Judging Probability and Decision Making Concepts

Flashcards for key concepts related to probability, decision making, and group dynamics.

Availability heuristic

A cognitive bias where people estimate the frequency or probability of events based on how easily examples come to mind.

Conjunction fallacy

The error of judging the probability of two events occurring together as greater than the probability of either event occurring alone.

Gambler's fallacy

The belief that after a streak of one outcome, the opposite outcome is due, despite the independence of events.

Hot hand fallacy

The mistaken belief that streaks in performance are non-random and attributable to skill.

Representativeness heuristic

Judging the probability of an event by how much it resembles a typical case instead of using statistical reasoning.

Anchoring and adjustment heuristic

The process where people start with an initial value and make insufficient adjustments when estimating.

Hindsight bias

The tendency to see events as having been predictable after they have already occurred.

Allais paradox

A situation where people overweight certainty and undervalue small risks, leading to inconsistent choices.

Ambiguity aversion

The tendency to avoid options that are ambiguous, preferring known risks instead.

Expected utility theory

A theory that describes how people make rational decisions by choosing the option with the highest usefulness.

Expected value theory

The principle that people choose based on which option has the highest expected value to maximize wealth.

Framing effects

The phenomenon where the presentation of options influences the decisions people make.

Risk sensitivity

The shift from being risk-averse to risk-seeking behavior depending on the situation.

St Petersburg paradox

A theoretical gamble where the expected value is infinite despite practical limitations.

Weber's Law

A principle that quantifies how people perceive changes in stimuli based on a constant proportion.

Mental accounting

The psychological framing that affects financial decisions.

Sunk cost effect

The tendency to continue investing in a losing option due to the resources already committed.

Affect heuristic

A mental shortcut that allows individuals to evaluate risks and benefits based on their feelings.

Endowment effect

The phenomenon where people assign higher value to items they already own compared to their market value.

Calibration

The process of adjusting one's judgments to better align with objective truth.

Illusion of control

The belief that one has more control over events than they actually do, such as in lottery scenarios.

Optimism bias/unrealistic optimism

The tendency to overestimate the likelihood of positive events occurring.

Underconfidence

The tendency to underestimate the likelihood of future events.

Precautionary principle

The approach of taking protective action without scientific evidence of risk when potential harm is suspected.

Sensation seeking

A personality trait characterized by a desire for stimulation and risk-taking.

Behavioral game theory

The study of how psychological factors and social preferences influence game decisions.

Dictator game

An economic game to test fairness where a player decides how much money to keep and give to another player.

Prisoner's dilemma

A scenario where two individuals make choices without knowing the other's decision, impacting outcomes.

Tit-for-tat

A strategy in game theory where a player initially cooperates and then mimics the previous action of the opponent.

Group polarization

The tendency for individuals in a group to adopt more extreme positions than their initial opinions.

Groupthink

A psychological phenomenon where the desire for harmony in a group leads to poor decision-making.

Risky shift

The phenomenon where individuals in a group tend to make riskier decisions compared to when they are alone.

Social loafing

A situation where one or more group members contribute less effort than they would individually.

Delphi technique

A method for reaching a consensus among experts by collecting their opinions.