Psychology of Decision Making
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Questions and Answers

What is escalation of commitment primarily characterized by?

  • Continuing failing projects despite evidence (correct)
  • Pursuing new investment opportunities
  • Avoiding any form of investment
  • Making decisions based on future utility only

Self-justification theory supports the rationality paradigm by emphasizing objective assessments.

False (B)

What is the primary psychological cause behind escalation of commitment?

Cognitive biases

The ______ occurs when decision makers focus on past investments rather than potential future benefits.

<p>sunk cost fallacy</p> Signup and view all the answers

What psychological barrier often leads decision makers to continue investing in failing projects?

<p>Sunk cost fallacy (C)</p> Signup and view all the answers

Match the following terms with their definitions:

<p>Sunk cost fallacy = Continuing an endeavor due to already invested resources Overconfidence = An excessive belief in one's own abilities Illusion of control = Believing one can control or influence outcomes that are clearly beyond control Escalation of commitment = Intensifying commitment to a failing course of action</p> Signup and view all the answers

Overconfidence in decision-making is a rational behavior that leads to successful project outcomes.

<p>False (B)</p> Signup and view all the answers

Which type of rationality focuses on justifying past decisions?

<p>Retrospective rationality (B)</p> Signup and view all the answers

What is the term for the belief that success is imminent, often leading to poor project decisions?

<p>Illusion of control</p> Signup and view all the answers

Anticipated regret is an emotional trigger that influences decision making by looking __________.

<p>forward</p> Signup and view all the answers

Prospective rationality prioritizes future utility over sunk costs.

<p>True (A)</p> Signup and view all the answers

Match the following concepts with their definitions:

<p>Sunk Cost Fallacy = Continuing investment despite losses Overconfidence = Exaggerated belief in one's control over outcomes Confirmation Bias = Focus on information confirming existing beliefs Ego-defensiveness = Denial and attributing failure to external factors</p> Signup and view all the answers

Name one cognitive bias that contributes to poor decision making.

<p>Overconfidence</p> Signup and view all the answers

Which of the following factors is NOT associated with escalation of commitment?

<p>Rational decision-making (D)</p> Signup and view all the answers

The illusion of control can make decision makers underestimate risks associated with their actions.

<p>True (A)</p> Signup and view all the answers

What psychological discomfort arises from negative feedback about a chosen alternative?

<p>Justification</p> Signup and view all the answers

What is the primary reason individuals escalate commitment to a failing project?

<p>Hope of turning the investment around to avoid loss (B)</p> Signup and view all the answers

Retrospective rationality involves justifying past decisions even when they contradict current optimal choices.

<p>True (A)</p> Signup and view all the answers

What is the term used to describe the psychological need to mitigate discomfort from cognitive dissonance?

<p>self-justification</p> Signup and view all the answers

In prospect theory, individuals often display risk-aversion in domains of _____, which can lead to premature abandonment of projects.

<p>gains</p> Signup and view all the answers

Which of the following concepts explains how decision-making can deviate from rationality due to past investments?

<p>Sunk cost bias (C)</p> Signup and view all the answers

What effect can the framing of information have on decision-making?

<p>It can change choices despite the same underlying outcomes (A)</p> Signup and view all the answers

Individuals act rationally when they prioritize future utility over emotional biases.

<p>False (B)</p> Signup and view all the answers

Flashcards

Retrospective Rationality

The belief that choices are justified by past actions, even if those actions are no longer beneficial. It prioritizes consistency with past decisions over future success.

Prospective Rationality

The idea that decisions should prioritize future benefits and outcomes, while disregarding past investments. Ideal decision-making follows this logic, but biases and sunk costs can interfere.

Escalation of Commitment

Decision makers are more likely to continue with a failing project, despite evidence, due to their desire to justify past investments and protect their self-image.

Cognitive biases in Escalation

These biases, such as the sunk cost fallacy, overconfidence, and illusion of control, influence how individuals perceive information and make decisions. They often lead to overestimating success and underestimating risk.

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Self-justification in Escalation

Self-justification theory offers a deeper explanation for escalation, particularly when individuals feel a high sense of personal responsibility for a failing project. It suggests that people are motivated to protect their self-image by justifying their prior decisions, even if it means continuing with an unprofitable course.

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Prospect Theory vs. Self-justification

Prospect theory explains risk-seeking behavior in general, but self-justification theory provides a more nuanced explanation by considering factors like feedback framing and individual responsibility. It highlights how decision-making is influenced by psychological needs and motivations.

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Escalation vs. Rationality

While rational decision-making emphasizes objective analysis and optimal outcomes, escalation of commitment contradicts this paradigm by prioritizing emotion, self-image, and past investments over future utility. This behavior is often driven by cognitive biases and the desire to justify past choices.

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Illusion of Control

The tendency to overestimate one's ability to control events and achieve success. This bias can lead to escalation of commitment by causing decision-makers to ignore warning signs and continue investing in a failing project.

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Sunk Cost Fallacy

The tendency to continue investing in a failing project, even when it's irrational, due to past investments.

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Ego-Defensiveness

A psychological barrier that makes it difficult to admit a mistake and withdraw from a commitment.

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Denial (Ego-Defensiveness)

Refusing to accept the reality of problems and their implications.

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Confirmation Bias (Ego-Defensiveness)

Giving more weight to information that supports existing beliefs and ignoring contradictory evidence.

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Anticipated Regret

A psychological trigger for escalation based on the anticipated regret of withdrawing from a failing project.

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Belief in Imminent Success (Ego-Defensiveness)

The belief that success is imminent and only a small push is needed to achieve it.

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Attribute Failure to External Factors (Ego-Defensiveness)

Attributing the failure of a project to external factors beyond personal control.

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Rationality Paradigm

Decision-making framework that emphasizes objective analysis and prioritizing future utility over past investments.

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Cognitive Dissonance

The psychological discomfort arising from holding contradicting beliefs or behaviors, often causing individuals to rationalize their actions to maintain a positive self-image.

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Loss Aversion

The tendency to view potential losses with greater weight than potential gains of equal magnitude, impacting decision making.

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Framing Effects

The presentation of choices in a way that influences decision-making, even if the underlying outcomes are the same.

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Premature Abandonment

The phenomenon of abandoning a project early due to risk aversion in the domain of gains, aiming to secure partial progress rather than risking a full loss.

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Study Notes

Psychology Approaches to Decision Making - Exam Notes

  • General Notes:
    • Understand key theories and authors related to each topic.
    • Review recent articles by the authors.
    • Avoid simply repeating lecture content. Instead, show how ideas link.
    • Use an asterisk system (*, **, etc.) to mark additional notes.
    • Utilize seminar questions for revision and testing.

Plan for Study

  • Revise the key topics.
  • Review articles by the authors.
  • Watch lecture recordings and carefully review the topics discussed.
  • Take handwritten notes to summarize each topic.
  • Check seminar content and activities.
  • Review learning objectives for each topic.
  • Create an introduction to each topic, including key terms and definitions.
  • Read relevant book chapters.
  • Ask ChatGPT to generate flashcards, potential questions, and answers, on each topic.
  • Create detailed handwritten notes for each topic covering key authors and related thinkers.
  • Create lists/tables of theories, authors, terms, and essay structure (e.g., EoC).
  • Review your notes using summaries of major points.
  • Create a concise summary and print, for quick reference.

Exam Topics

  • Decision Making Theories and Judgement:
    • Week 1, 2, 3 and 4
    • Theories that explain poor judgement and decision making.
    • Rationality
    • Heuristics and biases
    • Illusion of control

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Related Documents

Psychology Approaches to Decision Making PDF

Description

This quiz explores the psychological factors influencing decision-making, particularly the escalation of commitment. It examines concepts like self-justification, anticipated regret, and cognitive biases. Test your knowledge on how these elements affect rationality in choices.

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