BUS 272 Lecture Notes - Lecture 9: Hindsight Bias, Confirmation Bias, Risk Aversion

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 272
• Professor: Lieketen Brummelhuis

Document Summary

A decision is a choice made from 2 or more alternatives. Rational decision maker makes decision that is consistent, value-maximizing, and within the specific constraints. The se(cid:272)o(cid:374)d step, ide(cid:374)tif(cid:455)i(cid:374)g the (cid:272)riteria is (cid:271)ased o(cid:374) the de(cid:272)isio(cid:374) (cid:373)aker"s i(cid:374)terests, (cid:448)alues, and similar personal preferences. Rationality- a rational decision making process for making logically sound and optimal decisions. Decision-making beyond the rational model: bounded rationality is a form of decision-making which accepts that there are cognitive limits to an individual"s knowledge and capacity to act rationally. We construct simplified models that extract the essential features from problems without capturing all their complexity. *however, even with the adjusted models, we can go wrong. This can be due to the following reasons (systematic biases and errors). These are called judgement shortcuts: overconfidence bias. Believing too much in our own ability to make good decisions especially when outside of own expertise. This error occurs die to us being overly-optimistic about our judgements.