Terms Flashcards
What is a the gamblers’ fallacy?
is the mistaken belief that, if something happens more frequently than normal during some period, it will happen less frequently in future periods, or viceversa (presumably as a means of balancing nature). In situations where what is being observed is truly random (i.e., independent trials of a random process), this belief, though appealing to the human mind, is false.
What can be costly consequences of gamblers’ fallacy?
People tend to “detect” patterns even where none exist, and to overestimate the degree of clustering of an event.
This is a general misconception of the laws of chance that induces the expectation that random sequences will be far more balanced than they generally are. It creates the illusion that there are patterns or steaks in independent sequences
According to Herb Simon, what is bounded rationality?
Rational Thought alone does not explain human decision making.
Daniel Kahneman’s Prospect Theory means what?
People make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using certain heuristics. Further, it’s about how alternatives are “framed” not just their relative value
