10. DECISION MAKING AND REASONING

Classical decision theory

Assumes a perfect decision-maker knows all options, understands every outcome, and is fully rational.

Model of Economic Man and Woman

An idealized model of decision-making that is not realistic.

Subjective Expected Utility Theory

Theory stating we make decisions to maximize pleasure and avoid pain based on personal judgment of utility and probability.

Heuristics

Mental shortcuts that simplify decision-making.

Satisficing

A heuristic where one stops searching once a 'good enough' option is found.

Representativeness Heuristic

Judging outcomes based on similarity to a stereotype.

Availability Heuristic

Judging the likelihood of events based on how easily examples come to mind.

Anchoring

The influence of initial information when making decisions.

Framing

How options are presented influences decision-making.

Illusory Correlation

Seeing relationships between events or variables that do not exist.

Overconfidence

The tendency to overestimate one's abilities or knowledge.

Hindsight Bias

The belief that one 'knew it all along' after seeing the outcome.

Gambler’s Fallacy

Believing that past losses make future wins more likely.

Hot Hand Fallacy

The belief that a winning streak will continue.

Conjunction Fallacy

Thinking a combination of events is more likely than a single event.

Sunk-Cost Fallacy

Continuing a bad investment due to prior investments.

Groupthink

When a group avoids conflict and seeks consensus too quickly, risking poor decisions.

Closed-mindedness

A symptom of groupthink where alternative viewpoints are not considered.

Rationalization

Distorting facts to support a consensus in groupthink.

Mindguards

Individuals who protect the group from outside opinions in groupthink situations.

Deductive Reasoning

Reasoning from general principles to specific instances.

Inductive Reasoning

Reasoning from specific observations to general conclusions.

Causal inferences

Judging cause and effect relationships.

Categorical inferences

Making conclusions based on group characteristics.

Analogical reasoning

Drawing parallels from one case to another to aid understanding.