And many of the solutions are surprisingly simple. Perhaps the most serious mistake that people make is the failure to distinguish known risk from uncertainty. We are dealing with known risk when all of the possible outcomes are known and the probability of each outcome can be computed. Otherwise, we are dealing with uncertainty-a very different kind of thing.
A systematic review of the literature shows little evidence that the alleged biases are potentially costly in terms of less health, wealth, or happiness. Getting rid of the bias bias is a precondition for psychology to play a positive role in economics.
According to Simon (1979), this decision-making process leads humans to pursue a â€œsatisficingâ€ path instead of an optimal one. In fact, Simon coined the term, â€œsatisficingâ€ (Selten, 2002), which is a blend of satisfying and sufficing (Agosto, 2002). A satisficing strategy seeks a satisfactory choice that is â€œgood enoughâ€ to suit an individualâ€™s purpose. A satisficing strategy is a rational rule that reduces the informational and computational requirements of a rational choice (Byron, 1998), requiring less time and less cognitive exertion.
None of these models, however fancy, were able to avert catastrophe in 2008. If you said 1 in 10, you have done very well.
After reading this book. I’m empowered that somehow with using gut feeling, I was right! And it equipped me with scientific facts support my believing such as leading time, over-diagnose problem and other intentional and unintentional statistical misleading. I am surprised by the fact that the majority of people even in developed countries are fooled so well by the existing market-oriented medical system. It should not be in the way it is right now.
Having said that, I think that some are simply better diagnosticians regardless of their training. They are always accessible when such perspicuity is demanded. In other words, people who took (and did well?) in probability theory are accustomed to the phrasing and the differences between what these terms represent. Other people may _think_ that they understood what they read, but many actually donâ€™t. So, Iâ€™m not surprised that one the problem is restated using those â€œnatural frequenciesâ€, people in general do much better.
Cognitive maps are internal representations of our physical environment, particularly associated with spatial relationships. These internal representations of our environment are used as memory as a guide in our external environment.
This program was later extended into the study of ecological rationality. Alternative theories of how people make decisions include Amos Tverskyâ€™s and Daniel Kahnemanâ€™s prospect theory. Prospect theory reflects the empirical finding that, contrary to rational choice theory, people fear losses more than they value gains, so they weigh the probabilities of negative outcomes more heavily than their actual potential cost. For instance, Tverskyâ€™s and Kahnemanâ€™s studies suggest that people would rather accept a deal that offers a 50% probability of gaining $2 over one that has a 50% probability of losing $1.