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Bounded awareness
The process that prevents us from noticing useful, readily observable data that would be relevant to our decisions
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Why does bounded awareness occur?
To cope with information overload
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Inattentional blindness
Not seeing something because you aren't looking for it
Ex. Invisible gorilla
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Change blindness
Failing to notice a significant change; can be because change happens gradually
Ex. Boiling frog
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Focusing illusion
The exaggerated importance of a subset of relevant information and neglect of other available information
Ex. Challenger disaster
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Irrelevant alternatives
Inappropriate attention occurs when an alternative is offered that is obviously not the right one
Ex. Weekend in Paris, Rome, or Rome without free coffee
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Bounded awareness in groups
Groups tend to discuss and emphasize shared information and tend to ignore or deemphasize unshared information
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Monty Hall game
Three doors, one proven to be empty, switch from original choice or stay (should switch)
Demonstrates how naive misconceptions of probability lead to irrational choices
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Other bounded awareness phenomena
- Misperception of impact of deadlines on negotiations
- System neglect
- Impact of third parties
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Winner's curse
Tendency to overpay because of failure to accurately consider perspectives of other parties
Ex. Auctions
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Framing
Alternative wordings of the same information that significantly alter decisions despite no objective difference in the actual information
Ex. At risk students for dropping out
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What do we pick in a gain frame?
What do we pick in a loss frame?
- Gain frame: certain option
- Loss frame: risk-seeking mode
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Group decisions considered together vs. isolated, sequential decisions
Reflect different preference patterns; isolated decisions tend to promote inconsistent preference patterns compared to combination decisions
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Certainty effect
Providing certainty has a greater influence on our decisions than making the same numerical change in probability with other values
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Insurance
A certain loss that is generally accepted as part of a decision process
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Acquisitional utility
The utility to you of whatever product or service you acquire
Ex. New phone vs. old phone
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Transactional utility
The perceived quality of the deal relative to what you think the item should cost
Ex. Beer at rundown store vs. at a fancy bar
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Endowment effect
When there is a premium attached to the value of an item only because someone owned it before
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Mental accounting
Mentally maintaining different categories of expenses or income and we may tend to use different decision rules for different accounts
Ex. Trip to Europe
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Multiple smaller losses ___ more than than one larger loss.
Multiple smaller gains ___ more than one larger gain.
- Multiple smaller losses hurt more than than one larger loss.
- Multiple smaller gains are appreciated more than one larger gain.
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Harms of omission vs. harms of commission
Tendency to choose to not do anything that would harm a situation
Ex. Vaccinations
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Omission bias
Tendency to act to prevent harm due to commission while tolerating harms due to omission
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Status quo bias
Tendency to act to preserve the status quo, because losses associated with changing things tend to be given more weight than the gains from the changes
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Regret in long term vs. short term
Actions are regretted more in the short term but omissions are regretted more in the long term
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Rebates vs. bonuses
- Rebates cause you to save more
- Bonuses cause you to spend more
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Want vs. should
Want option dominates one-at-a-time processes while should option dominates joint evaluations
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Evaluability
Evaluation of hard to judge aspects are easier with a reference comparison so the difficult attribute carries less weight in joint evaluations
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Hedonic treadmill
Where no amount of any "good" ever seems to be permanently satisfactory - we adapt to our increased wealth, take it for granted, and soon desire more
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