# Economics Dictionary of Arguments

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Certainty effect: The certainty effect in psychology is the tendency for people to overweight outcomes that are considered certain, as opposed to those that are merely probable, when making decisions under uncertainty.
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Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

Author Concept Summary/Quotes Sources

Daniel Kahneman on Certainty Effect - Dictionary of Arguments

Norvig I 620
Certainty effect/decision theory/Tversky/Kahneman/Norvig/Russell: One explanation for (…) apparently irrational preferences (>Allais paradox/Norvig
) is the certainty effect (Kahneman and Tversky, 1979)(1): people are strongly attracted to gains that are certain. There are several reasons why this may be so.
1) People may prefer to reduce their computational burden; by choosing certain outcomes, they don’t have to compute with probabilities. But the effect persists even when the computations involved are very easy ones.
2) People may distrust the legitimacy of the stated probabilities.
3) People may be accounting for their emotional state as well as their financial state. People know they would experience regret if they gave up a certain reward (B) for an 80% chance at a higher reward and then lost.
Ambiguity aversion: It seems that people have ambiguity aversion: A gives you a 1/3 chance of winning, while B could be anywhere between 0 and 2/3. Similarly, D gives you a 2/3 chance, while C could be anywhere between 1/3 and 3/3. Most people elect the known probability rather than the unknown unknowns.
>Preferences/Norvig, >Utility/AI research.

1. Kahneman, D. and Tversky, A. (1979). Prospect theory: An analysis of decision under risk. econometrica, pp. 263–291.

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Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

EconKahne I
Daniel Kahneman
Schnelles Denken, langsames Denken München 2012

Norvig I
Peter Norvig
Stuart J. Russell
Artificial Intelligence: A Modern Approach Upper Saddle River, NJ 2010

> Counter arguments against Kahneman
> Counter arguments in relation to Certainty Effect