Lecture 4

Question 1

Framing

Answer 1

to refer to alternative wordings of the same objective information that significantly alter the decisions that people typically make, even though differences between frames should have no effect on the rational decision.

Question 2

the sum of our choices

Answer 2

To override our intuitive tendency for our risk preferences to be highly affected by the same problem frame, Kahneman and Lovallo have argued that we would be generally better off following an expected-value rule for most decisions.

Question 3

The certainty effect

Answer 3

makes us more apt to be interested in reducing the likelihood of certain events than uncertain events.

Question 4

the pseudocertainty effect

Answer 4

we are more likely to favour options that assure us certainty than those that only reduce uncertainty

Question 5

insurance premium

Answer 5

It is a certain loss that you accept in exchange for the reduction of a small probability of a large loss

Question 6

Acquisition utility

Answer 6

describes the value you place on a commodity

Question 7

Transactional utility

Answer 7

refers to the quality of the deal that you receive.

Or have you ever refused to buy something that you could afford, simply because it was a rip-off?

Question 8

the endowment effect

Answer 8

that people tend to overvalue what they own. The frame of ownership creates value that is inconsistent with a rational analysis of the worth that the commodity brings to the individual. Tickets

Question 9

Mental accounting

Answer 9

its purpose is to keep track of our money-related decisions so as to give us a model with which to evaluate future financial decisions. It is a way of making sense of the world. we apply strikingly different decision rules to different mental accounts.

Question 10

Rebate/bonus framing

Answer 10

If the government had described payments as “bonuses” instead of “rebates” more citizens would have immediately spent the money instead of saving it, creating a greater stimulus to the economy.

Question 11

Joint-versus-separate preferences reversals

Answer 11

People place a higher value on one option than another when looking at them individually, but reverse their preference when considering two or more options at the same time.

Question 12

Can there be too much choice?

Answer 12

the more options there are, the more likely one will make a nonoptimal choice, and this prospect may undermine whatever pleasure one gets from one’s actual choice.

Question 13

Schwartz

Answer 13

1. There is the problem of gaining adequate information about the options to make a choice.
2. There is the problem that as options expand, people’s standards for what is an acceptable outcome rise.
3. There is the problem that as options expand, people may come to believe that any unacceptable result is their fault, because with so

Question 14

Maximizing

Answer 14

reports of engaging in social comparison, being concerned with what others were doing, and finding upward and downward social comparison more appropriate.