Decisional anomalies Flashcards
According to full rationality, decision-makers have unlimited computational power, willpower and they are selfish
True
Substantial rationality is a reduced form of perfect rationality so that an agent is able to control and evaluate the whole set of alternatives. They have unlimited computational power in determining the order of preferences and in maximizing utility
True
Procedural rationality is a reduced form of perfect rationality so that an agent is able to control and evaluate the whole set of alternatives. They have unlimited computational power in determining the order of preferences and in maximizing utility
False
Procedural rationality and bounded rationality are synonym
True
The axiom of ??? under SEM is that given two alternatives A and B, it must be that A > (=prefered) B or B > A or A = (=similar to) B
Completeness
The axiom of ??? under SEM is that given three alternatives A, B and C, if A > B and B > C, then A > C
transitivity
The axiom of ??? under SEM is that any alternative is at least as good as itself
Reflexivity
The axiom of ???? under SEM is that given two different alternatives A and B, if A is revealed directly/indirectly preferred to B, then B cannot be revealed directly/indirectly preferred to A
Revealed preferences
The axiom of ??? under SEM is that given A+x >B+x, then A > B
Cancellation
The axiom of ??? under SEM is that given two alternatives A and B, if A is better than B in at least one state and at least as good as B in all other states, then A is dominant over B
Dominance
The axiom of ??? under SEM is that there is invariance with respect to endowment, irrelevant alternatives, and elicitation procedure
Invariance
Imagine this sequence of colour
Black 100%
Grey 99%
Grey 98%
Grey 97%
Grey 96%
Grey 95%
…
Grey 1%
White 100%
We concatenate this sequence with the similarity operator (tilde), so that Black 100% is similar to White 100%.
This is an example of the failure of which axioms?
Transitivity
The endowment effect is an example of reference dependency, which is an anomaly under SEM
True
The anchoring effect is an example of reference dependency, which is an anomaly under SEM
True
Context effect
loss aversion
endowment effect
anchoring
diminishing sensitivity
are examples of a kind of anomaly, which one?
Reference dependence
Diminishing sensitivity means that the presence of other alternatives in the choice set affects the choice
False, this is the context effect.
Diminishing sensitivity means that losses have a higher impact than gains
False, this is the loss aversion
Diminishing sensitivity means that the impact of a change decreases with distance from a reference point
True
Often real estate agents use the context effect (asymmetric dominance)
True pg 12
Imagine you have a set of three cameras
A —> high quality, high price
B —> low quality, low price
People choose between A and B
After the decision, option A+ is reveal
A + —-> even higher quality, higher price
Under SEM, it is ok to switch from A to A+
True
Imagine you have a set of three cameras
A —> high quality, high price
B —> low quality, low price
People choose between A and B
After the decision, option A+ is reveal
A + —-> even higher quality, higher price
Under SEM, it is ok to switch from B to A
False
Imagine you have a set of three cameras
A —> high quality, high price
B —> low quality, low price
People choose between A and B
After the decision, option A+ is reveal
A + —-> even higher quality, higher price
Some people decide to switch from B to A, which violates SEM conditions.
This is an example of which anomaly?
Context effect/Reference dependency/ Asymmetric Dominance
We have two options for an orange juice
A is high in price but low in added sugar
B is lower in price but high in added sugar
A2 is revealed and it’s similar to A
People are more oriented towards B
This is an example of which anomaly?
Reference dependency/Context effect/ SIMILARITY EFFECT
Imagine a shop that sells two goods, A and B.
Choosing between them is difficult.
Then we add C
After that some people switch from A to B
This is an example of what effect?
Extremeness aversion
