O- Options :
- Final option presented may be preferred.
- Time gap between presentation of options/decisions may influence this dichotomy.
- Greater range of options discourage decision making
- Higher probability attributed to limited options presented.
- By retaining existing arrangements people minimise the possibility of regret. (Avoid pain associated with feeling responsible for a loss)
- People prepared to pay premium for rules or to remove ambiguity.
- Pay for further information that reduces the degree of uncertainty faced.
O - Overconfidence
- Events happened - will be thought as predictable
- Events didn't happen - thought as having been unlikely to happen
- Look evidence - confirms their POV
- Faced with difficult decision - Looks for data which supports view and dismiss data which doesn't
M - Mental Accounting
- People separate related decions
- Rather than netting gains/losses, they set up mental accounts.
- View decisions, related to one another, individually.
- Make sub-optimal decisions.
Eg. Credit Card. Savings Ac.
M - Myopic Loss Aversion
- Research - people less risk averse - when facing a multi period series of gambles. Frequency of choice, length of reporting period will be influential.
- Less risk averse when faced with repeated gambles vs a single gamble.
- Investor-recognise inv. strategy - repeated short term gambles - long term view- less risk averse vs short term gamble, short term view.
F - Framing
- Words in a question - Impact on decions
- One word or two changed - profound effect on responses
P - Prospect Theory
- How people made decisions when faced with gain/loss.
- People - risk averse - when facing the prospect of making a gain.
- Risk - seeking when facing the prospect of making a loss.
- Loss in value from a loss is twice as much as the gain in value from the same monetary gain.
- Anchor - initial idea from past experience or expertise
- Start with an anchor and then adjust the anchor to arrive at final judgement.
- Effects are pervasive, robust, even when people know when their anchor is ridiculous.