Decision-Making

Question 1

Decisions

Answer 1

choosing course of action (between alternatives)

Question 2

Expected utility theory

Answer 2

Assumes people are rational
Predicts decisions made on basis of maximum expected utility
With investing, should make decisions that maximize monetary payoff

Question 3

Denes-Raj & Epstein

Answer 3

Our decisions aren’t rational

Reward picking red jellybeans
Offered choice of bowls: one with 10 beans (1 red, 9 white); other with 100 beans (7 red, 93 white)
Most participants chose the second bowl to draw from, even though worse odds (10% vs. 7%)

Question 4

Current context affects choices

Answer 4

Simonsohn: university academic decisions and weather

Danziger: judicial parole decisions and lunch

Question 5

Decisions depend on how choices are presented

Answer 5

Opt-in vs. opt-out organ donor

Question 6

How choices are stated affects decisions (framing effect)

Answer 6

Tversky and Kahnemann disease/treatment scenario: wording kill vs. save

Question 7

Neuroeconomics

Answer 7

Often focuses on decisions involving gains and losses
General result: decisions are influenced by emotions, and those emotions are associated with activity in specific brain areas

Question 8

Sanfey et al

Answer 8

Ultimatum game: “partner” gets $10, makes split offer with participant (some partners are human, some computer)
Result: with human partner, often rejected low offers (felt unfair and angry with partner), but less hurt and angry with computer

Question 9

Inductive reasoning

Answer 9

have observations/evidence, then infer conclusions
Definitive conclusions not possible

Question 10

Deductive reasoning

Answer 10

have observations/evidence (“premises”), then determine whether conclusion logically follows from premises

Syllogisms