Podcast
Questions and Answers
What concept explains the valuation of an experience being influenced by an arbitrary factor such as the last digit of a social security number?
What concept explains the valuation of an experience being influenced by an arbitrary factor such as the last digit of a social security number?
- Framing Effect
- Anchoring Bias
- Value Coherence
- Coherent Arbitrariness (correct)
What outcome did the experiment by Ariely, Loewenstein, and Prelec reveal about participants' willingness to pay based on their initial prompts?
What outcome did the experiment by Ariely, Loewenstein, and Prelec reveal about participants' willingness to pay based on their initial prompts?
- Participants with even digits valued the workshop higher than those with odd digits. (correct)
- Odd digit participants showed a more positive valuation than even digit participants.
- Even digit participants had a more negative valuation than odd digit participants.
- Participants from both groups had equal willingness to pay.
What is the purpose of using a price list method in experiments?
What is the purpose of using a price list method in experiments?
- To determine the maximum willing price by systematically varying price points. (correct)
- To prevent participants from making irrational decisions.
- To gather qualitative feedback from participants.
- To randomly assign participants to different treatment groups.
What effect can occur when irrelevant information is considered during decision-making processes?
What effect can occur when irrelevant information is considered during decision-making processes?
Which condition describes the scenario under which participants stated their willingness to pay $n for attending a poetry reading?
Which condition describes the scenario under which participants stated their willingness to pay $n for attending a poetry reading?
What is the hot hand fallacy?
What is the hot hand fallacy?
What is the gambler’s fallacy?
What is the gambler’s fallacy?
Based on the study by Gilovich, Vallone, and Tversky, what was the next shot make percentage after 3 makes?
Based on the study by Gilovich, Vallone, and Tversky, what was the next shot make percentage after 3 makes?
What do the results of the Gilovich, Vallone, and Tversky study suggest regarding the hot hand?
What do the results of the Gilovich, Vallone, and Tversky study suggest regarding the hot hand?
Which statement about the independence of events is accurate according to biases and heuristics?
Which statement about the independence of events is accurate according to biases and heuristics?
In the context of a fair coin flipped 10 times with all heads, what does the hot hand fallacy suggest?
In the context of a fair coin flipped 10 times with all heads, what does the hot hand fallacy suggest?
What was the make percentage after 2 misses in the Gilovich study?
What was the make percentage after 2 misses in the Gilovich study?
Which of the following best describes the expectation if one believes in the gambler's fallacy after a series of wins?
Which of the following best describes the expectation if one believes in the gambler's fallacy after a series of wins?
What does the hot hand fallacy demonstrate about people's perception of random events?
What does the hot hand fallacy demonstrate about people's perception of random events?
Which statement accurately describes bounded rationality?
Which statement accurately describes bounded rationality?
What is the primary error associated with the gambler’s fallacy?
What is the primary error associated with the gambler’s fallacy?
In narrow framing, what do individuals tend to ignore?
In narrow framing, what do individuals tend to ignore?
What is the primary function of heuristics in decision-making?
What is the primary function of heuristics in decision-making?
What does mental accounting suggest about how people perceive financial decisions?
What does mental accounting suggest about how people perceive financial decisions?
How can the hot hand fallacy and gambler's fallacy be linked to heuristics?
How can the hot hand fallacy and gambler's fallacy be linked to heuristics?
In the context of decision-making, what does it mean to have a narrow frame?
In the context of decision-making, what does it mean to have a narrow frame?
What is a common misconception regarding small sample sizes in probability?
What is a common misconception regarding small sample sizes in probability?
What is the key difference in how the lost $10 is perceived in Problem A compared to Problem B?
What is the key difference in how the lost $10 is perceived in Problem A compared to Problem B?
How do the percentages from each problem suggest a decision-making bias?
How do the percentages from each problem suggest a decision-making bias?
What does the term 'coherent arbitrariness' refer to in the context of decision-making?
What does the term 'coherent arbitrariness' refer to in the context of decision-making?
What role does mental accounting play in decision-making according to the content?
What role does mental accounting play in decision-making according to the content?
Why might the framing of decisions lead to different perceptions of value in similar scenarios?
Why might the framing of decisions lead to different perceptions of value in similar scenarios?
In the context of the presented problems, what impact does the total wealth remaining have on decision-making?
In the context of the presented problems, what impact does the total wealth remaining have on decision-making?
What is a likely outcome of narrow framing when individuals evaluate their decision to buy a ticket?
What is a likely outcome of narrow framing when individuals evaluate their decision to buy a ticket?
What psychological concept determines how external presentation of information influences decision-making?
What psychological concept determines how external presentation of information influences decision-making?
What is the consequence of maxing out the entertainment budget in Problem B?
What is the consequence of maxing out the entertainment budget in Problem B?
How does the loss of $10 in both problems illustrate different emotional responses?
How does the loss of $10 in both problems illustrate different emotional responses?
What statistical concept illustrates the flawed reasoning in the Hot Hand Fallacy?
What statistical concept illustrates the flawed reasoning in the Hot Hand Fallacy?
How does a player’s recent high performance typically affect their probability of succeeding in their next at-bat in baseball?
How does a player’s recent high performance typically affect their probability of succeeding in their next at-bat in baseball?
Which of the following is true regarding the hot hand in basketball compared to baseball?
Which of the following is true regarding the hot hand in basketball compared to baseball?
What does the gambler’s fallacy suggest about random events such as gambling outcomes?
What does the gambler’s fallacy suggest about random events such as gambling outcomes?
What surprising evidence regarding the hot hand did Gilovich et al. (1985) find?
What surprising evidence regarding the hot hand did Gilovich et al. (1985) find?
In the context of the hot hand fallacy, what is one reason that gamblers may believe they are 'hot' or 'cold'?
In the context of the hot hand fallacy, what is one reason that gamblers may believe they are 'hot' or 'cold'?
What is one challenge to the hot hand notion in basketball as discussed by researchers?
What is one challenge to the hot hand notion in basketball as discussed by researchers?
What aspect of betting behavior does Terrell's (1994) lottery study aim to analyze in relation to the gambler's fallacy?
What aspect of betting behavior does Terrell's (1994) lottery study aim to analyze in relation to the gambler's fallacy?
What was a conclusion drawn from the data analysis of over 2 million player batting appearances?
What was a conclusion drawn from the data analysis of over 2 million player batting appearances?
Study Notes
Research Group Preferences
- Submit preferences for research groups on Canvas by 8pm on September 1.
- Group assignments to be announced in the next class.
Hot Hand Fallacy
- Belief that success in an independent event signals ongoing success.
- Example: A fair coin that has shown heads multiple times is thought to have higher probability of heads in the next flip.
Gambler's Fallacy
- Belief that a series of independent events will balance out.
- Example: After several heads in a row, the next flip is thought to be more likely tails.
Evidence from Gilovich, Vallone, and Tversky (1985)
- Analyzed shooting accuracy of Philadelphia 76ers players.
- Outcomes of shots after streaks:
- 3 misses: 56% made
- 2 misses: 53% made
- 1 miss: 54% made
- 1 make: 51% made
- 2 makes: 50% made
- 3 makes: 46% made
- Findings challenge the hot hand theory, suggesting no significant pattern.
Counter Evidence to Hot Hand
- Miller and Sanjurjo (2018) argue that some sequences bias results.
- Example of coin flips shows that subsequent tails may be more likely if preceded by a sequence of heads due to restrictions from prior outcomes.
Baseball Analysis of Hot Hand
- High performance in baseball correlates with future success since the game structure (one batter at a time) limits defense adjustments.
- Analysis of over 2 million player appearances revealed being "hot" increases chances of success (e.g., home runs) by approximately 20%.
Evidence from Terrell (1994)
- Examined lottery behaviors in New Jersey.
- Events leading to payouts from drawn numbers showed variance based on frequency of past wins:
- Winning number within last week: average payout $349.06
- Not within last 8 weeks: average payout $260.11
- Findings demonstrate gambler’s fallacy influences betting behavior.
Source of Fallacies
- Both fallacies draw on the misunderstanding of randomness in small samples.
- Hot hand assumes small samples reflect larger patterns; gambler’s fallacy believes balance will be restored.
Bounded Rationality
- Concept that cognitive limits constrain people's decision-making abilities.
- Individuals use heuristics to simplify complex decisions (e.g., choosing affordable lunch options).
Narrow Framing
- Tendency to consider a limited set of choices when making decisions.
- Example: Comparisons between two menu items ignore broader financial impacts.
Mental Accounting
- Valuation based on discrete budgets (e.g., entertainment budget). Past costs may affect future decisions about spending.
Coherent Arbitrariness
- Decision-making influenced by presentation of options and arbitrarily assigned values.
- Experiment with social security digits influencing willingness to attend a poetry workshop.
Methodological Note: Price Lists
- Price lists are tools to determine valuation of experiences through a series of yes/no questions at varied prices.
- Should prompt a one-time switch from No to Yes, reflecting maximum willingness to pay.
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Description
This quiz explores concepts related to biases and heuristics, specifically focusing on the Hot Hand Fallacy and Gambler’s Fallacy. It is designed for students in Econ 440 at Texas A&M University. Prepare to test your understanding of these psychological phenomena in decision-making.
