Chapter 1: Introduction Flashcards
Logic
Study of rules of proper reasoning
Decision Theory
Theory of rational decision making.
In Decision Theory, there is a ___________ ____________ who is presented with a ___________ of ________________, for which there will be an _____________ that depends on the true ___________ of the ___________ (the way in which the ____________ __________).
decision maker; set; alternatives; outcome; state; world; world; works
The true state of the world is only ______________ known to the _______________ _______________.
partially; decision maker
Decision Matrix
Visualizes a formal representation of a decision problem graphically.
Aim of Decision Theory
To form hypothesis about rational decision making that are as accurate and precise as possible.
Descriptive Decision Theory
Explains / predicts WHY people make decisions
Normative Decision Theory
Explains what people are rationally required /ought to do
Why do we study Normative instead of Descriptive decision theory?
Descriptive Theory theorizes WHY people make decisions – that’s bound to change across time and cultures.
Normative Theory will likely remain unchanged & withstand the test of time.
Normative assessments are based on ________________, _____________, and ___________.
standards; values; ideas
David Hume’s contribution to modern idea of decision theory is that decisions are largely based on ______________ and ______________.
belief; desire
Decisions theorists are more concerned with ______________ decisions than ______________ ones.
rational; right
A decision can be _____________ w/o being __________ and _________ w/o being _________________.
rationale; right; right; rational
Theories of rationality rely on _____________ available at the ____________ point in time, not ________________ available at some time _____________ in the ____________.
information; present; information; later; future
Right Decision
A decision is a right decision if and only if the outcome is at least as good as every other potential ouctome.
Rational Decision
A decision is a rational decision if and only if the decision maker makes the choice that she has the most reason to choose at the time of the decision being made.
In instrumental rationality, one has an _______ and expects to reach that _______.
aim; aim
Instrumental Rationality
To do whatever one has the most reason to in fulfilling one’s aim.
The _________ itself in ________________ _______________ cannot be considered _______________.
aim; irrational
Decisions under Risk
decisions made when decision maker knows outcome.
Decisions under Ignorance
decisions made when probabilities are unknown/nonexistent
Problems of decisions under ignorance can be solved with choices under _________________.
dominance
Strict Dominance
Option A strictly dominates Option B iff. the outcome of A is better than the outcome of B no matter the true state of the world.
Weak Dominance
Option A weakly dominates Option B iff. the outcome of A is at least as good as the outcome of B no matter the state of the world, AND strictly better than at least one state.
With decisions under ignorance, where you have to use dominance, START BY MAKING a ______________ ____________. Set up your _____________, _________, and _____________.
decision matrix; states; acts; outcomes
States
What’s your state of the world?
(e.g. you misheard, or heard correctly)
Acts
From the problem, what actions are available to you?
(e.g. buy from Dealership A or from Dealership B)
Outcomes
Results from State of the world and actions
What course of action is now available?
The Principle of Maximizing Expected Value
- Only applied when making desicions under risk (You Know The Outcome)
- Total value of an action = sum of values of possible outcomes × probability for each outcome.
Expected Monetary Value (EMV). Expected in this case means _______________. If the outcomes have the same __________, then the EMV is that ______________. If not, then the EMV is calculated by ______ of the values of the ___________ ___________ x the ______________ of each ______________.
Average; value; number; sum; possible outcomes; probability; outcome.
Maximin
-Only applied when making decisions under ignorance (probabilities unknown/non-existent).
- Take the Best of the worst possible outcomes
Social Choice Theory
- Focuses on making decisions collectively (>1 person)
!!Focuses on aggregating different desires and beliefs of heterogenous individuals towards of collective opinion!!
Game Theory
- Focuses on decision making based on another person’s decision.
Baye’s Theorem
- Calculates conditional probabilities.
- p(B|A) = p(B) * p (A) / [p(B) * p(A|B)] + [p(¬B) * p(A|¬B)]
Frequency Format of Bayes Theorem
1) Assume
2) Base Rate Cut
3) Hit Rate Cut
4) False Alarm Rate Cut
5) Comparison: True positives among total positives
