PSY 1: Chapter 9 - Language and Thought (Section: Decision Making: Rational and Otherwise)

For Week 8: Lecture 2 (Wed. Oct. 22)

rational choice theory

the classical view that we make decisions by determining how likely something is to happen, judging the value of the outcome, and then multiplying the two

availability heuristic

a rule of thumb that items that are more readily available in memory are judged as having occurred more frequently

heuristic

a fast and efficient strategy that may facilitate decision making but does not guarantee that a solution will be reached

algorithm

a well-defined sequence of procedures or rules that guarantees a solution to a problem

representativeness heuristic

a mental shortcut that involves making a probability judgement by comparing an object or event with a prototype of the object or event

conjunction fallacy

thinking that two events are more likely to occur together than either individual event alone

framing effects

a bias whereby people give different answers to the same problem depending on how the problem is framed

sunk-cost fallacy

a framing effect in which people make decisions about a current situation on the basis of what they have previously invested in the situation

optimism bias

a bias whereby people believe that, compared with other individuals, they are more likely to experience positive events and less likely to experience negative events in the future

prospect theory

the theory that people choose to take on risk when evaluating potential losses and avoid risks when evaluating potential gains

why people sometimes fail to make rational decisions

• biases

  • optimism bias

  • using heuristics instead of algorithms

  • probabilities vs. frequencies (more likely to be wrong about probabilities)

  • availability heuristic (frequency vs. familiarity)

  • representative heuristics (ignoring information about base rate)

• fallacies

  • conjunction fallacy

  • framing effects & sunk-cost fallacy

• PROSPECT THEORY

ideas underlying prospect theory

• simplification of available information

• preference for best value

• certainty effect (greater weight to outcomes with certain outcome)

role of the brain in decision making

• prefrontal cortex

  • risk-management & anticipatory emotional reactions

  • damage: insensitivity to future consequences (ex: in alcoholics, drug-addicts, gamblers, etc.)