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The psychology of decision-making - Coggle Diagram
The psychology of decision-making
Rationality
Goal: maximization of expected value
Expected value
Pascal, Fermat, Huygens
EV= p * x
Rational choice
Basic principle: should only spend on goods that give the most marginal utility
Risk aversion due to decreasing marginal utility
Cognitive heuristic
= cogitive shortcuts for probability estimations
Availability heuristic
assess probability with by the ease with which certain instances can be brought to mind
often happening things do not receive much attention anymore
Representativeness heuristic
if something seems to be representative of a category, we assume it is part of it despite probabilities
Expected utility theory
Bernoulli
Subjective value of outcome
Types
Decision utility
Expected utility
Total utility
Marginal utility
decrease in marginal utility
2 factors determining action
pleasure
price