Editing Decision Making and Rationality (section)

== <span style="color: #FFFFFF;">Understanding</span> ==
The central tension in this field is between "Normative" models (how we *should* decide) and "Descriptive" models (how we *actually* decide).

**Dual-Process Theory**: Popularized by Daniel Kahneman in *Thinking, Fast and Slow*.
* **System 1**: Operates automatically and quickly, with little or no effort and no sense of voluntary control. It's the source of intuition and biases.
* **System 2**: Allocates attention to the effortful mental activities that demand it, including complex computations. It's the "rational" part but is "lazy" and often accepts System 1's suggestions.

**Prospect Theory**: Overturned the "Expected Utility" model by showing that:
1. We evaluate outcomes relative to a **reference point**, not in absolute terms.
2. We are **risk-averse** for gains but **risk-seeking** for losses (trying to "break even").
3. We **overweight small probabilities** (why people play the lottery) and **underweight certain probabilities** (the certainty effect).

**Nudge Theory**: Proposed by Thaler and Sunstein. Because humans have predictable biases, "choice architects" can design environments (nudges) that steer people toward better decisions without forbidding any options or significantly changing their economic incentives (e.g., making organ donation the "default" option).
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