In general there are three general heuristics namely availability, representative and confirmation heuristics. They encompass eleven specific biases.
Economists claim individuals are rational decision makers. They collect a lot of information, examine all alternatives and make decisions that maximise personal satisfaction. However, we do not make decisions in…
Individuals rely on rules of thumb (heuristics) to lessen the information processing demands of making decisions.
The inferences we make about event commonness based on the ease with which we can remember instances of that event.
We are better at retrieving some subjects from our memory than other things. Individuals base judgement on commonality and easier base strategies.
People tend to ignore background information relevant to the problem such as base rate. We tend to assume that causes and consequences are related.
Simple statistics claims each event in a sequence is equally likely to occur. But individuals believe random and non-random events will balance out.
Simple statistics state that we are more likely to observe an unusual event in a small sample compared to a large one. Learn more.
People predict they will repeat their previous performance exactly. Statistics tells us that extreme performance is likely to regress to the mean over time.
Describes how conjunction is judged to be more probable than a single component descriptor. Intuitively thinking, something appears to be more correct.
People naturally tend to seek information that confirms their expectations and hypothesis, even when evidence is disconfirming or falsifying.
We often develop estimates by starting initial anchor that is based on whatever information is provided and adjust from the anchor to yield a final answer.
We tend to have general bias to overestimate the probability of conjunctive events and the underestimate the probability of disjunctive events.
Occurs when people look back on their own judgements and those of others. We tend to overestimate what we know beforehand based upon what we later learned.
Initially, groups are pooled together to share information but end up spending time discussing already shared knowledge. Groups face bounded awareness.
How perceived differences based on a change in the “framing” of choices can dramatically affect how people make decisions.
Under pseudo certainty effect, we are more likely to favour options that assure us certainty than those that only reduce uncertainty.
When buying a car, we purchase warranty. Vividness of repair, social norm favouring insurance and warranties leads consumers to make risk averse choices.
People have a variety of “mental” accounts that they use to organise, evaluate and keep track of a variety of financial activities such as monthly budget.
Most people value what they own than the value of the same good that they do not own. Home sellers think their houses are worth more than most buyers do.
People place higher value on one option compared to a several options when looking at them individually. Individuals reverse their preferences.
Many managerial decisions concern a series of choices rather than isolated decisions. We are prone to bias when approaching decisions serially.
We escalate commitment because of our own previous decisions. How should be separate between rational and non-rational tendency to escalate?
Escalation can occur in bid auctions where many sellers compete with one another to offer the highest or lowest price to the buyer.
Escalation of commitment occurs because of psychological factors such as perceptual and judgemental biases, as well as impression management.
Present your brain with a number and ask to make an estimate of something irrelevant. Our brain anchor its estimate on the first number.
When procrastinating, we may be sacrificing our long-term financial well-being. Individuals do not put enough effort in vital decisions.
CEOs are reluctant to sell their business even though this might result in a better position for the firm. This can be explained by theories.
Investors have strong preferences to hold on to stocks that are selling below purchase price so that could avoid being “losers”. Instead, they sell stocks that are selling above the…
We like people like ourselves. Individuals who went to the same college, work with us or are the same race.