Decision Making Flashcards

Flashcards on Decision Making and Prospect Theory

Prospect Theory

A theory about how the value of a decision depends on gains or losses.

Loss Aversion

The tendency for people to hate losing things more than they like getting things.

Prospect Theory Value Function

The psychological value people associate with gains and losses.

Escalation of Commitment

Continuing to dedicate resources to a failing course of action.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Sunk Cost Fallacy

The tendency to continue to pursue an endeavor that we have already committed to, even if those costs are not recoverable.

Relativity

The concept that human rarely choose things in absolute terms and need a reference to make judgments.

Decoy

A 'slightly less attractive version' of an option used to positively influence a decision.