Judgment, Heuristics, and Decision-Making in Cognitive Psychology — Chapter 11 Summary from Cognitive Psychology

Why do people make irrational choices, stick with bad investments, or trust gut feelings over facts? Chapter 11 of Cognitive Psychology explores the psychological mechanisms behind judgment and decision-making. In this chapter summary from Last Minute Lecture, we examine how people make choices, the role of mental shortcuts (heuristics), and how biases like overconfidence or framing effects shape decisions under uncertainty.

Watch the video above or read on to discover why our minds often take cognitive shortcuts—and how this impacts everything from daily choices to major life decisions.

Judgment vs. Decision-Making

Judgment involves estimating or predicting outcomes based on incomplete information. Decision-making goes one step further by choosing between alternatives based on judgments. Both are influenced by probability, value, emotion, and context.

Normative and Descriptive Theories

Psychologists use models to describe and explain how we should make decisions (normative) versus how we actually do (descriptive):

• Expected Utility Theory – A normative model where decisions are made by calculating probabilities and maximizing rewards.
• Prospect Theory – A descriptive model showing that people are loss-averse, often making irrational decisions depending on how choices are framed (gains vs. losses).

Heuristics: Mental Shortcuts with Hidden Costs

Heuristics are cognitive rules of thumb that speed up decision-making but can lead to systematic errors:

• Availability Heuristic – Judging likelihood based on ease of recall (e.g., media coverage).
• Representativeness Heuristic – Making judgments based on how much something resembles a prototype, ignoring base rates.
• Anchoring and Adjustment Heuristic – Relying too heavily on an initial value and failing to adjust adequately.

Common Decision Biases

Heuristics often give rise to predictable cognitive biases:

• Framing Effect – The same option feels more or less appealing depending on wording (e.g., “90% survival” vs. “10% death rate”).
• Confirmation Bias – Seeking or favoring information that supports existing beliefs.
• Hindsight Bias – The “I knew it all along” illusion after an outcome occurs.
• Overconfidence Bias – Overestimating the accuracy of your own knowledge or predictions.
• Sunk Cost Fallacy – Continuing a bad decision because of past investment, not future payoff.

Dual-Process Theories: System 1 vs. System 2

According to Dual-Process Theory, we make decisions using two cognitive systems:

• System 1 – Fast, intuitive, automatic, emotional.
• System 2 – Slow, effortful, analytical, rational.

While System 1 is efficient for daily tasks, it often leads to errors in complex or unfamiliar situations where System 2 is more appropriate.

Fallacies and Risk Misperception

People often misjudge randomness, risk, and probability:

• Gambler’s Fallacy – Belief that a losing streak means a win is “due.”
• Hot Hand Fallacy – Belief that success will continue because of recent wins.
• Psychological Accounting – Treating the same amount of money differently based on mental categories.
• Risk Aversion vs. Risk Seeking – People tend to avoid risk in gain scenarios but seek risk to avoid losses, as explained in prospect theory.

Glossary of Key Terms

• Decision Making – Choosing among alternatives using available information.
• Judgment – Estimating or predicting outcomes under uncertainty.
• Expected Utility Theory – Normative model of rational choice based on maximizing utility.
• Prospect Theory – Descriptive model showing loss aversion and framing effects.
• Heuristics – Mental shortcuts for faster, often imperfect decisions.
• Availability Heuristic – Judging likelihood based on memory ease.
• Representativeness Heuristic – Basing judgments on similarity to stereotypes.
• Anchoring and Adjustment – Using a starting point and adjusting insufficiently.
• Framing Effect – Influence of presentation on decision-making.
• Confirmation Bias – Favoring information that confirms existing beliefs.
• Hindsight Bias – Believing one predicted an outcome after the fact.
• Overconfidence Bias – Inflated belief in the accuracy of one’s judgments.
• Sunk Cost Fallacy – Escalating commitment to a poor decision due to past investment.
• Dual-Process Theory – Cognitive model distinguishing between fast (System 1) and slow (System 2) thinking.
• Bounded Rationality – The idea that decision-making is constrained by cognitive limits.
• Hot Hand Fallacy – Misbelief in streaks of success in random events.
• Gambler’s Fallacy – Misinterpretation of randomness in probability.
• Psychological Accounting – Mentally categorizing money in biased ways.
• Risk Aversion vs. Risk Seeking – Behavioral asymmetry in gain vs. loss scenarios.

Why This Chapter Matters

Our lives are shaped by decisions, large and small. Chapter 11 from Cognitive Psychology gives students and professionals powerful tools for understanding how decisions are made, why they go wrong, and how to improve them. From understanding financial risks to overcoming cognitive biases, this chapter provides foundational insights for psychology, business, behavioral economics, and beyond.

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