Chapter 9 - Judgement and decision making

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Cognitive Psychology

46 Terms

1

Anchoring

A cognitive bias where people rely too heavily on the first piece of information they encounter when making decisions.

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2

Availability Heuristic

A mental shortcut where people assess the probability of an event based on how easily examples come to mind.

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3

Base Rate Frequencies

The general probability of an event occurring, regardless of specific details.

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4

Conjunction Fallacy

A cognitive bias where people believe that specific conditions are more probable than general ones.

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5

Decoy Effect

A cognitive bias where a third, less attractive option influences preferences between two options.

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6

Deliberation-without-Attention Effect

A phenomenon where individuals make better decisions when they don't actively focus on the decision-making process.

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7

Descriptive Theories

Theories that describe how people actually make decisions, highlighting biases and heuristics.

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8

Endowment Effect

A cognitive bias where people assign greater value to things they own than to equivalent items they do not own.

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9

Expected Value

A calculation in decision theory representing the average outcome if a decision is repeated many times.

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10

Fluency Heuristic

A bias where people prefer information or options that are easier to process or recognize.

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11

Framing

The way information is presented influences decisions and judgments.

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12

Gambler’s Fallacy

The mistaken belief that future probabilities are influenced by past events.

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13

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making.

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14

Hot-Hand Effect

The cognitive bias where people believe a successful random event will continue to be successful.

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15

Irrational Behavior

Actions or decisions that deviate from rational, logical thinking.

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16

Law of Small Size

The fallacy of assuming small samples are representative of larger populations.

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17

Less-is-More Effect

A cognitive bias where having less information leads to better decision-making.

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18

Loss Aversion

The principle that losses are psychologically more painful than equivalent gains are pleasurable.

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19

Negative Utility

A state where a decision or outcome decreases overall well-being or satisfaction.

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20

Neuroeconomics

An interdisciplinary field studying how the brain makes economic decisions.

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21

Neuromarketing

Using neuroscience to understand consumer behavior and evaluate marketing strategies.

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22

Normative Theories

Models in decision-making that describe how people should make decisions based on logic.

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23

One-Clever-Cue Heuristic

A decision-making strategy where individuals rely on a single, prominent cue.

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24

Optimal Defaults

Pre-set options that influence people's decisions, as they often stick with the default.

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25

Positive Utility

A state where a decision or outcome increases overall well-being or satisfaction.

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26

Predictably Irrational

The concept that people behave irrationally in systematic ways contrary to traditional economics.

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27

Prospect Theory

A theory that describes how people make decisions involving risk, emphasizing loss aversion.

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28

Psychological Bias

Systematic patterns of deviation from rational decision-making.

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29

Rational Behavior

Decision-making based on logic, evidence, and consistent preferences.

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30

Rational Choice Theory

A framework for understanding human decision-making by evaluating all options for maximum benefit.

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31

Recognition Heuristic

A decision-making shortcut where individuals choose recognized options over unrecognized ones.

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32

Representativeness Heuristic

A mental shortcut where probability judgments are based on similarity to prototypes.

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33

Risk

The uncertainty about the outcomes of a decision.

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34

Risk Averse

A tendency to prefer outcomes with lower uncertainty.

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35

Risk Seeking

A tendency to prefer taking risks to achieve higher potential rewards.

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36

Status Quo Bias

A cognitive bias that leads to a preference for the current state of affairs.

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37

Subjective Value

The perceived worth of an object, which varies based on individual preferences.

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38

Sunk Cost Effect

The phenomenon of continuing an endeavor based on already invested resources.

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39

Take-the-Best-Cue Heuristic

A decision-making strategy relying on the best cue available while ignoring others.

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40

Tallying

A decision-making strategy where individuals weigh positive and negative attributes.

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41

Thinking Fast (or System 1)

The intuitive and automatic mode of thinking based on heuristics.

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42

Thinking Slow (or System 2)

The deliberate and logical mode of thinking requiring conscious attention.

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43

Transaction Costs

The costs involved in making an economic exchange.

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44

Utility

The satisfaction or benefit derived from a particular choice.

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45

Willingness to Pay

The maximum amount a person is willing to spend to obtain a good or service.

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46

Zero Price Effect

The phenomenon where free items are perceived as disproportionately valuable.

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