Decision Making Theories and Biases

Expected Utility Theory assumes that individuals weigh the potential outcomes of each option and choose the one with the highest expected value.

Hyperbolic Discounting refers to the tendency for individuals to place a higher value on immediate rewards compared to future rewards, even if the future rewards are objectively more valuable.

Anchoring Bias occurs when individuals use an initial piece of information as a reference point and make subsequent judgments relative to that reference point, even if the initial information is irrelevant or misleading.

Availability Heuristic refers to the tendency for individuals to make judgments and decisions based on information that is easily accessible in their memory, even if that information is not necessarily representative or accurate.

Regret Theory assumes that individuals are motivated to avoid regret and make decisions that minimize the potential for regret, even if those decisions may not lead to the highest expected value.

Confirmation Bias refers to the tendency for individuals to seek out information that confirms their existing beliefs and ignore or discount information that contradicts those beliefs.

Framing Effect occurs when individuals make different decisions depending on how the options are presented, even if the underlying outcomes are the same. The way the options are framed can influence the perceived attractiveness and desirability of each option.

Bounded Rationality refers to the idea that individuals make decisions based on limited information and cognitive resources, rather than attempting to gather all possible information. This is due to the constraints of time, cognitive capacity, and the complexity of the decision-making environment.

Dual-Process Theory proposes that individuals make decisions through two distinct systems: a fast, intuitive, and emotional system, and a slow, deliberate, and rational system. The interplay between these two systems influences the decision-making process.

Availability Heuristic refers to the tendency for individuals to make judgments and decisions based on information that is easily accessible in their memory, even if that information is not necessarily representative or accurate. This can lead to overestimating the likelihood of rare events and underestimating the likelihood of common events.

Sunk Cost Fallacy refers to the tendency for individuals to continue investing in a course of action, even if it is no longer rational to do so, because they have already invested time, money, or effort into it.

Social Proof refers to the tendency for individuals to make decisions based on the opinions and actions of others, rather than on their own independent judgment. This is often driven by the desire to conform to social norms and expectations.

Primacy Effect refers to the tendency for individuals to give more weight to the first piece of information they receive when making a decision, even if it is later contradicted by new information. This is because the first piece of information creates a strong initial impression that can be difficult to overcome.

Intuition refers to the tendency for individuals to make decisions based on emotions and gut feelings, rather than on rational analysis and logic. This is often driven by subconscious processes and experiences that have shaped our decision-making patterns.

Availability Heuristic refers to the tendency for individuals to make judgments and decisions based on information that is easily accessible in their memory, even if that information is not necessarily representative or accurate. This can lead to making decisions based on the most extreme or salient information, even if it is not representative of the overall situation.