Prep 17

5 things you need remember from this class session:

• Expectations
• Heuristics
• Tversky & Khmneman
• Ariely
• Rotter

.### Class 17 Notes

Expectations impact decision making

• Fable
  • talking animals
  • Fox and Cat
  • moral of the story: don’t boast
  • practical conclusion: one safe exit than a hundred that don’t work
  • cognitive science inference: thinking takes time and energy
• Every channel you surf takes a little bit more time
  • it takes time to process options
• Deciding take energy

Rational choice theory

• loss aversion
• placebo effect
• framing effect

Heuristics

• most fundamental heuristic is trial and error
• least satisfying
• what we do after we’ve tried everything else

• George Pólya’s book “How To Solve It.”
  • drawing a picture of the problem situation
  • working the problem backwards
  • switch from abstract to concrete or concrete to abstract
  • suggestions on perspective

Inventor’s Paradox

• more ambitious your plan, the more chances you have of succeeding

Herbert Simon

• bounded rationality
  • lack information (what our competitor will do
  • can’t track the entire process (we tend to think and think but then jump
  • don’t have enough time to think things through (the traffic light is changing; right, left or straight?

Satisficing

• find a satisfactory solution which requires sacrificing perfection

Gerd Gigerenzer

• fast and frugal
• get more accurate decisions if we don’ weight all the options
• should ignore part of the information
• helps focus our attention and clarify our priorities

• Focusing effect
  • tendency to put too much importance on one aspect of an event

Tversky & Kahneman

• tend to rely too heavily on the first bit of information we receive
• anchor
• manufacturer-suggested or list prices

Dan Ariely

• social security numbers
• people with higher ending digits bid higher

• Anchoring is hard to avoid
  • Thomas Jefferson died before or after age 9 (or before-after age 120)
  • guess closer to their anchor, whichever one they received

Julian Rotter

• combines behaviorism plus cognition
• general expectation theory
• BP = f(E & RV)
• behavioral potential (BP)
• expectations (E); likelihood
• reinforcement value (RV); reward size
• locus of control
• “externals”
  • learned helplessness
• “internals”