Cognition Ch. 9

Rational Behavior

behavior that is objective and logical

Irrational Behavior

behavior that is more subjective, emotional, and biased rather than objective and logical. 

Psychological Bias

our decision-making is influenced by many psychological factors

System 1

• quick decision making

• little effort

• less control

System 2

Slower decision making

Subjective Probabilities

Estimating the likelihood of an event happening to help us compare our options and make a decision

Heuristics

Mental shortcuts we use to solve problems and make decisions quickly

Base Rate Probabilities

Probabilities that reflect the state of the world

Representativeness Heuristic

A mental shortcut used to estimate the likelihood of an event based on how closely it matches or represents related examples or stereotype

• occurs when we ignore base rate probabilities after being given information

Conjunction Fallacy

The false assumption that a combination of conditions is more likely to occur than any of the one conditions by itself

Law of Sample Size

 the principle that smaller sample sizes produce more variance.

Gambler’s fallacy

The faulty reasoning that past events in a sequence affect the likelihood of future events

• Occurs bc ppl look for randomness

Hot-hand Effect

The perception of being “on a roll”, for exampling in the gambling situation.

• Ppl look for patterns even when there are non, inferring causes for random events

Availability heuristic

We judge the frequency of an event based off how easily it comes to our mind

Anchoring

The concept that different starting point (initial values) produce different estimates or decisions.

• Judgements can be influence (or manipulated) by changing what options there are)

• Relative judgements apply to interpersonal relationships

• We estimate value relative to other options

• First impressions

Decoy Effect

The introduction of a more-or-less expensive items provides an anchor to stimulate the sales of a target

Intuitive Thinking

Unconscious thought

• Useful for complex decisions that contain multiple factors

• Deliberate focus may not always make the best decisions

Deliberation-without-attention effect

When you made a conscious decision, but unconscious processes helped you make it.

Less-is-more effect

Too much energy devoted to a problem may result in less accurate, good, or satisfying decision

Recognition Heuristic

An approach to decision-making that places higher value on a recognized option versus one that is strange or novel.

• We prefer what is familiar to us

• Ex. wanting to go back to my ex bc I am lonely

Fluency Heuristic

An approach to decision-making that assigns higher value to the option that is recognized more quickly and easily.

• Repeated exposure to something allows us to recognize it faster.

One-clever-cue heuristic

You make a judgement or decision based off a single cue

• choosing to talk to someone at a party based off how attractive they are

Take-the-best cue heuristic

You make a decision by considering each cue

Fat-and-frugal Search Trees

An approach to involving a limited set of yes-no question than a large set of probabilistic ones.

Tallying

A heuristic that involves counting the number of cues that favor one alternative over another

Zero Price Effect

The enticement of a free option or item

Utility

the satisfaction and subjective reward obtained by making a decision

Positive Utility

The gains received by a decision

Negative Utility

The losses or costs that are a result of a decision

Expected Value

• In decision-making, the assessment of the lucrativeness of an option, derived by multiplying its value by the likelihood of obtaining it.

Rational Choice Theory

• “We make decisions based off than expected value of our options”- pg 239

• When the expected value can be calculated based on the given values and probabilities, rational choice theory predicts that we should select the option that has a higher utility.

Normative Theories

• Theories that use rational, logical, and mathematical calculations to compare options to explain how we should make decisions to maximize utility and reward.

Descriptive Theories

• How we actually make decisions

• Describes beliefs and preferences as they are and not what they should be

Subjective Value

The notion that utility is not objective but is dependent on the decision maker and context

Prospect Theory

A mathematical model to explain loss aversion; ppl treat monetary loss as psychologically larger than the same monetary gain, and the larger dollar amount, the less the same dollar gain.

Loss Aversion

We hate losses more than we enjoy equal gain and tend to prefer sure gain over a risky gain

• When something is presented as a loss, ppl avoid risk and choose the risky option instead of sure loss.

Risk Averse

We would rather choose a sure gain than a risky option for slight more money.

Risk-seeking

Rather than accepting a sure loss, preferring to lose more if a bet allows a small chance of avoiding any loss

Framing

The way a situation or problem is presented influencing decision making.

Status Quo Bias

The preference for the current state of affairs

• a passive bias

Transaction Costs

Any change in the current state of things or considering a change, which requires time, effort and sometimes money.

Optimal Defaults

Automatically putting ppl into places that provide benefits

The Endowment Effects

“The tendency to overvalue what one has in hand”

The Sunk Cost Effect

 “greater tendency to continue an endeavor once an investment in money, time, or effort has been made” (Arkes & Ayton, 1999, p. 591).

Neuroeconomics

A field of study that combines insights from economics, neuroscience, and psychology

Willingness to Pay

The decision of whether to purchase an option or item

• Ppl are more likely to enjoy a bottle of wine that has a higher price even if it’s the same wine in a bottle that has a lower price. 

• “Neural systems that respond to pleasure are more highly activated when people think they are drinking an expensive wine versus when they are drinking an inexpensive wine.” - Page 247

• The price of a product has a direct influence on how people enjoy it. 

Neuromarketing

A field of study that uses brain scanning to understand and predict product preferences.