1
Q
Cognitive illusions
A
errors of cognition that come about for understandable reasons and that provide information relevant to understanding normal functioning –> systematic biases
2
Q
Availability Heuristic
A
- Instances that are more easily thought of stand out more in one’s mind
- Own behaviours are more prevalent to us than that of others
- Failure to include base rate info in probability estimation
3
Q
Representativeness Heuristic
A
- Expectation that results are representative of the process that produced them (e.g. random process random results)
- Failure to include base rate info
- Gambler’s fallacy - mistaken belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future
4
Q
Framing Effect
A
- “Context effect” in decision making
- Changing the description of a situation can lead people to adopt different reference points –> see the same outcome as a gain in one stich and as a loss in another
- Description frames the decision (e.g. 2 gas stations)
- Treat losses more seriously than gains of the same amount (care more about losing than winning a dollar) –> loss aversion
5
Q
Anchoring
A
- Rely too much on an initial piece of information offered (= anchor) when making decisions
6
Q
Sunk Cost Effect
A
Greater tendency to continue something once one has invested in it (even though it doesn’t change the likelihood of future success)
7
Q
Illusory Correlation
A
- Seeing a relationship between variables even when there isn’t any
- Typically have some prior associations in peoples’ minds
8
Q
Hindsight Bias
A
- Tendency to exaggerate what could’ve been anticipated in foresight when looking back in hindsight
- Once you know how a decision has turned out, the events leading up to the outcome seem more inevitable than they really are
9
Q
Confirmation Bias
A
Only gather info consistent with initial hunch
10
Q
Omission Bias
A
- Tendency to prefer inaction to action when engaged in risky decision making
- Anticipated regret: greater when unwanted outcome caused by own actions rather than inaction
11
Q
Satisficing
A
- Simon
- Decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution
- When confronted with a ton of choices for a specific need, will select a product or service that’s “good enough” rather than expending effort and resources on finding the best possible or optimal choice
12
Q
Normative models (Utility models)
A
define ideal performance under ideal circumstances
13
Q
Prescriptive models (Utility models)
A
show how we ought to make a decision (= consider that circumstances aren’t ideal and show how to best decide)
14
Q
Descriptive models (Utility models)
A
simply detail what people actually do when they make decisions (= actual performance)
15
Q
Expected Utility Theory
A
Normative model: there’s no better way of choosing among options that in the long run will increase overall satisfaction than using EU
16
Q
Limitations
Expected Utility Theory
A
- Calculation of EU difficult as info about several aspects of the decision must be integrated (various factors and goals)
- Provides an account only for making the final selection from a set of alternatives, not of making decisions in which one faces the “status quo vs. make a change” option
- Doesn’t describe processes by which people structure a decision (= gather info and lay out possibilities & parameters)
17
Q
Multi-Attribute Utility Theory (MAUT)
A
- Break a decision into independent dimensions
- Determine the relative weights of each dimension (= their value – subjective!)
- List all alternatives
- Rank the alternatives along the dimensions
- Multiply ranking by the weighting of each alternative to determine final value
- Choose alternative with highest value
- Assumes that a person would be willing to choose an alternative that was not highest on the highest ranked dimension when the relative position on other dimensions compensates for that
18
Q
Limitations
Multi-Attribute Utility Theory (MAUT)
A
- Elimination by aspects (descriptive model) – when decision makers have too much info to deal with they don’t take all dimensions into account but rather select one factor, pick a threshold value and everything that exceeds that threshold value is tossed (–> no compensation)
- – Nonoptional heuristic to reduce cognitive strain
19
Q
Bounded rationality (Thaler) Descriptive Models
A
people are as rational as their processing limitations permit
20
Q
Image Theory
A
- People don’t formally structure decisions
- Most decision-making done during “pre-choice screening of options” phase
- – Boil down number of options under active consideration
- – Ask themselves whether a new goal/ plan/ alternative is compatible with 3 images
1. Value image – decision maker’s values, morals, principles
2. Trajectory image – goals & aspiration for the future
3. Strategic image – way in which decision maker plans to attain his/ her goals - Options judged incompatible with at least one of the images are dropped from further consideration non-compensatory
- More than one survivor of pre-screening go over to compensatory/ other strategy
21
Q
Recognition-Primed Decision Making
A
- Experts most likely rely on intuition, mental simulation, making metaphors/ analogies and recalling or creating stories when deciding
- – Time-pressured, high-stakes decisions
- Compare current situation to situation they’ve encountered before
22
Q
Prospect Theory – Kahneman
A
- Individuals identify reference point (subjective!), generally representing their current state
- -> In doing so they use heuristics (e.g. framing effects)
- Treat losses more seriously than gains of the same amount (care more about losing than winning a dollar) loss aversion
- -> Greater emotional impact
Prospect theory predicts that people go through two distinct stages when deciding between risky options like these
23
Q
Constructivist Approach – Cultural Differences
A
- Emphasis on dynamics of schema activation & external features of social environments that play numerous roles in cultural patterns of judgements & decisions
24
Q
Other factors influencing decision making
A
- Self-other decision making
- Effects of self-construal priming on Risk-Taking
- Endowment Effect
25
Self-other decision making
- Making choices for others involves less loss aversion than making choices for self
- Omission bias also greater for self
- Construal level (= psychological distance) – losses loom larger for distances that are short
- - With distance regulatory focus shifts from prevention focus to promotion focus
- Seek more info when making decisions for others
- When making decisions for others it gives us a feeling of power which makes us less sensitive to losses
26
Effects of self-construal priming on Risk-Taking
- Everybody has 2 coexisting selves in their memory: one independent & one interdependent
- - Cultural differences stem from likelihood of sampling one or the other (depending on social role & situation)
- Consumers primed on an interdependent self are less likely to take social risks than those primed on independence
- Consumers primed on interdependence are more likely to take financial risks
- - Cushion hypothesis – social network acts as safety net
- - Activate in memory a higher number of friends/ family members & rate their relationships with those more positively
- THUS, friends & family members offer a cushion that lessens the effect of financial loss but magnify the embarrassment of a social misstep
27
Endowment Effect
- The tendency for owners (potential sellers) to value objects more than potential buyers
- - Simply owning an object can enhance its perceived worth
- - Activates automatic association between object & self --> because of the intrinsic tendency to enhance the self, the self-object association boosts the objects perceived value
- Smaller effect for Asians than for Westerners (study 1)
- - Interdependent self-construal --> less positive regard for the self --> mere ownership of an object doesn’t elicit enhancement of its perceived value
- - Independent self-construal prime also increased endowment effect (study 2)
- Cultural differences in the effect emerged only when self-object associations were salient (otherwise they disappeared)
- Unlikely to be due to loss aversion as Asians tend to be more prevention focused & biased toward the status quo
