# lesson 16 decision making Flashcards

how we divide up time

past, things that were (learning and memory)

present, things that are (perception)

future, things that will be

prospection

human ability to think flexibly about often far future events

prospection vs decision making

prospection: ability to think about the future

decision making: what i can do right now that will allow me to avoid certain outcomes/make other outcomes more likely

expected utility theory

neumann and moore: there’s a rational way to compute optimal outcome (expected value)

economists expected value

given i do something, what’s the likely outcome

odds of gain * value of gain

if it comes up heads you get 10,should you pay $4 to play

(1) * 4 = 4

(1/2) * 10 = 5, chance to win high

errors of odds (has to do with odds of gain)

humans are bad at just figuring out how likely it is that things will happen

-sample size neglect

-gambler’s fallacy

-availability bias

-planning fallacy

errors of valuation (has to do with value of gain)

humans are also surprisingly bad at figuring out what kinds of things will feel good in the future or not

-presentism

-relative valuation

-gain/loss nonlinearity

-temporal discounting

errors of odds: sample size neglect

bias where one evaluates statistical information and arrives at an erroneous conclusion after failing to consider the sample size of the data set

*example of harvard vs yale rhode scholars, harvard looks like more but harvard has more students

errors of odds: gambler’s fallacy

the belief that the likelihood of a chance event is influenced by the nature of the events that preceded it

the myth of the hot hand

there is no such thing- someone who is an 80% free throw shooter has an 80% chance of sinking the shot no matter if they had 5 misses of 5 makes before it

errors of odds: availability bias

the human tendency to rely on information that comes readily to mind when evaluating situations or making decisions

ex: republican voters are more exposed to stories about violent crime in the us so its more important to them than democratic voters who hear about other things

errors of odds: the planning fallacy

underestimate how long it’ll take to finish things due to the little things that are hard to keep in mind while making estimation

errors of valuation: presentism

decide how much your future self wants to eat but you dont realize how much you cant escape the feelings thoughts or expectations you have in the present

*ex: shoppers going into grocery store hungry vs shoppers who are full buy more food

errors of valuation: relative valuation

value things not in absolute terms, but relative to other things (like weber’s law, different between 1 and 2 is more noticeable than difference between 9 and 10)

errors of valuation: gain/loss nonlinearity

kahneman and tversky

think of the way people subjectively value things

one consequence of this is people operate way differently in a loss vs gain domain

curve relationship

losses loom larger than gains