can avoid it

Question 17

Natural Frequency Hypothesis

Answer 17

Evolutionary account of strengths and weaknesses of human judgments

• natural sampling
• judgment improves when problems use frequencies (easier for humans than fractions and percentages)
• explains why people ignore base-rates

Question 18

Causal Models

Answer 18

Humans possess causal knowledge allowing successful judgments in real world

• > lab problems fail to provide causal knowledge
• > more accurate judgments made in real-life

Question 19

Dual-Process Model

Answer 19

System 1: fast, automatic, effortless, difficult to control or modify
System 2: analyitcal, controlled, rule governed, slower, effortful

Question 20

Incongruent problem

Answer 20

problems in which description of person and base-rate information point to different answers
-> people fail to use base-rate information even though they process it (take longer to formulate answer)

Question 21

Decision-making theories

Answer 21

Normative Theories
Expected utility theory
Subjective expected utility theory

Question 22

Normative Theories

Answer 22

Focuses on how people should make decisions (rationally) not how they actually make them

Question 23

Expected utility theory

Answer 23

We try to maximize utility (subjective value of outcome)
-> when we need to decide we assess expected utility
Expected utility = probab. of outcome x utility of outcome

Question 24

Subjective expected utility theory

Answer 24

Using information from people’s references to combine subjective utilities and subjective probabilities

• > decisions impacted by factors other than simple utility
• > dominance principle

Question 25

Dominance principle

Answer 25

Better of two similar options will be preferred

Question 26

Prospect Theory

Answer 26

People attach more value to losses than to ains - > people not rational agents (challenges expected utility theory) - reference point is identified - loss aversion main motivator - positive value associated with gains increases slowly as gains increase - negative value associated with losses becomes greater as losses increase - rejects dominance principle - sunk-cost effect - framing effect

Question 27

Loss aversion

Answer 27

individuals much more sensitive to potential loses than potential gains -> most people unwilling to go 50-50

Question 28

Sunk-cost effect

Answer 28

greater tendency to continue endeavor once an investment in money, effort, or time was made -> individuals high in neuroticism more susceptible

Question 29

Framing effect

Answer 29

Influence of irrelevant aspects of a situation (e.g. wording) on decision making

Question 30

Emotional factors in decision-making

Answer 30

``` Impact bias sunk-cost effects Omission bias Status quo bias Rational-emotional model Brain areas -> emotions don't always impair: e.g. impaired VMPFC leads to poor decision-making ```

Question 31

Impact bias

Answer 31

People overestimate intensity and duration of negative reactions to loss

Question 32

Omission bias

Answer 32

individuals prefer inaction to action | -> level of anticipated regret greater when unwanted outcome has been caused by individual's own actions

Question 33

Status quo bias

Answer 33

tendency for individuals to repeat a choice several times in spite of changes in their preference

Question 34

Rational-emotional model

Answer 34

decision-making determined by rational factors based on inferences and outcome information + experienced and anticipated emotion (based on regret and fear)

Question 35

Social Functionalist Approach

Answer 35

Includes social context of decision-making | -> we feel need to justify to other people and ourselves

Question 36

Complex Decision-Making

Answer 36

Decision-making in real life more complex than under lab conditions - Multi-attribute utility theory - Unbounded rationality - bounded rationality - Elimination by aspects theory

Question 37

Multi-attribute utility theory

Answer 37

decision-maker goes through stages: - identification of relevant attributes - weighing attributes - obtain total utility - select option with highest weighted total - > rarely used, too complex

Question 38

Unbounded rationality

Answer 38

Assumes all relevant information is available for use and used by decision-makers - > we optimize: best choice made - > people often don't make best choices

Question 39

Bounded rationality

Answer 39

We produce reasonable or workable solutions to problems in spite of limited processing abilities by using heuristics (short-cuts) - bounding factors: constraints in environment, mind (limited attention and memory) - Satisficing

Question 40

Satisficing

Answer 40

Individuals consider various options one at a time and select first one meeting their minimum requirements - > satisficers content with reasonably good decision, maximizers want perfect decision - > satisficers more happy, satisfied and optimistic

Question 41

Elimination-by-aspects theory

Answer 41

Decision-makers as eliminating options by considering one relevant attribute or aspect after another -> most people consistently limit amount of information they consider though

Question 42

Unconscious thought theory

Answer 42

Conscious thought: constrained by limited capacity of consciousness - > unconscious thought has large capacity and can rapidly weigh relative importance of different pieces of task-relevant information - > unconscious thought might lead to superior decisions when decision-making is complex

Question 43

Human complex decision-making gap to ideal

Answer 43

We only focus on some of the available information - > limited capacity to process and remember - > some aspects of decision-making irrational: preferences easily changed e.g. by order in which options are presented