Week 1

Question 1

What are judgments?

Answer 1

(the process of) Attaching a qualitative/quantitative value to something.

Could be estimates, evaluations, opinions etc.

Question 2

What are decisions?

Answer 2

Choosing between alternatives. Closely related to judgments.

Question 3

What are normative models?

Answer 3

Describe how judgments and decisions should be made. Are logical in how you can achieve in what you want.

Developed by philosophers, mathematicians, classic economists.

Question 4

What are descriptive models?

Answer 4

Describe how judgments and decisions are actually made.

Developed by psychologists.

Question 5

What are prescriptive models?

Answer 5

Practical suggestions on designing judgment and decision-making processes based on normative and descriptive models.

Question 6

What is predictably irrational?

Answer 6

Our judgments and decisions deviate from normative frameworks in a systematic way. People do not make normative decisions in real life.

Question 7

What are humans well prepared for?

Answer 7

Humans are well prepared to make fast and simple decisions in a stable, predictable environment with relatively few homogeneous actors and to spend more energy than strictly necessary.

Question 8

What are humans not well prepared for?

Answer 8

Humans are not well prepared to make complex economic decisions, in a dynamic, unpredictable environment with many heterogeneous actors. In this case we can’t simply ignore our human nature and follow a rational process.

Question 9

What is dual process theory?

Answer 9

Human thinking/decision making is governed by two distinct cognitive processes: System 1 and 2

Question 10

What describes system 1?

Answer 10

intuitive, fast, automatic, emotional, effortless, system of decision making.

Question 11

When is system 1 used?

Answer 11

Used when we interpret verbal language, process visual information, walk, talk, etc.

Question 12

What is system 1 not designed for?

Answer 12

System 1 is not designed for complex decision making, and it tends to make decisions that are suboptimal.

Question 13

How is the relationship between system 1 and system 2?

Answer 13

Both systems are always on, but system 2 in low effort mode.
System 1 continuously provides system 2 with input
System 2 is only mobilized when System 1 runs into difficulties
This division of labor is highly efficient

Question 14

What describes system 2?

Answer 14

Slow, effortful, conscious and explicit

You are aware of your own thinking, you are deliberately making a judgment or decision.

Question 15

What is the central notion of dual process theory?

Answer 15

Accessibility

Things that come to mind easier are judged to be more likely, frequent, probable etc.

Question 16

What kind of things come to mind effortlessly?

Answer 16

Perceptions and intuitions

Question 17

What describes accessibility?

Answer 17

Our brain is easily satisfied and tends to jump to conclusions. Cognitive easy feels good cognitive dissonance is avoided.

Things that come to mind easier are judged to be more likely, frequent, probable etc.

Question 18

What are heuristics?

Answer 18

Our first impulse is to find an easier accessible answer to a related question using system 1 instead of answering a difficult question (using system 2). We substitute a difficult question for an easier question.

Question 19

What are the 4 main heuristics (Bazerman & Moore)

Answer 19

• Availability
• Representativeness
• Confirmation
• Affect

Question 20

What is accessibility (heuristic)?

Answer 20

Things that come to mind easier are judged to be more likely, frequent, probable etc.

Question 21

What is representativeness (heuristic)?

Answer 21

Things that are typical for their category are judged to be more likely, frequent, probable etc.

You compare situations to mental prototypes/stereotypes instead of statistical reasoning. EG Person with glasses reading book is doctor

Question 22

What is confirmation (heuristic)?

Answer 22

Judgments are influenced by what we expect. We tend to interpret new information as confirming our existing beliefs.

Question 23

What is affect (heuristic)?

Answer 23

judgments are affected by our emotional state or mood

Question 24

What are two important normative models

Answer 24

Expected-utility theory (EUT)
Bayes’ theorem

Question 25

What is the Expected Utility Theory (EUT)

Answer 25

Normative model about choosing between alternatives. Always choose alternative with highest expected utility.

No uncertainty? –> straightforward
Uncertainty? –> calculate highest expected utility

Question 26

What is a starting point of normative models? (Baron 2004)

Answer 26

The simple idea that some outcomes are better than others. No claim about absolute truth, but “truth relative to assumptions”.

Question 27

What is the formula for the expected utility?

Answer 27

Utility of outcome x Probability of outcome

Question 28

What is utility?

Answer 28

What is being maximized, normative models tell us what we should be doing to maximize whatever we try to maximize (not what to maximize).

Question 29

What are two core assumptions of comparing utility?

Answer 29

Transitivity: IF A>B & B > C –> A > C
Connectedness: A>B or A<B or A=B –> possible to compare A and B

Question 30

What is the conclusion about expected utility theory?

Answer 30

It tells us which alternative we should choose given how we value outcomes and how we assess probabilities.

Question 31

What is Bayes’ theorem?

Answer 31

Normative model for updating personal probabilities when we receive new information.

Applies as long as probabilities follow the principles of additivity and multiplication

Question 32

What is additivity?

Answer 32

2 outcomes of event, both mutually exclusive.

P(A&B) = 0
P(A or B) = P(A) + P(B)
P(A) + P(not A) = 1

Question 33

What is multiplication?

Answer 33

A and B not mutually exclusive P(A&B) <>0

P(A and B both true): P(A&B) = P(A|B)*P(B)

Outcomes are independent if knowing one does not tell you anything about the other.

Question 34

What is the formula for Bayes’ theorem?

Answer 34

P(A|B) = [P(B|A)*P(A)] / P(B)