expected utility theory

Question 1

normative

Answer 1

how people should think especially in risky choice situations where no certainty

Question 2

assumes

Answer 2

choices made under ideal conditions

Question 3

utility is aligned with

Answer 3

the achievement of one’s goals

future focused

Question 4

Calculate the return of a decision based on EU

Answer 4

how will the person’s goals be achieved through choice adoption

Question 5

Rational actor if:

Answer 5

1. comparable alternative
2. dominant decision in terms of features and payoffs
3. identical choices produce indifference
4. transitivity
5. choice with the best chance of benefit
6. doesn’t matter what order the alternatives are presented in

Question 6

Pascal’s Wager

Answer 6

Gamble of internal state, heaven or hell
State of the world (god exists or not) and choice (live christian or not)
Big pay off to live christion

Question 7

CRITIQUE: Cancellation principle

Allais paradox

Answer 7

Two sets of choices, most choose a but then choose d, despite difference between c and d not being much, and c being the equivalent of a

Question 8

CRITIQUE: Cancellation principle

Ellsberg paradox

Answer 8

Ball from a jar

Question 9

Simon assumptions

Answer 9

DM have complete info relevant to a decision
DM understand all info
Able to calculate dis/advantage of every alternative

Question 10

Assumptions unrealistic becase

Answer 10

EUT assumes people attempt to optimise utility, choose best of all possibilities - impossible

Question 11

Bounded rationality

Answer 11

more accurate - not ignoring limits of humans as choice mechanisms