final Flashcards
Prior
probability distribution of interest conditioned on your information
likelihood
conditional distribution of the observed distinction given the distinction of interest
posterior
conditional distribution of the distinction of interest given the observed distinction
preposterior
the probability distribution of the observed distinction
sensitivity
probability that the test says positive given that the distinction of interest is really positive
specificity
probability that the test says negative given that the distinction of interest is negative
symmetric test
test is symmetric if sensitivity = specificity, otherwise asymmetric
relevant test
test is relevant if the probabilities assigned to the test outcome are different depending on the state of the distinction of interest
material test
test is material if results possibly change the preferred alternative. If decision the same no matter test outcome, it’s immaterial (also, assuming free test)
risk attitude
determined by relationship between persons CE of deal and e-value of the money
risk neutral
CE for deal is e-value of money. U-curve linear
risk averse
CE for deal < e-value of money; u-curve concave
risk preferring
CE for deal > e-value of money; u-curve convex
risk odds
r is risk attitude of delta person; r=p/(1-p)
risk tolerance
1/ln( r)
risk aversion
ln( r)
delta property
delta person if adding amount B to all prospects increases the CE of deal by B; PIBP=PISP; don_t need wealth
VOC
decider’s PIBP for clairvoyance to eliminate uncertainty in a situation
VFC
CE of deal with clairvoyance when cost of clairvoyance is 0
prospect
possible future state of the world–no uncertainty
deal
set of future prospects and their probabilities
preference probability
probability p at which decider indifferent between A for sure or a deal for B and W with p prob of B
five rules of actional thought
probability, order, equivalence, substitution, choice
probability rule
we shall consider the world in terms of prospects and their probabilities
order rule
we can make a list of possible prospects in order of preference; no loops or you’d have a money pump
equivalence rule
a CE can be found. There is some p that makes you indifferent between B for sure and A or C with p for A
substitution rule
given equivalent deals, you are willing to substitute one for the other
choice rule
you must prefer the deal with the highest probability of the prospect you like the best
e value
probability weighted average of a measure.
u value
preference probability that’s been scaled
expert
has powerful distinctions, has physical skills, knows history/borders of field, has humility
clairvoyance
information that resolves all uncertainty about an uncertainty
distinction
thought that separates a large group into degrees
degrees must be_
mutually exclusive and collectively exhaustive
useful
a distinction means what we want it to mean and helps us achieve clarity of action
decision basis
alternatives, preferences, information
relevant
distinctions are relevant when knowledge of one will affect our beliefs about the other
decision node
rectangle, represent decisions made
uncertainty node
oval, represents an uncertainty
deterministic node
two ovals, represents deterministic function of its inputs; if we know its inputs, we know the deterministic node
value node
hexagon or something, also a deterministic node but represents value the decision maker is trying to maximize
relevance arrow
between two uncertainties; absence implies irrelevance, presence implies possible relevance (based on conditioned state of information)
“B is conditioned on A and may be relevant to A”
information arrows
arrows that enter a decision node; at the time of the decision, we know the outcomes of the things going into it
“C and D1 are known when D2 is made”
influence arrows
from a decision node into an uncertainty node; decision we’re making influences the probability distribution of the uncertainty
“my choice in D may affect the distribution of uncertainty C”
functional arrows
enter a deterministic or a value node
“F is a deterministic function of D and E”
direct value arrows
functional arrows that enter into the value node
four rules of arrow flipping
- add arrows wherever you want, but dont make a cycle!
- You can flip an arrow if the uncertainties are based on same info
- Cant remove arrows arbitrarily
- no dancing
sunk cost principle
ignore past events and nonrecoverable loss of resources unless they affect your thoughts about the present or future
&
background state of information
associative logic error
the mistake you make if all lung cancer patients smoke and you think all smokers have lung cancer
responsible
have the ability to choose our response to environmental stimuli
proactive
recognition that we are responsible for our own lives
circle of concern
things we care about
circle of influence
things we have some degree of control over
decision
irrevocable or irreversible choice among alternative ways to allocate resources
value in use
how much an object is worth to you once it is integrated into your life and you can’t sell or exchange it
