by I.K. Mullins
Copyright©2015 I.K. Mullins. All Rights Reserved. No part of this book may be reproduced or retransmitted in any form or by any means without the written permission of the author.
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Affect heuristic is a mental shortcut in which emotions affect decisions. In the affect heuristic, emotional response (also known in psychology as ‘affect’) plays a principal role. This subconscious process makes the decision-making process shorter, and it allows human mind to operate without conducting an extensive search for information.
Affective forecasting refers to situations in which people know about certain statistics related to a decision they are making, yet, they do not believe these statistics apply to their situation.
Anchoring effect refers to a cognitive bias that involves to the human tendency to rely too much on the first piece of information offered (the “anchor”) while making decisions or assessments.
Attractiveness stereotype refers to a stereotype according to which “what is beautiful is good.”
Availability heuristic refers to mental shortcuts that rely on immediate examples that come to mind.
Base rate refers to the average number of times an event occurs divided by the average number of times it might occur.
Base-rate neglect refers to the errors that arise when statistical facts are ignored.
Bias of confidence over doubt refers to situations in which people focus on the content of a story rather than its reliability.
Bias refers to an unconscious error in reasoning that distorts our judgment of the real world.
Causal base rates are accepted as information about individual cases.
Cognitive strain refers to the level of effort and anxieties.
Confirmation bias refers to a tendency of humans to interpret new information in a way that confirms their initial hypothesis.
Conjunction fallacy occurs when two events that can occur together or separately are seen as more likely to occur together than separately. This usually happens when it is easier to imagine two events occurring in a combination than occurring alone.
Disposition effect refers to a bias in finance research. It describes the tendency of investors to sell shares whose price has increased, and at the same time keep shares that have their value decreased. In other words, investors prefer to sell winners (i.e., shares that currently are priced higher than they were priced at the time of being purchased) rather than losers.
Endowment effect refers to the fact that people have a tendency to assign more value to things, which they own, because they own these things.
Experienced utility refers to the experiences of pain and pleasure.
Focusing illusion can be described in one sentence: “Nothing in life is as important as you think it is when you are thinking about it.” When people focus on something, they tend to assume that its role in their life is greater than it actually is.
Fourfold pattern refers to risk preferences. That is, people are risk averse in gains and risk seeking in losses in the situations when outcomes are large; however, risk preferences reverse when the outcomes are small, so that people demonstrate risk seeking in gains and risk aversion in losses.
Framing effect refers to a cognitive bias that makes people react to a specific choice in different ways depending on whether the choice is presented as a gain or as a loss.
Framing effect refers to a cognitive bias, in which people’s reaction to a certain choice varies depending on whether it is presented as a loss or as a gain.
Halo Effect refers to a cognitive bias in which people’s overall impression of a person influences their thoughts and feelings about the person’s character. This effect also means that first impressions spoil further information. The Halo Effect is related to the physical attractiveness stereotype, according to which “what is beautiful is good.”
Hedonic psychology refers to the study of what makes life and experiences pleasant or unpleasant. It investigates feelings of pleasure and pain, satisfaction and dissatisfaction, joy and sorrow, interest and boredom.
Heuristic refers to a mental shortcut that allows people to solve problems and make judgments quickly and efficiently. Heuristics comprise intuitive judgments, stereotyping, a rule of thumb, as well as educated guesses. They are applied to thinking process in order to shorten the time spent on problem solving and decision-making. Heuristics are simple and effective rules that people regularly use in order to form judgments and make decisions. Heuristics are mental shortcuts. Although they might work well under most circumstances, they can sometimes lead to errors, which are called ‘cognitive biases.’
Heuristics of judgment refers to the fact that System 1 is often capable of providing quick answers to difficult questions using substitution. This creates coherence in cases where none can actually be found. Yet, the answers produced by system 1 are not the answers to the original questions. Instead, they are the answers to simpler questions.
Hindsight bias refers to the inability of human mind to reconstruct past beliefs so that this makes people underestimate the extent of their surprise caused by past events.
Ideomotor effect refers to the priming phenomenon, in which a physical action is influenced by an idea. For example, tears can be produced in response to strong emotions, without the person making a conscious decision to cry.
Illusion of skill refers to a cognitive illusion. For example, when people think that their experience helps them make the right educated decisions, although their guesses are proven to be nearly as accurate as blind guesses.
Illusion of truth is being formed when System 2 assumes something to be true because System 1 perceives familiarity. For example, when a statement is repeated frequently, people are more willing to accept it as a true statement.
Illusion of validity refers to a cognitive illusion, which arises when people measure phenomenon A and think that it provides valid predictive power for phenomenon B, even though in reality this is not the case.
Intensity matching refers to matching values across dimensions. For example, the statement “just as smart as tall” can illustrate this.
Law of least effort refers to predispositions of human mental processes toward making the easiest or utmost obvious decisions. If there are a few different ways to achieve the same goal, people will ultimately select the least-demanding course of action.
Law of small numbers refers to the fact that our intuition assigns the same statistical reliability to small samples as to large samples.
Loss aversion refers to a tendency for humans to be afraid of losses more than we value gains. Losses hurt more than gains please. People can become more risk-taking when they feel that they are already in a loss zone.
Mental shotgun refers to our tendency to over-compute details. The mental shotgun occurs when System 2 works on answering a question, and this process triggers other computations and assessments. For example, think about this pairs of words: VOTE-NOTE VOTE-GOAT. When a person is asked which pair of words rhymes, the person most likely answers that both pairs do. However, it will take more time for the person to answer that question for the second pair because the person’s mind becomes also busy with processing the spelling differentiation. Even though the person was not asked to analyze spelling in this case, System 2 considered it anyway.
Mood heuristic refers to the mental shortcut in which the current state of mind (priming) affects substitution.
Narrative fallacy refers to the fact that flawed stories of the past can shape our views of the world, as well as our expectations for the future. Narrative fallacies arise when human mind tries to make sense of the world. In the process, it tends to overstate the role of skill and underestimate the role of luck in the outcome.
Outcome bias refers to the situations in which people blame decision-makers for good decisions that led to bad results, and people give the decision-makers too little credit for successful results.
Planning fallacy refers to making forecasts and plans, which are unrealistically close to best-case scenarios. Planning fallacy is one of the expressions of a persistent optimistic bias.
Priming refers to the fact that associations that exist in human memory can effectuate emotions, thoughts and actions.
Prospect theory is a theory of decision making under conditions of risk. Prospect theory predicts that people have a tendency to be more risk averse in a domain of gains, or when things are going well, and people tend to be less risk averse when they deal with losses. Prospect theory refers to a behavioral economic theory. It describes the way people choose between probabilistic options, which involve risk, in the situations where the probabilities of outcomes are known. According to the Prospect Theory, people make decisions based on their evaluation of the potential gains and losses rather than the final outcome, and people estimate these gains and losses using certain mental shortcuts.
Regression toward the mean refers to the tendency for data to average out. Data, which is exceptionally higher or lower than the mean, will likely be closer to the mean when it is measured a second time.
Remembered well-being refers to the way of measuring happiness The “remembered” well-being does not care about duration of the experience. In retrospect, it rates an experience by the highest level of pleasure or pain throughout the experience, and by the way in which the experience ends (the “duration neglect” and the “peak-end rule”).
Representativeness heuristic refers to a cognitive shortcut.
Representativeness refers to the situations when people focus solely on stereotypes while ignoring the base rate and any doubts regarding the stereotype.
Statistical base rates represent facts about the population. They are not necessarily valid in all individual cases.
Substitution refers to the process in which, in order to answer a complex question, System 1 answers a different question, the easier one, which is related to the complex question and already has the answer available.
Sunk-cost fallacy refers to the decision to invest additional resources in a losing account, whereas better investments are available.
System 1 refers to a model of thinking. It is fast, intuitive, associative, metaphorical, automatic, imprecise, and it cannot be turned off. System 1 uses association and metaphor to produce a quick and rough draft of reality. System 1 is responsible for many of the choices and judgments that we make. The domain of System1 depends on people’s knowledge and experience, and it can change as people acquire more knowledge and expertise.
System 2 refers to a model of thinking. It is slow and deliberate. Its operation requires significant mental effort and attention. System 2 takes over System 1, somewhat reluctantly, when things get challenging. The domain of System 2 depends on people’s knowledge and experience, and it can change as people acquire more knowledge and expertise.
Theory-induced blindness refers to the fact that it is extremely difficult for scholars to notice a theory’s flaws after they have accepted the theory.
U-index refers to the percentage of time that a person spends in an unpleasant state.
WYSIATI principle refers to the fact that the presentation of the problem can affect the ways in which people evaluate the problem (i.e., “what you see is all there is”).