Methods Of Using Numerical Uncertainty Information Essay

Kahneman’s article is an analysis of intuitive thinking and how it guides our decision-making. Although primarily aimed at the field of psychology, it is an interdisciplinary article with applications in economic theorising. Kahneman attempts to differentiate between two systems of thought, one of intuition (system 1) and one of reasoning (system 2), and argues that many judgements and choices are made intuitively, rather than with reason (a slower and more deliberate process). Intuitive decision making, which encompasses heuristics, although generally more efficient and rapid, makes the agent potentially subject to errors due to framing effects or violations of dominance. The analysis of the studies and theoretical situations also provides criticism of the commonly held model of the rational agent within economics. The article also further conceptualises Kahneman’s theory, the Prospect Theory (Kahneman & Tversky, 1979), which has descriptive applications of people’s choice in decision-making situations involving risk and known probability of outcomes. These situations are typically unexplained by the more normative rational agent model.

Two phenomena- hindsight bias and judgmental overconfidence- illustrate why we can’t rely solely on intuition and common sense.

thinking at the margin: deciding whether to do or use one additional unit of some resource.

However, it’s unknown exactly what kinds of situations will cause ambiguity to be avoided or preferred. The literature is also unclear as to whether the reaction is from the, “missing probability parameter itself, or (2) motivational or attributional factors…” (Rode et al. 1999) associated with comparing opitions. The authors hypothesized that, “people associate ambiguous probabilities with highly variable outcomes” (Rode et al. 1999). If the outcome that the person needs is higher than the average payoff of each option, then the person should actually default to the ambiguous option because it would have more variability, which could have a greater chance

When humans make a decision, it often turns out to be “predictably irrational” (Ariely, 2009). They always deviate systematically from expected decision rather show an inclination towards a certain way of thinking. This consistency of behavioral or decision bias can be very helpful to identify consequences or outcomes in a different

Almost everyone uses decision-making on a daily basis. The ability to make decisions is significant because possible outcomes can outweigh losses depending on the decision you choose to make. Decision-making helps to solve everyday problems, but has also been beneficial to solving several scientific issues like Bechera, Damasio, Damasio, and Anderson (1994) did in their study of the Iowa Gambling Task. There were a total of 50 participants in their study, where 44 men and women were from a normal control group and 6 men and women were E.V.R subjects. The subjects are told to select a card from four decks until they are told to stop. The subjects receive money depending on the deck they choose from. After so many turns and receiving money, they

Personal decision making is influenced by a range of biases, many of which we are unconscious of. Being more aware of these biases reveals how individual decision making can be improved. (Reference…)

Most studies done by Gilbert tries to establish the links between decision making, prediction, and well-being. The common assumption that one would be happier with an option of changing their minds over a decision than the fact remains that they would be happier with closure is challenged. All forecasting mistakes do not lead to similar results but their effect on ones well-being is the same.

As a result, individual expectations, experiences, and biases may influence the way that people view probability of financial events or failures. It is possible to understand that human thinking is impacted by the most important things in life for a person. Fear

Bavoľár, Jozef and Oľga Orosová. “Decision-making styles and their associations with decision-making competencies and mental health.” Judgment and Decision Making 10(2015): 115-122. Web. 1 Jan. 2015

Their findings led to the creation of a theory about risky choices known as the Prospect theory. Based on their studies, people perceive outcomes as gains and losses rather than the totality of wealth and welfare. Thus, people place more value on outcomes that are considered certain, relative to outcomes that were only probable. They coined this phenomenon the "certainty effect" which is pertinent to the decision-making process regarding acceptable risk. Regardless of if a risk contributes to gains or to losses the "certainty effect" dictates the response (Kahneman, D., & Tversky, A.

According to Outsmart Your Own Biases, relying solely on system 1 thinking can be detrimental. System 1 thinking, or “automatic judgments that stem from associations stored in memory” (Soll, Milkman, & Payne, 2015, p. 66), is a disagreeable habit to employ in most decision making scenarios as “most of us tend to be highly overconfident in our estimates. It’s important to ‘nudge’ ourselves to allow for risk and uncertainty” (Soll, Milkman, & Payne, 2015, p. 66). The article goes on to state; it is much more beneficial to work logically through the applicable information. System 1 thinking is the most prevalent origin of bias, which can eventuate in poor decision making due to the limitations of intuition, which can often mislead. Moreover, flawed System 2 thinking “deliberate [slower] reasoning gone awry”, or rationalization, can be equally detrimental (Soll, Milkman, & Payne, 2015, p. 66). (Soll, Milkman, & Payne, 2015)

Prospect theory is an important alternative descriptive theory for decision-making under unreliable situation (Kahneman and Tversky 1979), which includes real life selection and psychological analysis between choices that involve risk. Prospect theory, which efforts to explain individual make decisions between risky replacements based on the value of potential gains and losses (Wakker 2010), advanced from expected utility theory, which explains that investors want to maximize expected utility of wealth when unclearly situations (Blavatskyy 2007). According to Kahneman and Tversky (1992), more recent researches perceived nonlinear preferences in choices that do not involve definite events in prospective theory. The concept of framing effect refers description invariances (Kahneman and Tversky 1992). To be specific, individual always makes the same decision in identical choice conditions. Also, decision makers have tendency to

Prior research has yet to investigate the cognitive process by which attention to opportunity costs influences judgment and decision-making and whether it has a decisional consequence.

In in attempt to create a more psychologically accurate description of decision making, Kahneman and Tversky (1979) developed Prospect Theory, which theorized that individuals have different perceptions when considering losses versus gains. In contrast to EU Theory, which suggests we make decisions that maximise our utility, research by Kahneman and Tversky (1979) found that information is not processed in such a rational way. For example, according to EU Theory, the amount of utility gained by receiving $200 should be equal to receiving $300 and losing $100 as in both situations