Explain the reasons that human decisions can be flawed and biased, thus leading to unsatisfactory outcomes

Question

What will be an ideal response?

Answer 1

ANSWER:
Psychologists have discovered a number of aspects of human decision making that produce less than optimal outcomes. First, humans often feel worse about negative utilities than they feel good about positive utilities of the same magnitude. This is known as loss aversion. Second, the utility of gains and losses often depends on the reference point from which the judgment is made. This reference point is often arbitrary and influenced by irrelevant factors, leading to judgments that are inappropriate. Another problem is that people often overestimate low probabilities and underestimate high ones. In addition, people often mistakenly believe that outcomes of random processes should even out over relatively short runs of trials; this is known as the gambler's fallacy. Finally, research indicates that people may often be inappropriately confident in their decisions. This often takes the form of overconfidence in the accuracy of one's predictions.