Psychology 3130A/B Lecture Notes - Lecture 9: Status Quo Bias, Life Insurance, Risk Aversion

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Lesson 9 Decision Making
Decision Making
- What is decision making
o Reducing uncertainty
Bc uncertainty causes anxiety
o Max. outcome
- Theories of decision making
- Decision errors and biases
Basic Framework (go through explicitly or implicity)
- Identification
o Recognition decision needs to be made
o Framing of decision
Semantics and linguistic factors can influence what appears to be the best
Really important…e.g. is it on sale, can influence decision
- Generation
o Generation of possible decision alternatives is affected by
Individual effects
Cognitive biases (reduced memory work capacity for e.g.)
Env biases (cost of making error)
- Evaluation
o Decision alternative are generated, decision-market evaluates them
Of the outcomes, so some decisions riskless others risky
Costs, risks, benefits
- Selection (decision)
o Selection of decision alternative can have immediate consequences (or not)
o Once a decision is made, decision maker can engage in
Check outcome
- Many decision are carried out with no difficultly
o Often problems occur though (things that affect some decision making errors later talk about)
- Conflict
o Make tradeoffs (gas mileage vs car power)
- Uncertainty
o Outcome of decision often depends on uncertain variables or events
Like future demand for product, time to complete something
- Psychologists have attempted to describe and explained decision making within the context of several
theoretical frameworks
- Rational/normative model
o Expected value, expected utility
- Prospect theory
Rational Decisions
- Rational model sets standard
o Based in expected value/utility
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