In economics, hyperbolic discounting is a time-inconsistent model of discounting. Hyperbolic discounting refers to the tendency for people to have a stronger preference for more immediate payoffs relative to later payoffs, where the tendency increases the closer to the present both payoffs are. Also known as current moment bias, present-bias, and related to Dynamic inconsistency. The discounted […]
Monthly Archives: March 2014
Projection bias
Projection bias is a problem in human thinking where one thinks that others have the same priority, attitude or belief that he or she harbors even when this is unlikely. This concept is not to be confused with psychological projection where one thinks that others have a mental state that he is unaware of having […]
Loss aversion
In economics and decision theory, loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman. This leads to risk aversion when people evaluate an outcome comprising similar gains and […]
Decision theory: Definition
Decision theory in economics, psychology, philosophy, mathematics, and statistics is concerned with identifying the values, uncertainties and other issues relevant in a given decision, its rationality, and the resulting optimal decision. It is closely related to the field of game theory as to interactions of agents with at least partially conflicting interests whose decisions affect […]
Negativity bias
Negativity bias is the psychological phenomenon by which humans have a greater recall of unpleasant memories compared with positive memories. People are seen to be much more biased to the avoidance of negative experiences. They seem to behave in ways that will help them avoid these events. With this, humans are much more likely to […]
Status quo bias
Status quo bias is a cognitive bias; a preference for the current state of affairs. The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss. Status quo bias should be distinguished from a rational preference for the status quo ante, as when […]
Post-purchase rationalization
Post-purchase rationalization, also known as Buyer’s Stockholm Syndrome, is a cognitive bias whereby someone who has purchased an expensive product or service overlooks any faults or defects in order to justify their purchase. It is a special case of choice-supportive bias. Expensive purchases often involve a lot of careful research and deliberation, and many consumers […]
Gambler’s fallacy
The gambler’s fallacy, also known as the Monte Carlo fallacy or the fallacy of the maturity of chances, is the mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future (presumably as a means of balancing nature). In situations where what is being […]
In-group favoritism
In-group favoritism, sometimes known as in-group–out-group bias, in-group bias, or intergroup bias, refers to a pattern of favoring members of one’s in-group over out-group members. This can be expressed in evaluation of others, allocation of resources, and many other ways. For example, it has been shown that people will seek to make more internal (dispositional) attributions […]
Representativeness heuristic
The representativeness heuristic is used when making judgments about the probability of an event under uncertainty. It is one of a group of heuristics (simple rules governing judgment or decision making) proposed by psychologists Amos Tversky and Daniel Kahneman in the early 1970s. Heuristics are described as “judgmental shortcuts that generally get us where we need […]