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Behavioral eco-lect3: Judgement under risk and uncertainty part 1 (Recap…
Behavioral eco-lect3: Judgement under risk and uncertainty part 1
Heuristics
We have seen Adjustment and Anchoring. This week we will learn more
Representativeness
Availability
Recap from last week
Sunk costs should play NO role in decisions for the future.
A decoy can make another product seem more attractive.
Opportunity costs tell much better if an investment was successful
The endowment effect is a form of loss aversion.
Representativeness
: estimating the probability that some outcome was the result of a given process by reference to the degree to which the outcome is representative of that process.
various forms of the representativeness heuristic:
Gambler’s fallacy
Regression to the mean
Law of small numbers
Base rate neglect
Law of small numbers
Law of small numbers
: People exaggerate the degree to which small samples resemble the population from which they are drawn.
see slide 7/34
Gambler's fallacy
Gambler’s fallacy
: thinking that the departure from the average behavior of some system will be corrected in the short term.
Examples