choice and risk decision

• Heuristics


  General strategies of thinking that can result in biases, deviations from rational or logical thought
• Availability heuristic


  Estimating the probability of an event based on the ease at which it can be brought to mind
• Representativeness heuristic


  Judging something based on how much it is like something else, can lead to stereotyping or people, conjunction fallacy and Base Rate Neglect
• Adjustment and anchoring heuristic


  Judging something based on an initial value that is then adjusted
• Illusory correlations


  Seeing causal relationships when there isn't any, e.g., "My arm tingles when I look at bright lights"; Superstitions
• Regression toward the mean


  A tendency for an extreme event to be followed by a less extreme event
• Bounded rationality


  Logical thought is limited when individuals make decisions, so we have to use heuristics
• Satisficers


  People who use heuristics to find a good enough response
• Ecological rationality


  Heuristics are actually the best approach to solve many complex tasks (best bang for your buck)
• Perceptual decisions


  Decisions based on external evaluation
• Value-based decisions


  Decisions based on internal evaluation
• Endowment effect


  People demand much more to give up an object than they would be willing to pay to acquire it
• Risk


  The uncertainty that you will get an outcome from a decision
• Framing effect


  How outcomes are framed (gains or losses) can change people's risk-taking tendency
• People are risk-averse when the options are described as gains


  People are risk-seeking when the options are described as losses
• Negative emotional state


  Higher estimates of negative outcomes
• Surprising positive outcomes (prediction errors)

  Positive mood and then more risk behaviors (like gambling)
• Prospect theory


  The estimations of events occurring is subjective and consists of a utility function, how we treat losses and gains, and a probability function, that we tend to estimate unlikely events as occurring more often than they do and likely events are occurring less
• Prospect theory predicts the Fourfold Pattern that predicts certain scenarios in which people are going to be risk-averse or not
• System 1


  Fast and automatic decision making that processes heuristics and biases within the limbic system
• System 2


  Slow and effortful decision making that is more logical, deliberate rational and supported by the frontal cortex
• To be more rational, slow down!