Utility & Prospect Theory
According to Prospect Theory, people are risk-seeking in this domain but risk-averse in gains.
This occurs when people assign specific purposes to different categories of money, which influences how they choose to spend it.
What is the labeling effect?
This concept describes how people tend to value immediate rewards more highly than future rewards, often leading to inconsistent choices over time.
What is temporal discounting?
The tendency for people to stick with a default option.
What is status quo bias?
This theory posits that people assess the value of a gamble as a probability-weighted average of its outcomes.
What is Expected Utility Theory?
This term describes when individuals focus on short-term gains or losses rather than the long-term impact of their decisions.
What is myopic?
The jigsaw puzzle alarm clock, Christmas clubs, blocking apps on your phone, and paying premium prices for a small amount of candy are all examples of this.
What are self-commitment devices?
This effect occurs when too many options lead to decision paralysis.
What is the choice overload effect?
This phenomenon explains why people tend to value items they own more highly than identical items they do not own.
What is the endowment effect?
The tendency to spread choices or resources across a variety of options rather than concentrating them is known as...
What is diversification?
This term describes inconsistent decision-making over time, such as choosing $100 now over $110 later but choosing $110 in a year over $100 in 11 months.
What is dynamic inconsistency?
hen a slight shift in phrasing (like “surcharge” vs. “discount”) changes preferences, it’s known as this.
What is a framing effect?
A key difference in Prospect Theory versus traditional utility models is that decisions are based on these, not final states.
What are gains and losses?
When people consider the original purchase price rather than the current market value of an item, it's because they are relying on the...
What is historical cost?
If a person assigns more value to future outcomes than to present ones, they might be engaging in...
What is negative discounting?
What is it called when two equally attractive choices lead people to avoid choosing, seek more information, or stick with the default option?
What is decisional conflict?
This is the phenomenon by which people tend to undervalue high probabilities and overvalue low probabilities.
What is probability weighting (or decision weighting)?
The reluctance to accept reductions in nominal salary or income, even when real purchasing power remains the same, is an example of this.
What is nominal loss aversion?
This tactic involves asking hypothetical or leading questions that can influence people’s future choices or behaviors.
What is push polling?
This concept refers to how easily a person can judge the value or importance of an option or attribute, and is often influenced by the presence of comparable choices or clear metrics.
What is evaluability?