Conservatism (Bayesian)
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Conservatism (Bayesian)
In cognitive psychology and decision science, conservatism or conservatism bias is a bias which refers to the tendency to revise one's belief insufficiently when presented with new evidence. This bias describes human belief revision in which people over-weigh the prior distribution (base rate) and under-weigh new sample evidence when compared to Bayesian belief-revision. According to the theory, "opinion change is very orderly, and usually proportional to the numbers of Bayes' theorem – but it is insufficient in amount". In other words, people update their prior beliefs as new evidence becomes available, but they do so more slowly than they would if they used Bayes' theorem. This bias was discussed by Ward Edwards in 1968, who reported on experiments like the following one: There are two bookbags, one containing 700 red and 300 blue chips, the other containing 300 red and 700 blue. Take one of the bags. Now, you sample, randomly, with replacement after each chip. In 12 sampl ...
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Cognitive Psychology
Cognitive psychology is the scientific study of mental processes such as attention, language use, memory, perception, problem solving, creativity, and reasoning. Cognitive psychology originated in the 1960s in a break from behaviorism, which held from the 1920s to 1950s that unobservable mental processes were outside the realm of empirical science. This break came as researchers in linguistics and cybernetics, as well as applied psychology, used models of mental processing to explain human behavior. Work derived from cognitive psychology was integrated into other branches of psychology and various other modern disciplines like cognitive science, linguistics, and economics. The domain of cognitive psychology overlaps with that of cognitive science, which takes a more interdisciplinary approach and includes studies of non-human subjects and artificial intelligence. History Philosophically, ruminations on the human mind and its processes have been around since the times of the a ...
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Stock Split
A stock split or stock divide increases the number of shares in a company. For example, after a 2-for-1 split, each investor will own double the number of shares, and each share will be worth half as much. A stock split causes a decrease of market price of individual shares, but does not change the total market capitalization of the company: stock dilution does not occur. A company may split its stock when the market price per share is so high that it becomes unwieldy when traded. One of the reasons is that a very high share price may deter small investors from buying the shares. Stock splits are usually initiated after a large run up in share price. Effects The main effect of stock splits is an increase in the liquidity of a stock: there are more buyers and sellers for 10 shares at $10 than 1 share at $100. Some companies avoid a stock split to obtain the opposite strategy: by refusing to split the stock and keeping the price high, they reduce trading volume. Berkshire Hathawa ...
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Cognitive Inertia
Cognitive inertia is the tendency for a particular orientation in how an individual thinks about an issue, belief or strategy to resist change. In clinical and neuroscientific literature it is often defined as a lack of motivation to generate distinct cognitive processes needed to attend to a problem or issue. The physics term inertia is to emphasize the rigidity and resistance to change in the method of cognitive processing that has been in use for a significant amount of time. Commonly confused with belief perseverance, cognitive inertia is the perseverance of how one interprets information, not the perseverance of the belief itself. Cognitive inertia has been causally implicated in disregard of impending threat to one's health or environment, enduring political values and deficits in task switching. Interest in the phenomenon was largely taken up by economic and industrial psychologists to explain resistance to change in brand loyalty, group brainstorming and business strategi ...
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Bayesian Inference
Bayesian inference is a method of statistical inference in which Bayes' theorem is used to update the probability for a hypothesis as more evidence or information becomes available. Bayesian inference is an important technique in statistics, and especially in mathematical statistics. Bayesian updating is particularly important in the dynamic analysis of a sequence of data. Bayesian inference has found application in a wide range of activities, including science, engineering, philosophy, medicine, sport, and law. In the philosophy of decision theory, Bayesian inference is closely related to subjective probability, often called "Bayesian probability". Introduction to Bayes' rule Formal explanation Bayesian inference derives the posterior probability as a consequence of two antecedents: a prior probability and a "likelihood function" derived from a statistical model for the observed data. Bayesian inference computes the posterior probability according to Bayes' theorem: ...
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Belief Revision
Belief revision is the process of changing beliefs to take into account a new piece of information. The logical formalization of belief revision is researched in philosophy, in databases, and in artificial intelligence for the design of rational agents. What makes belief revision non-trivial is that several different ways for performing this operation may be possible. For example, if the current knowledge includes the three facts "A is true", "B is true" and "if A and B are true then C is true", the introduction of the new information "C is false" can be done preserving consistency only by removing at least one of the three facts. In this case, there are at least three different ways for performing revision. In general, there may be several different ways for changing knowledge. Revision and update Two kinds of changes are usually distinguished: ; update : the new information is about the situation at present, while the old beliefs refer to the past; update is the operation of chan ...
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Belief Perseverance
Belief perseverance (also known as conceptual conservatism) is maintaining a belief despite new information that firmly contradicts it. Such beliefs may even be strengthened when others attempt to present evidence debunking them, a phenomenon known as the backfire effect (compare boomerang effect). For example, in a 2014 article in ''The Atlantic'', journalist Cari Romm describes a study involving vaccination hesitancy. In the study, the subjects expressed their concerns of the side effects of flu shots. After being told that the vaccination was completely safe, they became even less eager to accept them. This new knowledge pushed them to distrust the vaccine even more, reinforcing the idea that they already had before. There are three kinds of backfire effects: Familiarity Backfire Effect (from making myths more familiar), Overkill Backfire Effect (from providing too many arguments), and Worldview Backfire Effect (from providing evidence that threatens someone’s worldview) ...
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Base Rate Fallacy
The base rate fallacy, also called base rate neglect or base rate bias, is a type of fallacy in which people tend to ignore the base rate (i.e., general prevalence) in favor of the individuating information (i.e., information pertaining only to a specific case). Base rate neglect is a specific form of the more general extension neglect. False positive paradox An example of the base rate fallacy is the false positive paradox. This paradox describes situations where there are more false positive test results than true positives. For example, if a facial recognition camera can identify wanted criminals 99% accurately, but analyzes 10,000 people a day, the high accuracy is outweighed by the number of tests, and the program's list of criminals will likely have far more false positives than true. The probability of a positive test result is determined not only by the accuracy of the test but also by the characteristics of the sampled population. When the prevalence, the proportion of t ...
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Information-theoretic
Information theory is the scientific study of the quantification, storage, and communication of information. The field was originally established by the works of Harry Nyquist and Ralph Hartley, in the 1920s, and Claude Shannon in the 1940s. The field is at the intersection of probability theory, statistics, computer science, statistical mechanics, information engineering, and electrical engineering. A key measure in information theory is entropy. Entropy quantifies the amount of uncertainty involved in the value of a random variable or the outcome of a random process. For example, identifying the outcome of a fair coin flip (with two equally likely outcomes) provides less information (lower entropy) than specifying the outcome from a roll of a die (with six equally likely outcomes). Some other important measures in information theory are mutual information, channel capacity, error exponents, and relative entropy. Important sub-fields of information theory include source codin ...
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Anchoring Bias
The anchoring effect is a cognitive bias whereby an individual's decisions are influenced by a particular reference point or 'anchor'. Both numeric and non-numeric anchoring have been reported in research. In numeric anchoring, once the value of the anchor is set, subsequent arguments, estimates, etc. made by an individual may change from what they would have otherwise been without the anchor. For example, an individual may be more likely to purchase a car if it is placed alongside a more expensive model (the anchor). Prices discussed in negotiations that are lower than the anchor may seem reasonable, perhaps even cheap to the buyer, even if said prices are still relatively higher than the actual market value of the car. Another example may be when estimating the orbit of Mars, one might start with the Earth's orbit (365 days) and then adjust upward until they reach a value that seems reasonable (usually less than 687 days, the correct answer). The original description of the anc ...
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Dividend
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business (called retained earnings). The current year profit as well as the retained earnings of previous years are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or by share repurchase. In some cases, the distribution may be of assets. The dividend received by a shareholder is income of the shareholder and may be subject to income tax (see dividend tax). The tax treatment of this income varies considerably between jurisdictions. The corporation does not receive a tax deduct ...
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Decision Science
Decision theory (or the theory of choice; not to be confused with choice theory) is a branch of applied probability theory concerned with the theory of making decisions based on assigning probabilities to various factors and assigning numerical consequences to the outcome. There are three branches of decision theory: # Normative decision theory: Concerned with the identification of optimal decisions, where optimality is often determined by considering an ideal decision-maker who is able to calculate with perfect accuracy and is in some sense fully rational. # Prescriptive decision theory: Concerned with describing observed behaviors through the use of conceptual models, under the assumption that those making the decisions are behaving under some consistent rules. # Descriptive decision theory: Analyzes how individuals actually make the decisions that they do. Decision theory is closely related to the field of game theory and is an interdisciplinary topic, studied by econom ...
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Ward Edwards
Ward Edwards (1927–2005) was an American psychologist, prominent for work on decision theory and on the formulation and revision of beliefs. Education Edwards attended Swarthmore College and then received his Ph.D. in Psychology from Harvard University. Awards * Frank P. Ramsey Award from the Decision Analysis Society, 1988 * Distinguished Scientific Contributions Award in Applied Psychology, American Psychological Association 1996 * 2004 class of Fellows of the Institute for Operations Research and the Management Sciences "The Association for Psychological Science named Ward Edwards as a James McKeen Cattell Fellow James is a common English language surname and given name: *James (name), the typically masculine first name James * James (surname), various people with the last name James James or James City may also refer to: People * King James (disambiguati ... in recognition of his sustained and seminal contributions to the technology of decision making and to behavior ...
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