Heuristics in Decision Making and Decision Making Under Risk

Representative Heuristic

Judge a book by its cover

Representative Heuristic Example

A librarian

Availability Heuristic

Prioritize recent events

Availability Heuristic Example

An airplane crash

Affect Heuristic

Decision made based on emotions

Fast and Frugal Heuristics

Quick decision with limited information

Utility Theory

Maximize expected utility, outcome

Subjective Utility Theory

Maximize pleasure and minimize pain, value of things

Prospect Theory

More loss sensitivity rather than gain

Prospect Theory Example

Finding $50 and loosing from the wallet

Framing Effect

Choice framing or how the context is given

Prospect Theory by

Kahneman

Framing Effect also involves

Gain vs. Loss

Sunk Cost Fallacy

Keep investing in something even if it does not work just because there was an initial investment