PERCEPTION AND ATTRIBUTION
In the Dearborn and Simon study, managers from different departments were shown the same case study. Production managers saw production problems, sales managers saw sales problems. This demonstrated what perceptual barrier
What is selective perception?
A man walks into a job interview wearing a suit, speaking confidently, with a firm handshake. The interviewer decides within 30 seconds that he's competent and qualified — before asking a single question about his experience. The interviewer is matching the candidate to a mental prototype.
This is what bias?
What is representativeness? (or stereotyping)
This economist won the Nobel Prize in 2017 for his work on nudge theory and behavioral economics — arguing that choice environments can be designed to help people make better decisions.
Who is Richard Thaler?
A sportsbook closing line reflects the combined knowledge of thousands of bettors with different information. No single oddsmaker could match it. Surowiecki would call this the wisdom of crowds. Hayek would call it an example of this concept.
What is spontaneous order? (or prices as signals / dispersed knowledge aggregation)
Hayek's term for a system that produces coordinated outcomes without anyone designing or directing it — markets, language, and common law are examples.
What is spontaneous order?
In the Haire and Grunes study, college students were told a factory worker was "intelligent." They responded with four defense mechanisms: denial, modification, subtle reinterpretation, and recognition without change. This demonstrates what concept?
What is perceptual defense?
You've been dating someone for two years. Your friends tell you the relationship isn't healthy. But you think: "I've already invested two years — I can't walk away now." Instead of evaluating whether to stay based on the future, you're justifying based on the past.
This is what fallacy?
What is the sunk cost fallacy?
This Austrian-British economist won the Nobel Prize in 1974 and argued that centralized decision makers can never possess enough dispersed, local knowledge to plan effectively for a complex society.
Who is Friedrich Hayek?
An experienced oddsmaker looks at a line and immediately feels something is "off" — without being able to explain why. Gary Klein would call this recognition-primed decision making. Kahneman and Klein agree this intuition is trustworthy because sports betting is this type of environment.
What is a high-validity environment? (regular patterns + clear feedback)
The tendency to continue investing in a decision because of what you've already spent, even when the rational move is to walk away — closely related to loss aversion.
What is the sunk cost fallacy?
The tendency to overestimate internal causes and underestimate situational causes when explaining OTHER people's behavior — blaming the person instead of the system.
What is the fundamental attribution error?
You're shopping for a used car. The dealer says "this car was listed at $18,000 but I can let it go for $12,000." You feel like you're getting a great deal — even though you have no idea if the car is worth $12,000. The $18,000 is doing what to you?
What is anchoring? (the $18,000 is an anchor)
This economist won the Nobel Prize in 1978 for the concept of bounded rationality — the idea that humans satisfice rather than optimize because of limits on information, cognition, and time.
Who is Herbert Simon?
In a sportsbook, the opening line functions as this bias — every subsequent bet adjusts from it, and the final number always stays closer to the opening than pure analysis would predict.
What is an anchor? (or anchoring)
Kahneman's research partner, an Israeli paratrooper and war hero who died of cancer in 1996 — six years before the Nobel Prize was awarded.
Who is Amos Tversky?
The psychological discomfort that arises when your behavior contradicts your beliefs, usually resolved by changing your beliefs to justify your behavior.
What is cognitive dissonance?
After watching a news story about a house fire, you go home and check your smoke detectors for the first time in two years. House fires haven't become more common — you just saw one on TV.
This is an example of what bias?
What is the availability heuristic?
This psychologist won the Nobel Prize in Economics in 2002 despite never having taken an economics course — proving that economists were wrong about how people actually make decisions.
Who is Daniel Kahneman?
After a dramatic upset, bettors flood money onto underdogs in the next round — not because the data supports it, but because the vivid result is fresh in their minds. This is what bias?
What is the availability heuristic? (or recency bias)
The option that people get if they do nothing — Thaler argues this is the most powerful nudge because most people never change it.
What is the default?
This approach to attitude formation says your beliefs are shaped by the social cues from the people around you rather than by independent evaluation — a new employee absorbs the group's attitudes before forming their own.
What is the social-information-processing approach?
A student fails an exam. His professor thinks "he didn't study hard enough." His mother thinks "the professor wrote an unfair test." The student thinks "I had a terrible week and couldn't focus." All three are explaining the same event differently.
The professor is committing what error?
What is the fundamental attribution error? (overestimating internal causes for someone else's failure)
In 2025, Venezuelan opposition leader María Corina Machado won the Nobel Peace Prize. But 11 hours before the official announcement, her odds on Polymarket surged from 4% to 73% as traders with apparent inside information placed hundreds of thousands of dollars in bets. The Nobel Committee launched a criminal investigation, but the damage was done — the winner had already been revealed by this type of market, which aggregates dispersed information through prices in exactly the way Hayek described.
What are prediction markets?
A bettor has put $500 on a team. At halftime, every
indicator shows his team will lose. But instead of hedging or accepting the loss, he doubles down — telling himself the team "always comes back in the second half." He's experiencing the combination of two concepts: he won't accept the loss because of one, and he's changing his beliefs to justify his bet because of the other.
What is loss aversion AND cognitive dissonance?
In 1906, Francis Galton analyzed 787 guesses at a county fair to estimate the weight of an ox. No individual got it exactly right, but the average of all guesses was within one pound of the actual weight. This became the foundational example for what concept — one we'll study in Week 5?
What is Wisdom of the Crowds?