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Cognitive Processes PSY 334

Cognitive Processes PSY 334. Chapter 10 – Reasoning & Decision-Making. Judgments of Probability. People can be biased in their estimates when they depend upon memory. Tversky & Kahneman – differential availability of examples.

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Cognitive Processes PSY 334

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  1. Cognitive ProcessesPSY 334 Chapter 10 – Reasoning & Decision-Making

  2. Judgments of Probability • People can be biased in their estimates when they depend upon memory. • Tversky & Kahneman – differential availability of examples. • Proportion of words beginning with k vs words with k in 3rd position (3 x as many). • Sequences of coin tosses – HTHTTH just as likely as HHHHHH.

  3. Gambler’s Fallacy • The idea that over a period of time things will even out. • Fallacy -- If something has not occurred in a while, then it is more likely due to the “law of averages.” • People lose more because they expect their luck to turn after a string of losses. • Dice do not know or care what happened before.

  4. Chance, Luck & Superstition • We tend to see more structure than may exist: • Avoidance of chance as an explanation • Conspiracy theories • Illusory correlation – distinctive pairings are more accessible to memory. • Results of studies are expressed as probabilities. • The “person who” is frequently more convincing than a statistical result.

  5. Decision Making • Choices made based on estimates of probability. • Described as “gambles.” • Which would you choose? • $400 with a 100% certainty • $1000 with a 50% certainty

  6. Utility Theory • Prescriptive norm – people should choose the gamble with the highest expected value. • Expected value = value x probability. • Which would you choose? • A -- $8 with a 1/3 probability • B -- $3 with a 5/6 probability • Most subjects choose B

  7. Subjective Utility • The utility function is not linear but curved. • It takes more than a doubling of a bet to double its utility ($8 not $6 is double $3). • The function is steeper in the loss region than in gains: • A – Gain or lose $10 with .5 probability • B -- Lose nothing with certainty • People pick B

  8. Framing Effects • Behavior depends on where you are on the subjective utility curve. • A $5 discount means more when it is a higher percentage of the price. • $15 vs $10 is worth more than $125 vs $120. • People prefer bets that describe saving vs losing, even when the probabilities are the same.

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