Summary Influencing People (BKBMIN017) 2020-2021
Module 1: System 1+2 and Heuristics and Biases
Concepts
Bounded rationality (Herbert Simon): Resources (time, cognitive, etc.) are limited,
so people don’t often optimize, they satisfice (f.e. we only consider a few alternatives
when buying a new table)
“Predictable” irrationality (Tversky & Kahneman): People do not just make
suboptimal decisions, they are systematically wrong (which means we can study how
people decide) because they are biased
Heuristics: Mental shortcuts to satisfactory solutions (are useful because they
require no resources and work most of the time)
Biases: Systematic deviations from “rationality” (systematic = predictable)(biases are
mostly a result of heuristics not working)
Representativeness heuristic: “The more X resembles Y, the more likely X is to be
Y”
Conjunction fallacy: The conjunction fallacy is a fallacy that occurs when it is
assumed that specific conditions are more probable than a single general one. (Linda
problem)(can be a result of the representativeness heuristic)
Availability heuristic: “The more examples of X come to mind, the more likely X is”
Recency effect: The recency effect is a cognitive bias in which those items, ideas, or
arguments that came last are remembered more clearly than those coming first.
Peak-end rule: The peak–end rule is a psychological heuristic in which people judge
an experience largely based on how they felt at its peak and at its end, (rather than
based on the total sum or average of every moment of the experience. The effect
occurs regardless of whether the experience is pleasant or unpleasant.)
Anchoring: Anchoring is a cognitive bias where an individual depends too heavily on
an initial piece of information offered to make subsequent judgments during decision
making. (so not a heuristic)
Context effect: A context effect is an aspect of cognitive psychology that describes
the influence of environmental factors on one's perception of a stimulus. (includes the
attraction and compromise effect)
Attraction effect: The attraction effect refers to a phenomenon in which adding an
irrelevant alternative into an existing choice set increases the proportion of people
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, choosing an alternative from the original set. (f.e. adding a dominated option makes
the dominating option much more attractive)
Compromise effect: The compromise effect states that a consumer is more likely to
choose the middle option of a selection set rather than the extreme options.
Extremeness aversion: Extremeness aversion is the tendency of choice makers to
avoid extreme options and choose an intermediate option (the compromise).
Misconceptions of chance: People expect that a sequence of events generated by
a random process will represent the essential characteristics of that process even
when the sequence is short
Gambler’s fallacy: The gambler's fallacy is a mistaken belief about sequences of
random events. In other words, the gambler's fallacy is the belief that a streak of a
given outcome lowers the probability of observing that outcome on the next trial. (this
is a misconception of chance)
Video notes
The steps to making a rational decision:
1. Define the problem
2. Identify all decision criteria
3. Allocate weights to the criteria (how important is one criteria for you in comparison to
another one)
4. Identify all alternatives (what other solutions are there for your problem)
5. Evaluate the alternatives (how do all alternatives score on the decision criteria)
6. Choose the best alternative (account for the weights and compute which option gives
you the highest value/utility)
But how do people actually make decisions?
Bounded rationality (Herbert Simon): Resources (time, cognitive, etc.) are limited,
so people don’t often optimize, they satisfice (f.e. we only consider a few alternatives
when buying a new table)
“Predictable” irrationality (Tversky & Kahneman): People do not just make
suboptimal decisions, they are systematically wrong (which means we can study how
people make wrong decisions and learn how to improve) because they are biased
System 1 and System 2
System 1 System 2
Automatic Controlled
Fast Slow
Not cognitively demanding Cognitively demanding
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, System 1 gives the intuitive answer, then System 2 should ideally question the
intuitive answer and, if necessary, come up with a rational answer (ex.: bat and ball
for 1.10)
System 1 is mostly responsible for the use of heuristics (mental shortcuts to
satisfactory solutions)
Heuristics are useful because they are efficient (no resources required), and they
work (most of the time)
When heuristics don’t work, they lead to biases (systematic deviations from
“rationality”)
! “What is rational?” is a debated question !
! Not all biases are due to heuristics / System 1 !
Probability estimation
Is a judgement that people make all the time (when buying a house, where to go on
vacation etc.) What are some of the heuristics we use for it?
A heuristic we use to make a probability estimation is the representativeness
heuristic (“The more X resembles Y, the more likely X is to be Y”)
However, this could go wrong. You should ask yourself:
1. How confident are you in this resemblance? (accurate stereotypes are still
stereotypes, ex. CEO riddle)(do you have enough info? we underestimate the
importance of info)
2. How likely is Y in the first place? (representativeness ignores base rates, ex.
Conjunction fallacy/Linda problem, and false positives)
Availability heuristic (“The more examples of X come to mind, the more likely X is”)
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, Is a heuristic we also use for probability estimation
But what makes some examples easier to recall than others?
1. Familiarity (if you are familiar with something, that is more likely to come to mind, and
you then think it is also more likely to occur in the world, ex. famous men’s names)
2. Recency (terrorist attacks in Europe)
3. Salience (the quality of being particularly noticeable or important; prominence, ex.
people think the odds of dying in a plane crash are higher than they are in reality,
because when exceptional events like that happen, you hear about it a lot)
4. and more..
More biases
Anchoring and (insufficient) adjustment (if people are given a higher anchor first,
they will answer with a higher number than people that were given a lower anchor
first)(even when the previous question and anchor are totally irrelevant for the current
question, ex. social security number)
Not all biases occur in System 1, the following occur in System 2
Context effect: the context in which you make your choice matters
Attraction effect (dominating option becomes much more attractive when a third,
dominated (decoy) option is added)
Compromise effect (if a third (decoy) option is added, the option which has now
become a compromise is now seen as more attractive (extremeness aversion), ex.
if a third larger coffee is added, people are more likely to choose the middle option)
and more..
Additional reading notes
When 2 options are equally attractive, justification does not provide a clear reason for
choosing one versus the other, and as a result, the decision maker may be more
likely to defer the choice.
People disproportionately attend to unique features in decision making tasks (Unique
features stand out more, whether they are positive or negative)
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