decision making

Question 1

what is riskless misattribute choice?

Answer 1

pick one choice that maximises attributes

Question 2

what is intertemporal choice?

Answer 2

effect of time when evaluating options

Question 3

what are decisions under uncertainty?

Answer 3

not certain about probability of outcome happening

Question 4

what are decisions under risk?

Answer 4

know probability of outcomes

Question 5

what is expected value?

Answer 5

sum of each possible value weighted by its value

Question 6

what is subjective value?

Answer 6

how good something feels

Question 7

what is expected utility?

Answer 7

increase subjective value when follow expected utility

Question 8

what did kahneman & tversky (1979) discover about expected utility?

Answer 8

it depends on whether it is a gain or loss

Question 9

who created prospect theory?

Answer 9

khaneman & tversky

Question 10

what is reference dependence?

Answer 10

outcomes considered gains/losses with respect to reference point (current wealth)

Question 11

what are the two risk attitudes of prospect theory?

Answer 11

• risk averse for gains
• risk seeking for losses

Question 12

what is loss aversion?

Answer 12

more subjective value for losses than gains

Question 13

what is the endowment effect (knetsch, 1989)?

Answer 13

value increases more when you take ownership of something

Question 14

what is the allais’ effect (kahneman & tvsersky, 1979)?

Answer 14

0% to 1% chance of winning nothing is not same as 66% to 67% chance

Question 15

what is the certainty effect (kahneman & tversky, 1981)?

Answer 15

if probability near to 100% or 0%, it is treated differently

Question 16

what are non-linear probabilities (gonzalez & wu, 1999)?

Answer 16

changes in 5% more significant when close to 0% or 100%

Question 17

what is the decision weights problem?

Answer 17

overestimate rare events and underestimate common events

Question 18

what are the 3 problems of prospect theory?

Answer 18

• limited scope
• empirical failings
• purely descriptive

Question 19

what does lichtenstein & slovic (1971) say about the limited scope of prospect theory?

Answer 19

cant explain why people value probabilities differently

Question 20

what is the attraction effect?

Answer 20

make a different choice when an option is changed - choose dominating option

Question 21

what does weber & chapman (2005) say about the empirical failings of prospect theory?

Answer 21

equally likely to choose risky options and non-risky options when low probabilities

Question 22

what is an issue with prospect theory being purely descriptive?

Answer 22

where do curves come from?

Question 23

what do stewart et al (2006) say about prospect theory being purely descriptive?

Answer 23

same cognitive process with gains and losses as economic environment follows pattern of of gains and losses - forms the curves