10. Judgement and Decision Making

Classical Model

Assumes a rational decision maker is fully informed, sensitive to distinctions, and fully rational.

Subjective Expected Utility Theory

Theory stating people weigh outcomes based on subjective utility and subjective probability.

Heuristics

Mental shortcuts that help make decisions quickly, but can lead to errors.

Satisficing

Stopping the search once a good enough option is found.

Representativeness Heuristic

Judging something based on how closely it resembles a mental prototype.

Availability Heuristic

Judging based on how easily something comes to mind.

Anchoring

Relying on an initial reference point and adjusting insufficiently.

Framing

Influence on decisions by how choices are presented.

Illusory Correlation

Belief that two unrelated things are correlated.

Overconfidence

Overestimating one’s own abilities.

Hindsight Bias

Feeling like you 'knew it all along' after an event occurs.

Gambler's Fallacy

Belief that past random events influence future events.

Hot Hand Fallacy

Believing that success will continue based on recent successes.

Conjunction Fallacy

Thinking specific conditions are more probable than general ones.

Sunk-Cost Fallacy

Continuing an endeavor due to previously invested resources.

Group Decision Making Conditions

Efficient when small size, open communication, shared mindset, and respect for norms are present.

Groupthink

A phenomenon where the desire for harmony leads to poor decision-making.

Symptoms of Groupthink

Closed-mindedness, rationalization, squelching dissent, mindguards, feeling invulnerable, illusion of unanimity.

Antidotes to Groupthink

Encouragement of criticism, bringing outside opinions, and assigning a devil's advocate.

Deductive Reasoning

Drawing specific conclusions from general premises.

Modus Ponens

If p, then q; p is true, therefore q is true.

Modus Tollens

If p, then q; q is false, therefore p is false.

Syllogistic Reasoning

Drawing conclusions from categorical statements.

Inductive Reasoning

Making generalizations from specific examples.

Causal Inferences

Determining the cause-and-effect relationships between variables.

Categorical Inferences

Conclusions drawn from observations, either bottom-up or top-down.

Reasoning by Analogy

Drawing conclusions based on similarities between new and known situations.

Purpose of Inductive Reasoning

To make sense of complexity, predict future events, and reduce uncertainty.