Bounded awareness & bounded rationality
17 important questions on Bounded awareness & bounded rationality
What is meant with bounded rationality?
- We only use a subset of information that is available to us
- We often use this information insufficiently, incorrectly, or in a biased way
- We solve a simplified version of the problem at hand
- We don't optimize but 'satisfice'
Why are awareness and attention related to bounded rationality?
What is meant with bottom-up and top-down processes?
Top-down processing is when our thinking influence how we see (understand/perceive) the environment. What we expect and hope to see.
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What types of information acquisition and processing are there?
- Selective attention
- Status quo bias
- Serial positioning
- Sunk cost fallacy
- Anchoring
- Availability heuristic
- Presentation formats
- Pattern recognition
- Menu effect
- Motivated reasoning
- Halo effect
- Hindsight bias
- Representativeness
- Overconfidence
- Decision myopia
- Escalation of commitment
- Language effect
- Confirmation bias
What are presentation formats?
What is serial positioning?
- Primacy effect: the first item in a list gets more attention/weight. It sets the stage and acts like an anchor.
- Recency effect: the last/most recent items in a list gets more attention/weight. They occupy working memory when a judgment or decision is made.
What are menu effects?
- Choice depend on available alternatives.
- The decoy effect (Ariely, 2008): this is a phenomenon whereby customers change their preference when a third option is presented - the ''decoy" - that is asymmetrically dominated.
What are language effects?
- Jargon
- Sentiment
- Textual analysis
- Fog index = 0.4*(average number of words per sentence + percentage of words with more than two syllables)
What is the availability heuristic?
- How easily something comes to mind
- Perceptions and intuitions come to mind effortlessly
What is pattern recognition?
- Survivorship fallacy: the mistaken belief that because someone or something survives it must necessarily be better of have some specific unique characteristics.
- The Matthew effect: the social phenomenon often linked to the idea that the rich get richer and the poor get poorer. In essence, this refers to a common concept that those who already have status are often placed in situations where they gain more, and those that do not have status typically struggle to achieve more.
What is motivated reasoning?
What is decision myopia?
- 'Bounded awareness': the phenomenon in which individuals do not 'see' accessible and perceivable information during the decision-making process, while 'seeing' other equally accessible and perceivable information; as a result, useful information remains out of focus for the decision-maker.
- Answering a question using your “System 1” instead of your “System 2”
What is the status quo bias?
- The tendency to maintain the current situation
- Omission/Commission bias: the tendency to favor an act of omission (inaction) over one of commission (action). Acting feel worse than not acting, even if the outcomes are the same.
- Regret aversion: the tendency to avoid taking actions we might regret.
What is the sunk cost fallacy?
What is/are the (normative) benchmark(s) against which the judgment(s) or decision(s) are compared?
What is/are the judgment(s) or decision(s) that are studied in this paper?
What is/are the (normative) benchmark(s) against which the judgment(s) or decision(s) are compared?
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