Decision-making under risk and uncertainty Flashcards
Prospects consist of outcomes and associated probabilities
True, 3
The axiom of … for EUT means that
For all prospects q and r
either q >= r
or r >= q
or both
Completeness
The axiom of … for EUT means that
For all prospects q,r and s,
if q >= r and r >= s,
then q >= s
Transitivity
The axiom of — of EUT means that
For all prospects q,r, and s,
where q >= r and r >= s,
there exists some probability p such that there is indifference between the middle-ranked prospect r and the compound prospect (q,p; s, i-p)
Continuity
The axiom of … of EUT means that
For all prospects q, r, and s, if q >= r
then (q,p;s,1-p) >= (r,p;s,i-p)
INdipendence or substitution
The axiom of … in EUT means that:
preferences are defined by probability distributions of outcomes and they do not depend on the elicitation method
Descriptive Invariance
The axiom of …. of EUT means that
if a prospect has at least one probability higher than the other given the same amount of value, given all the other pairs of values and probability as equal, then the former dominates the latter
Monotonicity or stochastic dominance
The common consequence effect violates the cancellation axiom
True, 10
The common ratio effect violates the stochastic dominance axiom
False, 13
Conventional theories alternative to EUT are able to explain all the observed violations of independence
False, 16
Multiple price list format is used to elicit real risk preferences
True, 23
In the Multiple Price List, a risk.neutral decision maker should switch from A to B in the 5th choice
True, 23
In the Multiple Price List, option A is riskier and option B is safer
False, 23
There is no framing effect in the Multiple Price List
False, 24
Inconsistencies have been observed in experimental settings for the Multiple Price List
True, 24
One method of eliciting the risk preferences is the Bomb Risk Elicitation Task
True, 25
The Columbia Card Task is used for understanding strategic interactions
False, 25
Three treatments are implemented in Columbia Card Task
False, 26
Some non-conventional theories for EUT are bounded rationality, heuristics and Prospect Theory
True, 28
Regret theory was invented for explaining violations of cancellation
False, 30
The reference point is a concept coming from prospect theory
True, 32
In prospect theory, these two prospects
(x1, p1; x1, p2)
and
(x1, (p1+p2))
Are equivalent
False, combinations must take into account the weighting function, 32
Segregation in prospect theory means that the riskless component of prospects can be segregated from the risky component
True, 33
Cancellation is part of the editing phase of prospect theory
True, 35
In prospect theory, outcomes that are extremely improbable are likely to be ignored
True, 37
In the editing phase of prospect theory, simplification means that some prospects may dominate others
False, that’s detection of dominance, 37
In the editing phase of prospect theory detection of dominance means that decision-makers may simplify prospects by rounding probabilities and or outcomes
False, that’s simplification, 37
In prospect theory, probabilities are associated with a decision weight such that
pi(p)
True, 41
In prospect theory, gains and losses are objective
False, 41
In the evaluation phase of strictly positive and strictly negative prospects, these are segregated into two components
True, 42
Loss aversion is a concept of prospect theory
True, 43
According to prospect theory, when people expect a pau rise of 10%, and then they get just 5%, they are nevertheless happy
False, 44
The status of others has no influence on our reference point
False, 44
According to prospect theory, people need time to adapt to losses and gains
True, 44
In prospect theory, it is always true that
v(x) < - v(-x)
True, 45
Disposition effect is similar to loss aversion
True, 45
A concave function means risk aversion
True, 46
A convex function means risk aversion
False, means risk-seeking, 46
The decision weights overweight low probabilities ?????????????????????
True, 47
In CPT, people react to gains with low probability with risk aversion and to losses with low probability with risk seeking
False, 50
In CPT people react to gains with risk aversion and with losses with risk-seeking behaviors
True, 50
CPT contemplates possible violations of stochastic dominance
True
