CHAPTER 11 – JUDGEMENT AND DECISION MAKING
1. People tend to make an estimate, and then revise it upward because of cost factors, an example
of the anchoring and adjusting heuristic. The ratio is 5:1.
- Anchoring effect
- You’re making an initial judgment
2. Graduate School – First born children are more likely to have graduate school
- How many 1 born vs. 2 born people are there? Base rate
- Every family has their first born child
3. Why most fire starts in the first 10 floors of a hotel?
- How many hotels have a 2 10 floors?
4. Fair toss coins
- The Gambler’s Fallacy is that the next toss will come up tails. The law of large vs. small
- The larger the sample the more that sample will mimic the general distribution
- It doesn’t matter how many times a tail will appear, the next toss will still be a 50-50
Sources of Decision dfiiculty
1. Conflict – decision maker must make tradeoffs across different dimensions (e.g., car’s power vs.
gas mileage; TV’s price quality; spending time at work vs. with family)
2. Uncertainty - outcome of decision often depends on uncertain variables or events (e.g., future
demand for a product; completion time).
Real word decision making *When somebody is familiar to you, you tend to overestimate the likelihood of something.
* The man has a heart attack – the correct answer; usually not chosen because ignoring base rate
information; other options are subgroups
Heuristics in Decision Making
Illusory correlation – twisting of hair has no correlation with stress
Framing - People used to choose Station A; (when the words discount, bonus and etc are just
the same prices than the original.
Confirmation Bias: Wason 2-4-6 (if you like to major psychology, and ask them, you’re gonna
get the best or worst informa