Question 1

Which of the following is considered a rational, logical approach to decision-making and is rooted in economics and mathematics?
A) Relying on heuristics
B) Calculating expected utility
C) Reacting to sunk costs
D) Calculating expected value
E) Flipping a two-headed coin

Accepted Answer

Calculating expected value is a rational, logical approach to decision-making that is rooted in economics and mathematics. It involves weighing the potential outcomes of a decision and assigning a value to each outcome based on the likelihood of it occurring. The expected value is then calculated by multiplying each outcome by its assigned value and adding up the results. This approach allows decision-makers to make informed choices based on the probability of certain outcomes.

Question 2

While walking down the street, Buford is approached by a stranger, who makes the following offer: "Let's flip a coin. If it's heads, I'll give you $1,000. If it's tails, you give me your wristwatch." Buford figures that his wristwatch is only worth $600, but it was a gift from his grandmother that he cherishes, so he decides not to accept the stranger's offer. Buford's decision can be best characterized as based on:
A) The sunk cost effect
B) The availability bias
C) The gambler's fallacy
D) Expected value
E) Expected utility

Accepted Answer

Buford's decision is based on expected utility rather than expected value because he considers not just the monetary value of the outcomes but also the personal value and emotional attachment to the wristwatch, which affects his overall utility or satisfaction from the transaction.

Question 3

One disadvantage of using expected utility as a tool for making decisions is that it can only be applied in situations involving monetary values.

Accepted Answer

While expected utility analysis was initially developed for decision-making under uncertainty involving monetary outcomes, it has since been applied to a variety of decision-making scenarios beyond money, such as health outcomes and environmental risks.

Question 4

When trying to decide who to hire, Gladys, a personnel manager, subjectively assesses how important several traits are. She figures that, on a scale of 1-10, competence is 9, tidiness is a 6, and warmth is a 5. Using those numbers, she rates several job candidates and hires the "best" one. Which of the following best characterizes the tool Gladys used to make her decision:
A) Expected value
B) Expected utility
C) Bounded rationality
D) The availability bias
E) Intuition

Accepted Answer

Gladys used expected utility as her decision-making tool, assigning different weights (importance) to various traits and then evaluating candidates based on these weighted traits to make a decision. This approach aligns with the concept of expected utility, which involves assessing the desirability or value of different outcomes based on their utility to the decision-maker.

Question 5

_______________ are rules of thumb, or shortcuts people use to make decisions.
A) Analytics
B) Logic machines
C) Sunk costs
D) Heuristics
E) Groupthinks

Accepted Answer

Heuristics are commonly used decision-making strategies. They are mental shortcuts that simplify a complex decision-making process.

Question 6

The notion of bounded rationality suggests that people are not innately logical and, instead, rely on mental shortcuts to make decisions.

Accepted Answer

Bounded rationality theory proposes that due to cognitive limitations, individuals cannot fully understand or evaluate all possible options and consequences to make a truly rational decision. Therefore, individuals make decisions based on heuristics, rules of thumb or mental shortcuts to simplify the decision-making process.

Question 7

Prospect theory argues that people place a higher value on not losing something than they do on gaining something.

Accepted Answer

Prospect theory, developed by psychologists Kahneman and Tversky, suggests that individuals have a greater emotional response to losses compared to gains of equal value. This phenomenon is known as loss aversion and has been demonstrated in various decision-making scenarios.

Question 8

Which of the following occurs as a result of people's aversion to losses?
A) The sunk cost effect
B) The availability heuristic
C) The representative heuristic
D) The illusory superiority effect
E) Hindsight bias

Accepted Answer

People's aversion to losses often leads to the sunk cost effect, which is the tendency to continue investing in something because of the resources already invested, even if it is not rational to do so.

Question 9

Some time ago, Martha invested half of everything she owns into starting a new hamster-sitting business. After one year, however, the company is losing big time! That said, Martha decides that she has invested too much to quit now. She sells her car, and then her house in a desperate attempt to save her company. As a result, all evidence suggests that Martha has fallen victim to ____________.
A) Hindsight bias
B) Confirmation bias
C) The conjunction fallacy
D) The sunk cost effect
E) Illusory correlation

Accepted Answer

The fact that Martha continues to invest more money into her failing business, despite clear evidence that it is not profitable, suggests that she has fallen victim to the sunk cost effect, which is the tendency to continue investing resources into a project or decision based on the cumulative resources already invested, regardless of the potential for future loss.

Question 10

Micky is considering a trip to Las Vegas and is trying to decide whether to drive or fly there. The previous week he binge-watched Lost, Sully, and Castaway, all of which featured plane crashes. As a result, he decides to drive to Vegas. As a result, Micky has fallen victim to __________________.
A) Hindsight bias
B) Confirmation bias
C) The availability heuristic
D) The sunk cost effect
E) Illusory correlation

Accepted Answer

Micky's decision to drive instead of fly is influenced by the availability heuristic, as he is basing his decision on the recent availability of information (watching movies about plane crashes) rather than objectively weighing the risks and benefits of each mode of transportation.

Question 11

According to the text, the fallacy known as a hasty generalization stems from:
A) Hindsight bias
B) Confirmation bias
C) The availability heuristic
D) The sunk cost effect
E) Illusory correlation

Accepted Answer

The hasty generalization fallacy occurs when a conclusion is drawn from insufficient or limited evidence, and the availability heuristic is the cognitive bias that leads to this error in reasoning. The availability heuristic is the tendency to rely on readily available information or examples that come to mind easily, rather than taking a more comprehensive or representative sample into account. Therefore, choice C is the best answer.

Question 12

The gambler's fallacy stems from which of the following?
A) Hindsight bias
B) Confirmation bias
C) The availability heuristic
D) The sunk cost effect
E) The representativeness heuristic

Accepted Answer

The gambler's fallacy is a belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future, or vice versa. This fallacy is related to the representativeness heuristic, where individuals expect outcomes to be representative of a random sequence, incorrectly assuming that the sequence should look "random" and that deviations from the average will be corrected.

Question 13

Fifi and Mimi are playing a coin-flipping game. Whenever the coin lands on heads, Fifi wins $1. If tails are flipped, Mimi wins $1. For the first 20 flips, the coin has landed on heads. "Time to switch," Fifi says, believing that tails are due to win. "You have heads, and I'll take tails." After switching, the coin, once again, lands on heads. In this example, Fifi has fallen victim to _____________.
A) The illusory superiority effect
B) Optimism bias
C) The gambler's fallacy
D) The sunk cost effect
E) The representativeness heuristic

Accepted Answer

Fifi has fallen victim to the gambler's fallacy, which is the belief that past events influence the likelihood of future events, even though the two events are independent. In this case, Fifi believes that tails are due to win because there have been 20 consecutive heads, which is incorrect because each flip is independent of the previous flip.

Question 14

The representative heuristic leads us to misjudge random events.

Accepted Answer

The representative heuristic is the tendency to judge the likelihood of an event by comparing it to an existing prototype or stereotype. This can lead us to misjudge random events by relying too heavily on our preconceived notions of what is likely or typical.

Question 15

Todd's horoscope predicted that he would soon travel to a faraway land. That night, while playing the board game Risk, he ended up capturing territory on the Asian continent, a faraway land. He smiles knowingly. Todd's example illustrates:
A) Hindsight bias
B) Confirmation bias
C) The availability heuristic
D) The sunk cost effect
E) The representativeness heuristic

Accepted Answer

Todd's example illustrates confirmation bias because he interprets the event of capturing territory in a board game as fulfilling the prediction of his horoscope, selectively acknowledging information that confirms his pre-existing beliefs or predictions.

Question 16

Which of the following biases leads people to resist policies and behaviors that are new?
A) Hindsight bias
B) Confirmation bias
C) Status quo bias
D) Anchoring bias
E) Media bias

Accepted Answer

Status quo bias is the tendency for individuals to prefer things to stay the same instead of changing. This bias can cause people to resist policies and behaviors that are new, as they are not familiar and may require effort to adjust to.

Question 17

Tammy and Peter are asked to consider their addresses (note: Tammy's address is 6868 Sycamore Lane. Peter's address is 1400 Center Street), and then to estimate the distance between their homes. Tammy guesses 6000 miles. Peter guesses 2000 miles. This example best illustrates _________________.
A) The anchoring heuristic
B) Confirmation bias
C) The availability heuristic
D) The sunk cost effect
E) The representativeness heuristic

Accepted Answer

This is an example of the anchoring heuristic, where individuals rely too heavily on an initial piece of information when making subsequent judgments. In this case, Tammy and Peter were asked to estimate the distance between their homes, but their estimates were influenced by the initial pieces of information they had about their own addresses. Tammy likely chose 6000 miles as an estimate because it sounded like a reasonable distance from what she knew about the location of her own address. Peter likely chose 2000 miles because it also sounded reasonable based on what he knew about the location of his own address.

Question 18

Suzette just purchased a fitness center membership for a whopping $3,000. But that's okay, because she is certain that she will lose weight, meet friends, and get in great shape. This example best illustrates ________________.
A) Hindsight bias
B) Confirmation bias
C) The availability heuristic
D) Optimism bias
E) The "hot hand" fallacy

Accepted Answer

This scenario best illustrates the optimism bias, which is the tendency to overestimate the likelihood of positive outcomes while underestimating the likelihood of negative outcomes. Suzette is focused on the potential benefits of her fitness center membership and has a positive outlook about what she will gain from it.

Question 19

Which of the following is not a characteristic of groups that are prone to groupthink:
A) Overconfidence
B) Close-mindedness
C) Intolerance for disagreement within the group
D) Social loafing
E) All of the above are characteristics of groups prone to groupthink

Accepted Answer

Social loafing is not a characteristic of groups prone to groupthink. Social loafing refers to the tendency for individuals to exert less effort when working in a group as compared to working alone. This phenomenon is not directly related to groupthink.

Question 20

Assigning someone the role of devil's advocate is an ineffective way to prevent groupthink because it leads to hostility at best and anchoring effects at worst.

Accepted Answer

Assigning someone the role of devil's advocate can be an effective way to prevent groupthink by encouraging critical thinking and challenging prevailing assumptions, thus promoting a more thorough examination of decisions and alternatives.

Quiz 10: Judgment, Decision Making and Problem Solving

Which of the following is considered a rational, logical approach to decision-making and is rooted in economics and mathematics?

One disadvantage of using expected utility as a tool for making decisions is that it can only be applied in situations involving monetary values.

_______________ are rules of thumb, or shortcuts people use to make decisions.

The notion of bounded rationality suggests that people are not innately logical and, instead, rely on mental shortcuts to make decisions.

Prospect theory argues that people place a higher value on not losing something than they do on gaining something.

Which of the following occurs as a result of people's aversion to losses?

Micky is considering a trip to Las Vegas and is trying to decide whether to drive or fly there. The previous week he binge-watched Lost, Sully, and Castaway, all of which featured plane crashes. As a result, he decides to drive to Vegas. As a result, Micky has fallen victim to __________________.

According to the text, the fallacy known as a hasty generalization stems from:

The gambler's fallacy stems from which of the following?

The representative heuristic leads us to misjudge random events.

Todd's horoscope predicted that he would soon travel to a faraway land. That night, while playing the board game Risk, he ended up capturing territory on the Asian continent, a faraway land. He smiles knowingly. Todd's example illustrates:

Which of the following biases leads people to resist policies and behaviors that are new?

Tammy and Peter are asked to consider their addresses (note: Tammy's address is 6868 Sycamore Lane. Peter's address is 1400 Center Street) , and then to estimate the distance between their homes. Tammy guesses 6000 miles. Peter guesses 2000 miles. This example best illustrates _________________.

Suzette just purchased a fitness center membership for a whopping $3,000. But that's okay, because she is certain that she will lose weight, meet friends, and get in great shape. This example best illustrates ________________.

Which of the following is not a characteristic of groups that are prone to groupthink:

Assigning someone the role of devil's advocate is an ineffective way to prevent groupthink because it leads to hostility at best and anchoring effects at worst.