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PSC100 CH9
Judgment and Decision Making
| Term | Definition |
|---|---|
| psychological bias | psychological factors affect our decision making , making us irrational times |
| predictably irrational | our errors are systematic and reliable |
| thinking fast (system 1) | decision making that operates quicly, with effort and less control |
| thinking slow (system 2) | decision making that operates more slowly, with more effort and more deliberate control |
| heuristics | mental shortcuts we take as part of thinking fast (system 1) |
| prior probabilities | probability of an event before new data is collected |
| representativeness heuristic | mental shortcut used to estimate the likelihood of an event based on how closely it matches or represents related examples or stereotypes |
| conjunction fallacy | the false assumption that a combination of conditions is more likely than either condition by itself |
| law of sample size | smaller sample sizes produce more variance |
| gambler's fallacy | faulty reasoning that past events in a sequence affect the likelihood of future events |
| hot-hand effect | perception of being "on a roll" |
| proportionality bias | big consequences are always the result of the big causes |
| availability heuristic (bias) | people estimate the frequency of an event based on how easily examples come to mind |
| anchoring | how different starting points (initial values) produce different estimates or decisions |
| recognition heurisitc | placing higher value on an alternative that is recognizable versus novel (eg. bad press is better than none) |
| fluency heuristic | placing higher value to an option that is recognized most quickly and easily |
| one-clever-cue heuristic | uses a single cue to decide (eg. pick closest coffee shop) |
| fast-and-frugal search | use a small set of yes/no questions rather than a larger set of probabilistic cues |
| take-the-best-cue heuristic | involves considering each cue serially and is a type of fast and frugal heuristic |
| tallying | counting the number of cues that favor one alternative over another |
| subjective utility | satisfaction obtained from a choice |
| risk | probability of a negative outcome |
| rational choice theory | we make rational, utility-maximizing decisions |
| prospect theory | people treat the same dollar loss as psychologically larger than the same dollar gain |
| loss aversion | people hate losses more than they enjoy equivalent gains; people tend to prefer a sure gain over risky gains |
| risk aversive | people would rather take a sure gain than a risky option for slightly more money |
| risk seeking | people are willing to lose more if the bet allows them a small chance of avoiding any loss |
| status quo bias | preference for the current state of affairs |
| transaction costs | time, effort, and resources needed for change |
| optimal defaults | automatically place people into options that have the greatest benefits |
| endowment effect | tendency to overvalue what one already has (ppl attach a premium to what they own or already know) |
| sunk cost effect | tendency to continue a task once time, energy, and resources have been invested (which makes people lost more) |
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