RSM450 Final Review Notes

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Rotman Commerce
Nina Mazar

WEEK 7: Heuristics & Biases Heuristics = simple rules of thumbs and mental shortcuts Biases = systematic errors that are a result of the use of heuristics In the Textbook: Representativeness Heuristic Availability Anchoring & Adjustment Correlation & Causalation Fundamental Attribution Error REPRESENTATIVE HEURISTIC: Specific scenes appear more likely because they are more representative of how we imagine events. More detail/context = better explanation. BIAS: Conjunction Fallacy – we assume the co-occurrence of two events is more likely than just one (although statistically it is not more probable). BIAS: Law of Small Numbers – small samples are expected to be highly representative of the entire population (e.g. IQ test scores of 50 students) BIAS: Gambler’s Fallacy – belief that an unsuccessful outcome is due after a run of good luck and that chance is self-correcting. Bias that every part of a sequence should be locally representative of the overall probability. BIAS: Hot Hand – belief a player has a better chance of success after multiple successes BIAS: Base Rate Neglect – people use base rates when it’s consistent with their theories. If descriptions are provided, base rates are ignored. Prescriptions:  Don’t be misled by highly detailed scenes – not always likely or representative of reality  Don’t misinterpret small samples  Chance is NOT self-correcting  Try to pay attention to base rates whenever possible AVAILABILITY HEURISTIC: Assessing the frequency or probability of an event by how easily those occurrences can come to mind. BIAS: Hostile media effect – the coverage on shark attacks and car accidents happen more often than cancer deaths or falling airplane parts. Does not mean shark attacks are more likely! If something is easier to imagine/think of, has primacy or recency, and are vivid, then we use the availability heuristic to judge the likelihood
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