Is used when people judge the probability that an object/event A belongs to a class/process B
--> if it is similar to most of the others of the Class/process then it is considered representative
Refers to the mistaken belief that the combination of 2 events is more likely than one of the two events on its own
--> involves the representativeness heuristic
ex.: It is more likely for Linda to be a bank teller AND active in a feminist movement than her just being a bank teller
Involves estimating the frequencies of events based on how easy or difficult it is to retrieve relevant info from LTM
We can distinguish between 2 different mechanisms when it comes to availability heuristic.
Which are those ?
1. Availability by recall mechanism
--> info that you have
2. Fluency mechanism
--> how easily you can retrieve info
What was Tversky + Koehlers key assumption for their support theory for the availability heuristic ?
Any given event will appear more or less likely depending on how it is described
--> the subjective probability of any given possibility will increase when it is mentioned explicitly
Fast + frugal heuristics
Involve rapid processing of relatively little info
--> "take the best, ignore the rest"
Is used when individuals recognize one object but not the other, so no other info influences the decision
ex.: Is cologne or Herne a bigger city? - Cologne because more famous
Why do people use the recognition + take-the-best heuristics strategy ?
1. Heuristics often produce accurate predictions
2. It takes the least time to access + is the least cognitive demanding
Refers to the process of encountering instances in a population sequentially
- theoretical approach
- dont ignore the base rate
Dual process model
Suggest that there are 2 systems involved.
S1: Intuitive, immediate, automatic
S2: analytical, controlled, rule-governed
Limitations on the dual process model ?
1. Assumes that most people rely exclusively on S1, whereas base rate info is used a lot too
2. Importance of parallel processing
Expected Utility theory
When we need to chose between simple options, we asses the expected utility
--> we always try to maximize utility, which is the subjective value we attach to an outcome
What are the main assumption of the prospect theory ?
1. Loss aversion
- individuals are more sensitive to potential losses than gains
2. demonstrates that people think in terms of expected utility relative to a reference point, rather than absolute outcomes
--> e.g.: if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen
=> more adequate than expected utility theory, says its incorrect
States that if option A is as good as option B in all regards and better than B in at least one regard, then A should be preferred to B
--> applies always according to expected utility theory
Sunk cost effect
Refers to a greater tendency to continue an endeavor once an investment in money
--> effort, time has been made
Occurs when decisions are influenced by irrelevant aspects of the situation
According to the prospect theory, when should framing effects be found ?
Only, when what is at stake has real value for the decision maker
--> loss aversion doesn't apply if you don't mind taking losses
What do framing effects depend on ?
The recipient of the message + whether the message is positively or negatively framed
Assumes that all relevant info is available for use by the decision maker
--> engaging in a process of optimization
Is a process where the best choice/decision is made
Producing reasonable solutions to problems in spite of our limited processing ability by using various short-cut strategies
Is a heuristic where individuals consider various options one at a time + select the first one meeting their minimum requirements
--> choice might not be the best one
ex.: deciding who to marry (satisfying + sufficing)
Elimination-by-aspects theory (Tversky)
States that decision makers eliminate options by considering one relevant attribute/aspect after another
ex.: When buying a house first considering location + eliminating houses out of the location, then price, and so on
Why is human decision making nothing like the ideal described in unbounded rationality ?
1. We typically focus on only some of the available info because of our limited ability to process + remember info
2. Our decision making is irrational
- our preferences can easily be changed, as they are influenced by the order in which info is presented + options we choose (priming)
Uber is built on the concept that their drivers can choose their working hours.
How do they motivate/manipulate their drivers into working longer hours ?
1. Goal targeting via the app
--> when trying to log off they are reminded that they are close to a money goal
2. Use their drivers data + algorithms to exploit their weaknesses
Refers to the tendency for owners to value their objects more than potential buyers do
What is the most common explanation for the endowment effect ?
Does it still hold true ?
1. Loss aversion
2. No, there has been new evidence that there might be cultural differences in its extent, and thus might have to do with an automatic association between the object + the self
e.g.: collectivistic vs independent
A newer explanation of the endowment effect stresses cultural differences in its extent.
Where do these cultural differences stem from ?
From the intrinsic tendency to enhance the self, when associating the object with the self, this boosts the objects perceived value relative to when the object is not owned
--> as the eastern culture is more collective vs the western more individualistic - the endowment effect is larger in western cultures
Refers to the idea that people weigh losses more heavily than gains
People choose differently when they choose for themselves vs for others.
To which extent ?
1. When choosing for others we tend to seek more info
2. Choosing for others lessens loss aversion
3. When choosing for the self one is willing to select a higher risk