Lecture 11 Value Distortion

Question 1

Framing Effects (value distortion)

Answer 1

the conceptualization of outcomes influence the outcome preferred

eg. lots of negative examples forces the selection of the few positive
choosing the least worse

Question 2

Conceptualized gain

Answer 2

probabilities are moderate or high
tendency for risk aversion in terms of potential gains

inflation of expected value gaines

Question 3

Conceptualized loss

Answer 3

probabilities are moderate/high
tendency for risk seeking relative to potential losses

deflation of expected value of losses

Question 4

Conceptualized to-be-chosen

Answer 4

2 options and asked to choose
focus of positive features

inflation of payoffs to be chosen

Question 5

conceptualized to-be-rejected

Answer 5

2 options with the choice to reject
focus on negatives

deflation of payoffs of outcomes to be rejected

Question 6

Changes

Answer 6

we deflate the pay offs of changes to the status quo

inflate payoffs of keeping status quo

change
losses of what is there
not gains of what is to come

Question 7

Certain

Answer 7

Certainty (probability of 1)

over Expected Value

Question 8

Psychological Accounting

Answer 8

deflate payoffs of easy-to-come-by outcomes

inflate difficult-to-achieve ones

Question 9

Magic Numbers

Answer 9

when numbers take on a value of their own or distort the real payoff

Question 10

Sunk Costs

Answer 10

sticking to a decision because of already incurred losses

does not reflect the real payoff of changing your mind