Economic Psychology

Question 1

Modern Decision Theory (Van Neumann and Morgenstern)

Answer 1

Theory of making decisions according to the probability of maximising expected utility.

Question 2

Uncertainty

Answer 2

Possible outcomes under different circumstances.

Question 3

Risk

Answer 3

Quantifiable uncertainty.

Question 4

Probability

Answer 4

Number b/w 0 and 1 indicating the likelihood of a certain outcome occurring.

Question 5

Probability distribution

Answer 5

Relates probability to each possible outcome (in %).

Question 6

Frequency

Answer 6

N = times event occurred.
n = times a specific outcome occurred.

Question 7

Expected value

Answer 7

[Pr (1) x Value (1)] + [Pr (2) x Value (2)]

Question 8

Variance

Answer 8

Degree by which actual outcome varies from EV.

Question 9

Expected Utility

Answer 9

[Pr (1) x U (Value (1))] + [Pr (2) x U (Value (2))]

Question 10

Utility

Answer 10

E = prob. times value

Question 11

Peverone’s solution

Answer 11

As a player wins more goals consecutively, their share of the reward should increase.

Question 12

Lens model

Answer 12

Human perceive the world through lens of sensory and informational inputs. Therefore, to fully understand judgment processes, one must consider cognitive processes + environmental factors.

Question 13

Anchor

Answer 13

Starting point for estimation.