Representativeness shortcuts and errors Question

Transcript:Representativeness shortcuts and errors Question:
Representativeness shortcuts and errors Question Which of the following is more likely, a or b? Why? a. A war between the U.S. and Iran b. Neither the U.S. nor Iran intended to attack the other, but Israeli Air Force jets blew up nuclear facilities in Bushehr, Fordow, and Natanz. Iran responded with a barrage of Hezbollah rockets in northern Israel and Hamas rained rockets on Tel Aviv. American embassies were torched in Paris and Berlin, and the American ambassador in Japan was assassinated, drawing the U.S. into a war with Iran Representativeness shortcuts and errors Question: A certain town is served by two hospitals In the larger hospital about 45 babies are born each day, and in the smaller hospital about 15 babies are born each day As you know, about 50% of all babies are boys, but the exact percentage varies from day to day Sometimes it is higher than 50%, sometimes lower Finance for Normal People Chapter 3 – Cognitive Shortcuts and Errors Cognitive shortcuts and errors Cognitive shortcuts are part of the intuitive “blink” System 1 in our minds, leading to good choices in most of life But shortcuts turn into errors when they mislead us into poor choices. System 2, the reflective “think” system in our minds, leads to better choices when System 1 misleads People with knowledge of human behavior and financial facts employ cognitive shortcuts correctly, whereas people lacking such knowledge commit cognitive errors as they employ them incorrectly We know cognitive shortcuts also as cognitive rules-of-thumb and as cognitive heuristics Cognitive shortcuts and errors There is no uniform list of cognitive shortcuts and associated errors, and not all cognitive shortcuts and associated errors on lists are distinct from one another The chapter describes cognitive shortcuts and associated errors most relevant in the context of finance, including: Framing Hindsight Confirmation Anchoring and adjustment Representativeness Availability Confidence Framing shortcuts and errors We use framing shortcuts when we simplify complex problems and substitute solutions to the simplified problems for solutions to the complex problems We use framing shortcuts well when the solutions to the simplified problems are close to the solutions to the complex problems We commit cognitive errors when the solutions to the simplified problems are far from the solutions to the complex problems Framing shortcuts and errors A commercial for running shoes illustrates framing shortcuts and errors Watch the video clip: https://www.youtube.com/watch?v=D-ie_aFsfb8 Framing shortcuts