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26 Cards in this Set

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Framing
We are risk ADVERSE when the problem is framed as a sure GAIN.

We are risk SEEKING when faced with a sure LOSS.

How a problem is framed, as a gain or avoiding a loss, determines our preference.
Prospect Theory
Kahneman & Tversky, 1979

We judge gains and losses from a reference point.

The value function for losses is steeper than the value function for gains.

This can keep us from making concessions in exchange for gains.
Negotiations
Concessions = Loss

This is because the loss is weighted heavier than the gain in the exchange.
Misjudging Probabilities
We tend to underestimate the likelihood of high probability events and overestimate the probability of low probability events.

We don't accurately perceive the likelihood of an event.
Certainty Effect
The reduction in the probability of an event has more importance to us when the final outcome is certain.

We prefer to ELIMINATE all risk rather than just REDUCING it.

Will invest a lot more in absolute certainty.
Pseudocertainty Effect
We are more likely to favor options that offer apparent certainty than those that only reduce uncertainty.

Appearance of certainty is valued, even if the certainty is incorrect.
Transactional Utility
We judge the value of a the deal you are getting compared to what you would
Acquisition Utility
The value placed on a commodity.
Endowment Effect
We demand a higher price for something we OWN that something we WANT.

The seller's price includes intrinsic worth and attachment to the item.
Price Quality Heuristic
We don't know how to judge quality. People often assume that a higher price equals higher quality.

"Paying a lot must mean it's good." Substituting the price for knowledge of quality.
Mental Accounting
All money is not equal.

A variety of mental accounts exist. (vacations, renovations, daily living)

Generally more upset by a series of small losses than an equally valued single loss.

The first dollar hurts more than later losses.
Rebate vs. Bonus Framing
Epley, Idson & Mak (2005)

Found that when tax give backs were described as rebates they were less likely to to be spent than if they were described as bonuses.

Rebate - implies getting OWN money back

Bonus - Free Money
Omission Bias
When comtenplating risky choices, not acting is seen as less risky than acting.

Actions generate more regret in the short-term...

While not acting will generate more regret in the long-term.
Preference Reversals
Hsee (1996)

Separate vs. Joint Preference Reversals

We place a higher value on one option over another when evaluated seperately.

We reverse our preferences when we consider the options simultaneously.

There is a conflict with the Emotional (sys 1) and the rational (sys 2).

The emotional is stronger in the separate evaluations.

The rational is stronger in the comparison condition.
Preference Reversals
Evaluability Hypothesis
Hard to evaluate attributes will have less impact in separate evaluations than in joint evaluations.
Discounting
The present is more vivid to us than the future.

We view all gains and losses in the future as worth less than present gains and losses.

Ex: Retirement investments and credit cards
Motivation & Affect
When what we want to do conflicts with what we should do.
Hyperbolic Discounting
Laibson, (1994)

We view all gains and losses in the future as worth less then present gain and losses.

The present is more vivid to us than the future.
Positive Illusions
We have an overly positive view of ourselves, the world and the future.

Pos. Illusions enhance self-esteem and increase persistence.

It is more difficult to have optimistic illusions when we are confronted with the hard facts.

Facilitate coping with aversive and uncontrollable events.

Help us maintain a belief in a just world and personal control.
Unrealistic Positive View of Self
We see ourselves as better than others.

Common unrealistic traits:
Honesty, cooperation, rationality, driving skills, health, intelligence, and morals.

We ARE fairly accurate at predicting the behaviors of others.
Illusion of Control
The belief that we can control uncontrollable events and that our actions can guarantee a certain outcome.

Origins of superstitious beh.
Self-serving Attributions
More likely to accept credit for collective successes and to accept too little responsibility for failures.

Attribute failures to external factors.

This allows us to protect our self-image.
Positive Illusions in Groups
We extend these pos. illusions to the groups we to which we belong.

Desirable characteristics of an ingroup are internal, undesirable characteristics are caused by external factors.

We also denigrate others who are more successful than we are.
Self-Serving Reasoning
We first determine the best outcome based on self-interest and then seek evidence to support it based on fairness.

We tend to be more self-serving when we can attribute the benefits to our group rather than ourselves.
Affective Influences on the Endowment Effect
Feelings of disgust tent to lower the selling prices.

Sadness lowers the selling price and raises the offer price.

Sadness promotes the need for change.
Sadder but Wiser
Alloy & Abramson (1979) found that depression was linked to greater judgment accuracy. (more realistic self-judgment)

Sadness may trigger more deliberative thought processes.

But, sad people are more impacted by anchors.

People in good moods are more optimistic.

Fear & anxiety increase risk-aversion.

Happy people use more stereotypes.(representative heuristic)