Scribd
Upload
78 views

Assignment Mohsin Ali

Anchoring and adjustment bias can influence negotiations by setting an initial anchor value that affects the range of subsequent offers, even if the anchor is unreasonable. The representativeness heuristic is a mental shortcut used in decision making where we judge the likelihood of an event based on similarity to prototypes, but this can lead us to overestimate probabilities. Cognitive dissonance engages brain regions like the insula and prefrontal cortex when we experience inconsistent beliefs or actions, motivating us to resolve the discomfort by rationalizing our choices. The availability bias impacts decisions by making examples that readily come to mind seem more common than they are, relying on the availability heuristic of using immediate thoughts for quick judgments over thorough analysis.

Uploaded by

Mohsin Ali meer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
78 views

Assignment Mohsin Ali

Anchoring and adjustment bias can influence negotiations by setting an initial anchor value that affects the range of subsequent offers, even if the anchor is unreasonable. The representativeness heuristic is a mental shortcut used in decision making where we judge the likelihood of an event based on similarity to prototypes, but this can lead us to overestimate probabilities. Cognitive dissonance engages brain regions like the insula and prefrontal cortex when we experience inconsistent beliefs or actions, motivating us to resolve the discomfort by rationalizing our choices. The availability bias impacts decisions by making examples that readily come to mind seem more common than they are, relying on the availability heuristic of using immediate thoughts for quick judgments over thorough analysis.

Uploaded by

Mohsin Ali meer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Lahore Leads University

BEHAVIOURAL FINANCE

ASSIGNMENT # 1
Submitted By:

Name:

Mohsin Ali
Roll No:

F16-1262
Program:

BBA
Submitted To:

Dr. MARIA SULTANA


Q. How Anchoring and adjustment Bias Can Influence? Explain with logical reasoning.

Ans:

Anchoring and Adjustment

Anchoring and adjustment is a phenomenon wherein an individual bases their initial ideas and
responses on one point of information and makes changes driven by that starting point. The anchoring
and adjustment heuristic describes cases in which a person uses a specific target number or value as a
starting point, known as an anchor, and subsequently adjusts that information until an acceptable value
is reached over time. Often, those adjustments are inadequate and remain too close to the original
anchor, which is a problem when the anchor is very different from the true answer.

Explain with logical reasoning

In sales, price, and wage negotiations, anchoring and adjustment can be a powerful tool. Studies have
shown that setting an anchor at the outset of a negotiation can have more effect on the final outcome
than the intervening negotiation process. Setting a deliberate starting point can affect the range of all
subsequent counteroffers.

For example, a used car salesmen (or any salesmen) can offer a very high price to start negotiations that
is arguably well above the fair value. Because the high price is an anchor, the final price will tend to be
higher than if the car salesman had offered a fair or low price to start. A similar technique may be
applied in hiring negotiations when a hiring manager or prospective hire proposes an initial salary. Either
party may then push the discussion to that starting point, hoping to reach an agreeable amount that was
derived from the anchor.

Q. Is representativeness a Problem or a Decision? How representativeness effect while making


decision?

Ans:

Representativeness is a Decision. When making decisions or judgments, we often use mental shortcuts
or "rules of thumb" known as heuristics. For every decision, we don't always have the time or resources
to compare all the information before we make a choice, so we use heuristics to help us reach decisions
quickly and efficiently. Sometimes these mental shortcuts can be helpful, but in other cases, they can
lead to errors or cognitive biases. The representativeness heuristic is one heuristic that we use when
making judgments. In this particular example, we estimate the likelihood of an event by comparing it to
an existing prototype that already exists in our minds. Our prototype is what we think is the most
relevant or typical example of a particular event or object.

The representativeness heuristic was first described by psychologists Amos Tversky and Daniel
Kahneman during the 1970s. Like other heuristics, making judgments based on representativeness is
intended to work as a type of mental shortcut, allowing us to make decisions quickly. However, it can
also lead to errors.
When we make decisions based on representativeness, we may be likely to make more errors by
overestimating the likelihood that something will occur. Just because an event or object is
representative does not mean its occurrence is more probable.

Q. What Happens to the Brain During Cognitive Dissonance?

Ans:

Cognitive dissonance is that uncomfortable feeling you get when you try to maintain two or more
inconsistent beliefs at the same time or when you believe one thing but act in a contradictory way. For
example, you commit to losing weight and then gorge on cake. The discrepancy can be unnerving, and
people will often try to eliminate the dissonance by changing their attitudes. So to feel better about
cheating on our diet, we may tell ourselves that we will go for a run tomorrow.

Additional studies have revealed that cognitive dissonance engages other brain regions, such as the
insula and dorsolateral prefrontal cortex (DLPFC). The insula, which processes emotions, often becomes
more active when people are upset or angry, and the DLPFC is strongly associated with cognitive control.
One study found that disrupting the activity of the DLPFC by zapping it with electrodes reduces the
extent to which we try to rationalize our beliefs following cognitive dissonance.

Although people may think cognitive dissonance is a bad thing, it actually helps to keep us mentally
healthy and happy. It may make us feel satisfied with our choices—or at least lets us justify them—
especially when they cannot be easily reversed. Resolving dissonance may help prevent us from making
bad choices or motivate us to make good ones. This desire to be at peace with our decisions might be
just the thing to inspire us to go for that run after all.

Q. Explain availability bias and making decision?

The availability bias is the human tendency to think that examples of things that come readily to mind
are more representative than is actually the case. The psychological phenomenon is just one of a
number of cognitive biases that hamper critical thinking and, as a result, the validity of our decisions.
The availability bias results from a cognitive shortcut known as the availability heuristic, defined as the
reliance on those things that we immediately think of to enable quick decisions and judgments. That
reliance helps us avoid laborious fact-checking and analysis but increases the likelihood that our
decisions will be flawed. Cognitive biases are among a number of types of errors that humans are prone
to. Awareness of the tendency to make such errors is one of the first steps required to improve our
capacity for critical thinking.

You might also like