Podcast
Questions and Answers
What psychological phenomenon describes the greater impact of losses compared to gains in decision-making?
What psychological phenomenon describes the greater impact of losses compared to gains in decision-making?
Which heuristic involves relying on specific instances or examples when making a judgement?
Which heuristic involves relying on specific instances or examples when making a judgement?
What term describes the phenomenon where individuals assign greater value to items merely because they own them?
What term describes the phenomenon where individuals assign greater value to items merely because they own them?
Which technique is frequently used to enhance psychological ownership through interaction with a product?
Which technique is frequently used to enhance psychological ownership through interaction with a product?
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What strategy can lead people to make decisions based on prior investments rather than current value?
What strategy can lead people to make decisions based on prior investments rather than current value?
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What principle explains why losing is perceived as more impactful than gaining?
What principle explains why losing is perceived as more impactful than gaining?
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How much would need to be offered to entice most people to take a gamble under loss aversion principles?
How much would need to be offered to entice most people to take a gamble under loss aversion principles?
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Which of the following is NOT a component of systematic thinking when making economic judgments?
Which of the following is NOT a component of systematic thinking when making economic judgments?
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According to Prospect Theory, what is the most likely reaction to a scenario of losing 10 €?
According to Prospect Theory, what is the most likely reaction to a scenario of losing 10 €?
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In the context of economic judgments, which term relates to the use of simplified strategies to make decisions?
In the context of economic judgments, which term relates to the use of simplified strategies to make decisions?
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Which scenario best reflects a gain reference point in an economic decision?
Which scenario best reflects a gain reference point in an economic decision?
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What does maximizing utility involve in economic decision-making?
What does maximizing utility involve in economic decision-making?
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What does risk aversion imply in the context of gains?
What does risk aversion imply in the context of gains?
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What is the primary focus of the availability heuristic?
What is the primary focus of the availability heuristic?
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In what situation does loss aversion typically occur?
In what situation does loss aversion typically occur?
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How does anchoring affect decision-making?
How does anchoring affect decision-making?
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Which statement best describes heuristics?
Which statement best describes heuristics?
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What can be a consequence of using heuristics in decision-making?
What can be a consequence of using heuristics in decision-making?
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What effect does the framing of information have on decision-making?
What effect does the framing of information have on decision-making?
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Which feature is likely to make information more accessible in decision-making?
Which feature is likely to make information more accessible in decision-making?
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What is the relationship between biases and heuristics?
What is the relationship between biases and heuristics?
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What concept describes when initial values unreasonably affect judgments?
What concept describes when initial values unreasonably affect judgments?
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Study Notes
Learning Outcomes
- After the session, learners will be able to understand how people make economic judgments.
- Learners will be able to identify heuristics.
- Learners will be able to spot the use of techniques based on heuristics and economic judgments.
Session Content
-
How do people process information and make economic judgments?
- Prospect theory
- Heuristics and biases
- Break
- Application observing a real case
Economic Judgments
- Use reason and apply logic.
- Maximize utility.
- Employ systematic thinking.
- Apply logical rules.
- Understand inferences.
- Testing this idea:
- Choose one of the options:
- Prefer not to play
- Toss a coin; heads you win 100€, tails you lose 100€.
- Choose one of the options:
Prospect Theory (Kahneman & Tversky, 1979)
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Loss aversion:
- Asymmetric perception of gains and losses.
- Gaining is liked but losing is disliked more.
- Losing is approximately 2.25 times stronger than gaining.
- Loss aversion example:
- Choose one:
- Prefer not to play
- Toss a coin for a gain of 100€ or a loss of 100€
- To get most to play, the offer needed exceeds 225€ if the person wins.
- Choose one:
-
Gains or losses reference points
- Gain example:
- Choice 1: You are given 10€.
- Choice 2: Coin toss for 20€ gain or 0€.
- Loss example:
- Choice 1: You give 10€.
- Choice 2: Coin toss for 20€ loss or 0€.
- Gain = Risk aversion.
- Loss = Risk seeking.
- Gain example:
Efficient Information Processors
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Heuristics:
- Mental shortcuts or rules of thumb.
- Used for quick decisions.
-
Biases:
- Judgments that do not follow logic.
- Often arise due to use of heuristics.
- Use of heuristics will lead to either most logical conclusion or a bias.
Availability Heuristic
- Decisions are based on information.
- Information's activation varies.
- Decisions depend on ease of access to information.
- Factors affecting ease of access: recentness, frequency, extremity, negativity
Anchoring
- An initial value forms a reference point.
- Judgment of product value is influenced by the anchor.
- Anchoring occurs even when the anchor is irrelevant to the judgment.
- Example: experiment, rigged wheel (10 or 65), what is the proportion of African countries in the UN?
Additional Information
- The session will include various images and texts.
- Participants will vote on the correct answer.
- Availability and anchoring are recurring themes.
- Endowment and marketing discussions will follow.
Endowment Effect
- An increased likelihood of object retention.
- Characterized by loss aversion and psychological ownership.
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Description
Explore how people process information and make economic judgments through the lens of heuristics and biases. This quiz will help you understand key concepts from prospect theory and the psychological factors influencing decision-making. Gain insights into loss aversion and decision preferences in economics.
