Decision-making and Neuroeconomics Flashcards
What factors into a value-based decision?
Weighing between costs and benefits & incentive salience (wants/ desires)
What is the rationality axiom?
A rational economic decision-maker is one that maximizes its utility
What is expected value (EV)?
A predicted value of a variable, calculated as the sum of all possible outcomes, each weighted by the probability of its occurrence
What did Pascal claim in regard to expected value?
One can’t know what will happen every time, but one can figure out what would happen on average
What is Pascal’s EV equation?
EV = Outcome1 × Probability1 + Outcome2 × Probability2 (calculate for each probability and choose the highest outcome)
What is utility function?
A mapping between an objective quantity of a good, and the subjective satisfaction that good provides
What is marginal utility?
The change in utility derived from consuming or possessing an additional unit of a good (Change in utility is wealth-dependent and diminishes at the margins)
What did Bernoulli claim in regard to expected utility?
The “goodness” of a sum of money is determined by its utility more than its sum
What is utility?
The total satisfaction obtained from a good, service, behaviour… Utility is a numerical measure of the goodness of some outcome or a common currency on which any good can be evaluated. It is subjective
What is the Revealed Preference Theory?
Preferences can be determined empirically, by measuring the choices of a decision-maker under different conditions. Assumes that the decision-maker (or consumer) performs decisions rationally, according to some rule set or model
What are transitive preferences?
If A>B & B>C then A>C. Transitive preferences are consistent with an internal representation of utility
What are intransitive preferences?
A>B & B>C & C>A. Intransitive preferences are not consistent with an internal representation of utility (this means that these preferences can be taken advantage of since there is no consistency)
What is an advantage of utility?
It acts as a “common currency” for decisions (Utility provides a theoretical common scale on which anything can be evaluated).
How is the Amygdala involved in decision-making?
Research suggests that the amygdala plays a role in signalling the emotional significance of potential losses, which in turn may influence decision-making by biasing people towards avoiding losses even at the expense of potential gains. Amygdala damage increases willingness to accept gambles (reduces the effect of loss on decisions). In an experiment with monkeys, amygdala neurons fired when they were able to make save and spend decisions
Where is value represented and processed in the frontal cortex?
Everywhere, but value representations become stronger and more abstract moving from dorsal and lateral to ventral and medial regions. The frontal cortex is very interconnected
