Systematically Wrong

• why do we make choices that disappoint us so often
• why do we procrastinate
• why do we spend too much on things that don't make us happy
• how do we judge things
• why do people have different behavior
• human behavior is systematic.

Psychology of Choice, Decisions

Kahneman

"Decision frame" refers to the decision-maker's conception of the acts, outcomes, and contingencies associated with a particular choice.

Pattern: choices involving ggaims are often considered risk averse and choices involving losses are often risk taking. Even if two problems are identical.

Decision-making under risk has a utility model.

In prospect theory, outcomes are expressed as positive or negative deviations frmo a neutral reference outcome.

certainty effect: a reduction of the probability of an outcome by a constant factor has more impact when the outcome was initially certain than when it was merely probable.

Outcomes are perceived as +/- in relation to a reference outcome that is judged neutral.

Judgements without Information

Human choices are psychological.

Baseless intuitions are systematic and pervasive (shared by everyone).

• intuitions sometimes takeover.

conjunction fallacy: not respecting basic law of probability. When there is a conjunction, we violate this.

Based on these two points, there are two ideas

• "intuition" is systematc and can override the rule
• people systematically violate the rules of probability

Base rate neglect: we need to have context

Regression to the mean.

A heuristic is a shortcut to the answer, it is right most of the time.

availability we use our own mental effort as a proxy for frequency.

• it's about how easy it is to come up with examples, which we assume is more frequent.

A database needs structure and a search engine.

Random Sequences

The Hot Hand

We tend to think that events are not independent. We have a superstition for streaks ecspecially in sports.

We have a tendency and mispercieve, so we use heuristics, which is superstition.