# CogPsy - Chapter XII - DecisionMaking I Flashcards

fallacy

error in reasoning

Model of the homo economicus - 3 assumptions:

- HE is fully informed of all possible options and their outcomes
- HE is infinitely sensitive to subtle distinctions among options
- HE is fully rational

Subjective expected utility theory:

human seek pleasure and avoid pain.

2 calculations people do in the subjective expected utility theory:

calculating:

- subjective utility
- subjective probability

Satisficing:

Stopping as soon as a satisfying solution is found.

We are rational but within limits:

bounded rationality

Tversky (1972): Elimination of Aspects

We eliminate alternatives by focusing on aspects, one at a time.

In representativeness we judge the probability of an uncertain event according to:

- how obviously similar it is to the population from which it is drawn
- does it reflect salient features of the process by which it is generated?

Example for representativeness:

H T H H T H T looks more random than H H H H H T H .

Base rate refers to …

… prevalance of an event within its population.

Base rate of a heart attack with 60 is higher than with 10.

Availability heuristics

judgements on the basis of how easily we can call to mind instances of sth.

Anchoring

e.g. anchoring your estimate of a product of numbers on the first few items:

1 x 2 x 3 x 4 vs. 4 x 3 x 2 x 1

Framing

The way options are framed / presented influences your decision.

3 Biases:

- illusiory correlation (seeing correlations where there arent)
- overconfidence
- hindsight bias (looking back on a situation we believe to must have seen all the signs leading up to it -> you wont learn anything from this)

3 Fallacies:

- Gambler’s Fallacy / Hot Hand (having lost 5 times -> of course I must win now!)
- conjunction fallacy (Lisa, the bank teller)
- sunk-cost fallacy (I have already invested a lot in this car, let’s keep doing so)