ABSTRACT
This chapter focuses on the heuristics used to make probability judgements, then theories of decision-making. The heuristics and biases approach introduced by Kahneman and Tversky has dominated the study of judgement and decision-making during the past three decades. The chapter describes the three heuristics: Representativeness, Availability, Anchoring and adjustment. The subjective expected utility (SEU) theory suggests that when making decisions people weigh up the expected utility of an outcome against the probability that the outcome will happen. The prospect theory, proposed by Kahneman and Tversky, is essentially a modification of the SEU that attempts to explain the framing effect and apparent paradoxes in decision-making. They also described the anchoring and adjustment heuristic, which is the inclination to use given value as a starting point and then to base judgements around it. Kahneman and Tversky's approach has been very influential in the study of judgement and decision-making but has been criticised by Gigerenzer who has proposed an alternative, more 'optimistic' approach.
