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Certainty Effect
The certainty effect is the psychological effect resulting from the reduction of probability from certain to probable . It is an idea introduced in prospect theory. Normally a reduction in the probability of winning a reward (e.g., a reduction from 80% to 20% in the chance of winning a reward) creates a psychological effect such as displeasure to individuals, which leads to the perception of loss from the original probability thus favoring a risk-averse decision. However, the same reduction results in a larger psychological effect when it is done from certainty than from uncertainty. Example illustrated the certainty effect by the following examples. First, consider this example: Which of the following options do you prefer? *A. a sure gain of $30 *B. 80% chance to win $45 and 20% chance to win nothing In this case, 78% of participants chose option A while only 22% chose option B. This demonstrates the typical risk-aversion phenomenon in prospect theory and framing effect b ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Prospect Theory
Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing $1,000 could only be compensated by the pleasure of earning $2,000. Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people. In the original formulation of the theory, the term ''prospect'' referred to the predictable results of a lottery. However, prospect theory can also be applied to the prediction of other forms of behaviors and decisions. Prospect theory challenges the expected utility theory deve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Framing Effect
In the social sciences, framing comprises a set of concepts and theoretical perspectives on how individuals, groups, and societies organize, perceive, and communicate about reality. Framing can manifest in thought or interpersonal communication. ''Frames in thought'' consist of the mental representations, interpretations, and simplifications of reality. ''Frames in communication'' consist of the communication of frames between different actors. Framing is a key component of sociology, the study of social interaction among humans. Framing is an integral part of conveying and processing data daily. Successful framing techniques can be used to reduce the ambiguity of intangible topics by contextualizing the information in such a way that recipients can connect to what they already know. Framing is mistaken in the world outside of communication as bias, or arguments around nature vs nurture. While biases and how a person is raised might add to stereotypes or anecdotes gathered, thos ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Pseudocertainty Effect
In prospect theory, the pseudocertainty effect is the tendency for people to perceive an outcome as certain while it is actually uncertain in multi-stage decision making. The evaluation of the certainty of the outcome in a previous stage of decisions is disregarded when selecting an option in subsequent stages. Not to be confused with certainty effect, the pseudocertainty effect was discovered from an attempt at providing a normative use of decision theory for the certainty effect by relaxing the cancellation rule. Background The pseudocertainty effect was illustrated by Daniel Kahneman, who received the Nobel Prize in economics for his work on decision making and decision theory, in collaboration with Amos Tversky. The studies that they researched used real and hypothetical monetary gambles and were often used in undergraduate classrooms and laboratories. Kahneman and Tversky illustrated the pseudocertainty effect by the following examples. Problem 1 Consider the following two ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Framing Effect (psychology)
Framing may refer to: * Framing (construction), common carpentry work * Framing (law), providing false evidence or testimony to prove someone guilty of a crime * Framing (social sciences) * Framing (visual arts), a technique used to bring the focus to the subject * Framing (World Wide Web), a technique using multiple panes within a web page * Pitch framing, a baseball concept * Timber framing, a traditional method of building with heavy timbers See also * Frame synchronization, in telecommunications * Frame of reference, a coordinate system * Frame (other) * Framed (other) * Framing device, a narrative tool * Framework (other) * Inertial frame of reference In classical physics and special relativity, an inertial frame of reference (also called an inertial space or a Galilean reference frame) is a frame of reference in which objects exhibit inertia: they remain at rest or in uniform motion relative ..., describes time and space homogeneousl ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Prospect Theory
Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing $1,000 could only be compensated by the pleasure of earning $2,000. Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people. In the original formulation of the theory, the term ''prospect'' referred to the predictable results of a lottery. However, prospect theory can also be applied to the prediction of other forms of behaviors and decisions. Prospect theory challenges the expected utility theory deve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Allais Paradox
The Allais paradox is a choice problem designed by to show an inconsistency of actual observed choices with the predictions of expected utility theory. The Allais paradox demonstrates that individuals rarely make rational decisions consistently when required to do so immediately. The independence axiom of expected utility theory, which requires that the preferences of an individual should not change when altering two lotteries by equal proportions, was proven to be violated by the paradox. Statement of the problem The Allais paradox arises when comparing participants' choices in two different experiments, each of which consists of a choice between two gambles, A and B. The payoffs for each gamble in each experiment are as follows: Several studies involving hypothetical and small monetary payoffs, and recently involving health outcomes, have supported the assertion that when presented with a choice between 1A and 1B, most people would choose 1A. Likewise, when presented with a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. One ISO standard, international standard definition of risk is the "effect of uncertainty on objectives". The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, Environmental science, environment, finance, information technology, health, insurance, safety, security, security, privacy, etc). This article provides links to more detailed articles on these areas. The international standard for risk management, ISO 31000, provides principles and general guidelines on managing risks faced by organizations. Defi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cognitive Biases
A cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own "subjective reality" from their perception of the input. An individual's construction of reality, not the objective input, may dictate their behavior in the world. Thus, cognitive biases may sometimes lead to perceptual distortion, inaccurate judgment, illogical interpretation, and irrationality. While cognitive biases may initially appear to be negative, some are adaptive. They may lead to more effective actions in a given context. Furthermore, allowing cognitive biases enables faster decisions which can be desirable when timeliness is more valuable than accuracy, as illustrated in heuristics. Other cognitive biases are a "by-product" of human processing limitations, resulting from a lack of appropriate mental mechanisms (bounded rationality), the impact of an individual's constitution and biological state (see embodied cognition), or simply from a limited c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
