Chapter 8

Bounded Rationality

The idea that rational decision making is constrained by limitations in people's cognitive abilities, available information, and time.

Dual-processing theories

The proposal that people have two types of thinking: a controlled system that is slower and more effortful, and an automatic system that is fast and fairly effortless.

Heuristics

Mental shortcuts that are quick, effortless, intuitive, and automatic, used to navigate everyday judgments and decisions.

Representativeness Heuristic

A mental shortcut that helps people make decisions by comparing information to their mental prototypes

Affective Reaction

A key ingredient in our emotions that provides a basic feeling of 'good-for-me' (positive affect) or 'bad-for-me' (negative affect) to guide decision-making.

Can also be the physical and emotuonal reaction to stimulus

Affect Heuristic

A tendency to use our feelings and emotions to make decisions rather than objective information

Confirmation Bias

The tendency to seek and weigh evidence that confirms existing beliefs more strongly than evidence that contradicts them.

Belief Perseverance

The tendency to resist changing one's beliefs even when faced with convincing evidence that contradicts those beliefs.

Framing

The way problems are presented, which can change decisions by shifting the decision maker's reference point.

Overconfidence Bias

A tendency to overestimate the accuracy of one’s knowledge and judgments, leading to greater risks or errors in decision-making.

Availability Heuristic

A mental shortcut that involves making decisions based on the information that is easily available.

Controlled System

One that is slower, more effortful, and leads to more thoughtful and rational outcomes (slow-acting system)

Automatic System

One that is fast, fairly effortless, and leads to decent outcomes most of the time (fast system)

Ventromedial Frontal Cortex

Helps to associate affective reactions of good and bad with possible consequences of their actions

Loss Aversion

Pushes individuals to cling tightly to what they have in fear of losing it

Hindsight Bias

Occurs when people believe they knew the outcome of an event before it happened

Availability Bias

Tend to think that more recent events are mpre likely to occur than less recent events

Predictable World Bias

We see patterns where there are none