Heuristic Medicine
People's estimates of unknown quantities are easily biased by initial values they consider ... even when those values are obviously irrelevant!
What is the Anchoring Heuristic?
Losses hurt more than equal gains feel good.
What is Loss Aversion?
You are waiting to hear back after a final round interview. You can either party tonight, or after you hear back.
What is after you hear back - people choose options with good reasons.
I value things that I own more than things that I do not own.
What is the Endowment Effect?
People are _____ randomizers.
What is poor? (also take any synonym)
After watching the movie Jaws, you begin to worry that the ocean is dangerous and should be avoided.
What is the Availability Heuristic?
We often consider gambles in isolation and we avoid taking risks that we would take if we adopted a wider time frame.
What is Myopic Loss Aversion?
You have a 20% chance to beat Magnus Carlsen at chess. Would you play him once or in a best of 3?
Play him once - lower sample sizes have a greater chance fo unexpected outcomes.
Starbucks medium coffee is likely their best seller.
What is the Compromise Effect?
Who tends to score better on the same essay, someone with a history of high scores or someone with a history of low scores?
High scores. Anchoring Heuristic.
The Kansas City Chiefs have made the playoffs 6 years in a row. They will definitely make it again next season!
What is the Hot Hand Fallacy?
If people are averse to certain losses, why do they play the lottery?
We overweight very small probabilities.
You lost a roulette bet because you chose black after seeing seven reds in a row, falling victim to the Gambler's Fallacy. How can you avoid the fallacy in the future?
Beware the law of small numbers! Small samples do not have to resemble the population from which they are drawn.
On Valentine's Day you gave someone flowers and chocolate before dinner. Could you have done anything differently?
Segregate Gains!
Higher sample sizes have _____ variance and _____ chance of unexpected outcomes.
Lower; Lower
3 attributes make things more likely to trigger the Availability Heuristic. Name two of them!
1. Have come to mind recently or frequently
2. Are the focus of our attention
3. Spring easily to mind
There are three fundamental principles of Prospect Theory. Name two of them!
1. Gains and losses relative to a reference point.
2. Diminishing sensitivity to increasing gains and losses.
3. Losses hurt more than equal gains feel good (loss aversion)
You are a taxi driver, and you just had your best day in years. Hitting your daily average after just two hours of driving! What are you likely to do? Why?
You are likely to call it quits early because you have already hit your daily reference point for earnings. However, you would benefit from continuing to drive.
What difference in how you view the world accounts for the gambler's fallacy versus the hot hand fallacy?
Is the world changing? If unchanging, gambler's fallacy. If changing, streaks are seen as evidence of change, and you get the hot hand fallacy.
You are being interrogated for a crime. Should you ask that the camera points at you or you and the interrogator. Why?
You and the interrogator! The availability heuristic; people overestimate the causal impact of things that are the focus of our attention.
My uncle plays roulette a lot. He made $1 million in profits last year. He used this money to hire a roulette coach. This year he lost $5,000 and fired his coach. He neglected _____ and fell pray to _____.
What is Regression to the Mean? What is the Fallacy of Intervention?
You are the owner of a hardware store, and you are thinking about adding rebates for the tools you sell. How should you design this program to make your customers happy?
Send the rebate in the mail after the purchase. Segregate gains! Integrate losses!
You are a car salesman tasked with selling Tesla's new Cybertruck. The truck is ugly, but it has very impressive acceleration and durability. Should you present it alone? Or with the other trucks? Why?
With the other trucks. You can easily evaluate appearance on its own, but you need a reference point to evaluate 0-60 times and durability.
At the Ripley's Believe it or Not museum in LA, you can buy a ticket to one section for $40 or to three sections for $35. You can also watch a video tour for $15. I bought the ticket to three sections.
What is the Attraction Effect?
These two scientists coined the term 'Prospect Theory.'
Who are Daniel Kahneman and Amos Tversky?