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 […]
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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 […]
Naïve diversification
Naïve diversification is a choice heuristic (also known as “diversification heuristic”). Its first demonstration was made by Itamar Simonson in marketing in the context of consumption decisions by individuals. It was subsequently shown in the context of economic and financial decisions. Simonson showed that when people have to make simultaneous choice (e.g. choose now which of […]
Familiarity heuristic
The familiarity heuristic was developed based on the discovery of the availability heuristic by psychologists Amos Tversky and Daniel Kahneman; it happens when the familiar is favored over novel places, people, things. The familiarity heuristic can be applied to various situations that individuals experience in day to day life. When these situations appear similar to […]
Cognitive map
A cognitive map ( mental map or mental model) is a type of mental representation which serves an individual to acquire, code, store, recall, and decode information about the relative locations and attributes of phenomena in their everyday or metaphorical spatial environment. The concept was introduced by Edward Tolman in 1948. Cognitive maps have been […]