Psych Midterm # 2 Guest Speaker presentation: Rationality

Probability x Outcome Value

What is the formula to calculate Expected Value?

Probability x Outcome utility

What is the formula to calculate Expected Utility

Expected Utility

predicting how satisfying or advantageous an outcome will be, based on one's preferences and the likelihood of different results.

Framing Effect and Certainty Effect

What are a couple examples of Expected Utility Theory violation?

The Framing effect

a cognitive bias where people’s decisions are influenced by how information is presented, not just by the facts; shows how perceptions shape decision-making beyond objective information

The Certainty Effect

a cognitive bias where people tend to prefer certain outcomes over uncertain ones, even when the uncertain option could lead to a higher reward; leads people to overvalue guaranteed outcomes and undervalue probable ones, impacting their decision-making.

Peak-end rule

a cognitive bias where people judge an experience mostly by how they felt at its most intense point and at its end, rather than by the experience as a whole; influences how we remember and evaluate past events.

Endowment Effect

People ascribe more value to things merely because they own them

Availability Heuristic

Representativeness Heuristic

Anchoring and Adjustment

What are the 3 main “Heuristics” of judgement?

Availability Heuristic

Estimates of frequency or probability are made based on the ease with which instances come to mind.

Representativeness Heuristic

People’s judgments of likelihood are based on the representativeness of events / people / objects; A very sensible thing to do, but can lead to serious errors, violating fundamental principles of probability theories

Anchoring and Adjustment

People oftentimes make estimates by starting from an initial value that is adjusted to yield the final answer.

Bounded Rationality

limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision

Satisfying

Instead of exhaustive search, search through the available alternatives until an acceptability threshold is met

Maximizers

Do maximizers or satisfiers achieve better outcomes?

System 1

Which system

• Uses heuristics

• quick, effortless, and intuitive

System 2

Which system consists of

slow, effortful, analytic, and deliberate

monitoring the quality of the other system’’s proposals, which it may endorse, correct, or override