LECTURE 10 - Judgement/Decision-Making Flashcards
what are the two different modes of thinking?
- quick, effortless forms of thinking
- slow, deliberate, and more effortful forms of thinking
- we make decisions under a certain degree of uncertainly
when do we make decisions rationally and irrationally?
- some behaviours are rational and based on objective/logical knowledge
- some behaviours are irrational, and decisions are affected by psychological factors (psychological bias)
what does it mean to say that we are predictably irrational?
- our errors are systematic and reliable
- they affect our thinking and decision making in consistent ways
what are heuristics?
- we use heuristics, mental shortcuts, as part of thinking fast
- allows us to make decisions quickly and efficiently
- heuristics are always predictable (because we are predictably irrational)
- but thinking fast, and heuristics, are prone to errors and biases, irrelevant information sway our quick judgements
what is the representativeness heuristic?
- judging what category something/someone belongs to based on what is more likely
- judgements are influenced by similarities to a preconception, how closely it matches related examples/stereotypes (ignoring prior probabilities)
- can lead to errors, biasing us to ignore other information that may be more objective or accurate
what are base rate frequencies?
- probabilities that reflect the state of the world (how often an event or situation occurs)
- not taken into account when using representativeness heuristic
what is the conjunction fallacy?
- false assumption that a combination of conditions is more likely than either condition by itself
- people rely on representativeness (how well something fits a stereotype) rather than logic or probability
what is availability heuristic?
- people estimate the frequency of an event based on how easily examples come to mind
- the ease of thinking of examples is a useful
cue for judging the frequency or probability of an event - frequently occurring events or cases are easier to recall than uncommon ones
what is anchoring? why is it important?
- heuristic that shows how different starting points (initial values) produce different estimates or decisions
- people estimate value relative to other options
- judgment can be influenced (or manipulated) by changing which options (anchors) are presented
- important because people do not have a strong absolute sense of value or pricing
what are recognition-based heuristics?
- recognition-based: placing higher value on an alternative that is recognizable versus novel
- predicting success of professional tennis players based on name recognition is more accurate than making predictions based on rankings
- suggests that bad press (or advertising) is better than none
- fluency heuristic: assigning higher value to an option that is recognized most quickly and easily
what are cue-based heuristics?
- important for decisions that require consideration of multiple cues of features (selecting a new phone)
- one-clever-cue heuristic: uses a single cue to make a decision (the camera quality of a phone)
- take-the-best-cue heuristic: consider each cue in turn (sequentially; first the price, then the camera quality)
- fast-and-frugal search trees: use a limited set of yes/no questions rather than a larger set of probabilistic ones to choose
what is decision-making? how do we tend to make decisions?
- describes the process of selecting one option or a course of action from one or more alternatives
- try to maximize positive utility (gains) and minimize negative utility (losses or costs)
why are decisions in the real world more complex?
- decisions are usually made under uncertainty, we don’t know the outcome of at least one of the alternatives
- most decisions are associated with a certain degree of risk, which is the probability of a negative outcome
how can we calculate expected value to determine which probability option for winning money is better?
expected value = value x probability
- expected value of 5% chance to earn $1000 = 0.05 x 1000 = $50
- expected value of 95% chance to earn $100 = 0.95 x 100 = $95
what is the rational choice theory? when would this theory be violated?
- argues that we make decisions by comparing the expected value of all presented options
- but decisions in real life often deviate from rationality for two reasos:
1. most options are ambiguous, open to more than one interpretation and without probabilities clearly stated
2. value (utility) is subjective, dependent on the decision maker and context (and prone to bias)
what is loss aversion?
- people hate losses more than they enjoy equivalent gains
- people tend to prefer a sure gain over risky gains
how does prospect theory explain loss aversion?
- people treat the same dollar loss as psychologically larger than the same dollar gain
- this can be visualized by looking at a so-called value function
- at a certain point, we don’t care when we are gaining more money, not much of a difference between $600 and $700
what are the main ideas of prospect theory?
- when evaluating gains, people are risk aversive
- they would rather take a sure gain for a smaller amount of money than a risky option for slightly more money
- when faced with a sure loss, people become risk seeking
- they are willing to lose more if the bet allows them a small chance of avoiding any loss
what other factors contribute to irrational decisions?
- decisions depend on how a problem is framed/presented (whether something is presented as a potential gain,
or a potential avoidance of loss) - holding on to a status quo can sometimes lead to irrational decisions
- one of the most common errors is the sunk cost effect
what is the sunk-cost effect?
- tendency to irrationally continue investing in a project, decision, or activity because of previous investments, even when it no longer makes sense to do so
- resistance to change, or attachment to money or time invested, makes people lose more
based on expected probability, which of the following is the best choice?
a. a 10% chance of earning $1,000
b. a 5% chance of earning $5,000
c. a 95% chance of earning $100
b. a 5% chance of earning $5000
- expected value is 250
- expected value for a = $100, c = $95
how does brain activity look as we have more willingness to pay for something? (might not need to know this)
- willingness to pay is positively correlated with activity in the PFC and the nucleus accumbens
- a key area associated with processing expected reward
- areas are active before an actual behaviour is carried out, indicating that they reflect anticipated / expected reward and
willingness to pay
an example of the conjunction fallacy would be…
a. believing someone plays two instruments instead of just one or the other.
b. hiring someone who is both male and qualified.
c. choosing a car because it is both red and economical.
d. believing that a hardworking person is also a lawyer.
e. believing that being a police officer necessitates bravery and personal wealth.
a. believing someone plays two instruments instead of just one or the other.
- believing the combination of events (that are not necessarily complimentary) is more likely to occur than one on its own
- all of the other options are two things that are complementary and likely to be true at the same time
