Ruling out non-standard beliefs (Lecture 3) or non-standard utility (Lectures 1 +2) people still don't maximise utility
1 of 21
Behavioural patch: 1) Heuristics
People make choice via heuristic (rules of thumb/ over/ underweight) as it isnt possible to max utility (info + option amount/ memory + attention limited)
2 of 21
Types of Heuristics (1) Representativeness
subjective probability of event determined by how much is represents parent population and salient features of the process
3 of 21
Types of Heuristics (2) Availability
subjective probability of event determined by how easily brought to mind (overestimate probabilities of these)
4 of 21
Types of Heuristics (3) Anchoring
(Relative thinking): rely too heavily on first piece of info when making decision
5 of 21
Selective memory + attention: definitions
Selective memory: only sufficiently available info remembered (Rep. + Avail.)/ Selective attention: salient dimensions receive more attention (Rep. + Anch.)
6 of 21
Selective memory + attention: decision process
1) Choice problem 2) Selective recall of info 3) Choice set formed (selective memory) 4) Choice set evaluated (selective attention)
Selective M + A empirics: Selective attention (0->1): Inattention to news
Share price for company increased significantly when 'cure for cancer' featured on front page of NYT (despite no new info from initial release)
14 of 21
Selective M + A empirics: Selective attention: (0->1): Inattention to right digits
Large discontinuities in perceived value of a car when jumping from (e.g. 69,999 to 70,000 miles)
15 of 21
Selective M + A empirics: Selective attention (0->1): Inattention to right digits: perceived car value model
.
16 of 21
Other types of Heuristics: Menu effects
Decision via heuristic when set of options is too large/ theres an option to make several decisions
17 of 21
Menu effects (1) Excess diversification
Pick more than 1 option: Diversify excessively when choices are not exclusive/ close substitutes (e.g. simultaneous choice picking one snack out of 6 for each of 3 weeks)
18 of 21
Menu effects (2) Choice avoidance
Too many choices: Refuse to choose as you dont know how to optimise (e.g. more jam jars to sample meant less people actually bought them)
19 of 21
Menu effects (3) Preference for the salient
Too many choices: prefer what stands out (salient) even if irrelevant (e.g. uniformed votes choose 1st candidate from list of minor parties on ballot paper)
20 of 21
Menu effects (4) Confusion
Too many choices: error in implementing choice/ preference (unable to predict) (e.g. mis-voting on ballot paper if non-popular candidate placed next to more popular candidates/ holds for layout changes)
21 of 21
Other cards in this set
Card 2
Front
Behavioural patch: 1) Heuristics
Back
People make choice via heuristic (rules of thumb/ over/ underweight) as it isnt possible to max utility (info + option amount/ memory + attention limited)
Comments
No comments have yet been made