MGT491 Mid Term Flashcards
System 1 thinking refers to:
a. Our intuitive system, which is typically fast, automatic, effortless, implicit, and emotional
b. Reasoning that is slower, conscious, effortful, explicit and logical
c. a single system whose sole function is to control our cardiovascular functions
d. none of the above
A
Which was of the following is NOT one of the primary steps in the PrOACT method of decision making?
a. Define the problem
b. Identity the objectives
c. Assess the emotional factors in the decision
d. Generate alternatives
e. Rate each alternative on each objective
C
What are the steps in PrOACT
Problem Objectives Alternatives Consequences Tradeoff
What part of PrOACT is when you carefully and be sure to state your decision problem carefully
Problem
What part of PrOACT is when the decision is a means to an end, you want to ask yourself what to accomplish in making this decision
Objectives
What part of PrOACT is when the response the different choruses of action you have to choose from, and think creatively in order to specify all possible alternatives
Alternatives
What part of PrOACT is when you make sure understand the outcome of each alternative
Consequences
What part of PrOACT is because objectives frequently conflict with one another
Trade offs
What is an intuitive system, fast, automatic, effortless, implicit, and emotional.
Most decisions made using this system
System 1
What is the reasoning that is slower, conscious, effort, explicit, and logical
System 2
- Detecting the one objective is more distant than another
- Orient to the source of a sudden sound
- Detect a hostility in a voice
- Drive a car on an empty road
System 1 Activities
- Brace for the starting gun in a race.
- Look for a woman with white hair.
- Telling someone your phone number
- fill out tax Form.
- Compare two washing machines for overall value
System 2 Activities
What is the idea that in decision making, rationality of individuals ins limited by the information they have, the cognitive limitations of their minds, and the amount of time they have to make decision.
Bound Rationality
Most people are only partly rational, and emotional.irrational in remaining part of their action
Boundly rational agents experience limited information and solving complex problem in processing
Herbert Simon
What is not
- optimization under constraints
- irrationality
Bounded Rationality
What it is:
*simple heuristic decision tools that are specific and effective in certain environments.
Fast, Frugal, and accurate decision rules.
Process by which we use to make decisions
- Fast
- not hard decisions
Bounded Rationality
What is a decision-making strategy that attempts to meet an acceptability theirs hold. This contracted with optimal decision making, an approach hat specifically attempts to find the best options available. May often be optimal if the costs of the decision-making process itself, such as cost of obtaining complete information, are considered in the outcome calculation.
Satisfice
What is it when if everyone in every organization were completely rational, they would not always make the best decision.
satisficing
What is a given the time, effort , and expense that must go into the process of generating and evaluation alternatives, and the decision-making process within manageable bounds and stops the process when an acceptable solutions have been identified.
Satisficing
In the context of bounded rationality, the term satisfice is defined as:
a. A decision maker will continue to search for the best solution and will not stop until she is satisfied that best solution has been found
b. Decision makers are often willing to forgo the best solution in favor of one that is acceptable or reasonable
c. Satisfice is research term used to measure how satisfied a decision maker is with a decision after the decision has been made.
d. Both A and C are correct
B
What is mental capacity, time, attention, information/knowledge
Bounded rationality
The fact that heavy advertising of a company’s or a product’s name on billboards and in the media makes that name stick in people’s memory as bearing high quality is an example of what bias?
a. Insensitivity to base rates.
b. Retrievability.
c. The conjunction fallacy.
d. Ease of recall.
E
What is when assessing the likelihood of events, individual, tend to ignore base rate.
insesitivity to base rates
What is an individuals are biased in their assessment of the frequency of event based on how their memory structures effects the search process.
Retriebability
What is an individual exhibits bias toward overestimating the probability of conjunctive events and understanding the probability of disjunctive events.
The conjunction Fallacy
What is an individual judge events that are more easily recalled from memory.
Ease of Recall
What is the applies when a decision maker must choose be between two or more prospects.
Expected Value
What says a decision maker should select the prospect with the highest expected value
Expected Values
What is a way to measure the relative merits of decision alternatives.
Mathematical combination of playoff and probabilities you calculate the expected value after all probabilities and play off value are identified.
Expected Values
Of 12 eggs are ordered every Thursday morning, in the long run, a profit of $4 will be realized in 1 week, a profit of $14 in 2, and a profit of $24 in 7 out of 10 weeks. What is the expected profit?
(4)(.1)+(14)(.2)+(24)(.7)=
.4 + 2.8 + 16.8
20
What is an economic term summarizing the utility that an entry or aggregate economy is expected to reach under any number of circumstance.
Expected Utility
What is calculated by taking the weighted average of all possible outcomes under certain circumstance with the weights being assigned by the likelihood, or probability, that any particular event will occur.
Expected Utility
Suppose one offer you the choice between the following two gambles:
Gamble A: Win $240 at 100%
Gamble B: Win $400 at 50%
Win $100 at 50%
Show that an expected value maximizer will choose What Gamble
Gamble B
EV of A: 240 (240)(1)
EV of B (.5)(400) + (.5)(100)
200 + 50
250
EUA is square root of 240 is 15.49
EUB (.5)(Square Root of 400) + (.5)(Square Root of 100)
(.5)(20) + (.5)(10)
10 + 5
The choose is B because gamble B is lower
What is the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain, but possibly lower expected payoff.
Risk Aversion
What type of decision maker choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have expected return but also involves a change of losing value
Risk Aversion
The utility of $40 for sure is worth more that a 50% chance at $80. What type of decision maker is this type of person
Risk Aversion
(u)80= 66
(80)(.5) + (0)(,5)
33+0
33
What is the preference are neither risk averse or risk seeking. This type of decision maker party decision are not affected by the decree of uncertainty in the set of outcomes, so a risk neutral party is indifferent between choices with equal expected payoff even if one choice is riskier.
Risk Neutral
The utility of $40 for sure is worth more than a 50% chance at $80. What type of decision maker is this type of person
Risk Natural
U(80)
(80)(.5) + (0)(.5)
40 + 0
40
40=40
What type of decision maker is a person who has a preference for risk.
*Under uncertainty is ofter characterized as the maximization of expected value
Risk Seeking
The utility of $40 for sure is worth more than a 50% chance at $80. What type of decision maker is this person
Risk Seeking
U(80) = 93
(93) (.5) + (0)(.5)
46. 5 + 0
46. 5
What is a paradox related to probability theory and decision theory.
- it is based on a particular (theoretical) lottery game that leads to a random variable with infinite expected value
- is a classical situation where a native decision criterion (which takes only the expected value into account) would recommend a course of action that no rational person would be will to take.
St. Petersburg Paradox
What is the statistical process for estimating the relationship among variables
- is widely used for prediction and forecasting where its used has substantial overlap with the field machine learning.
- also used to understand which among the independent variables are related to the dependent variable.
Regression Analysis
What is the values of money with a given amount of interest earning or inflation accrued over a given amount of time.
Time Value of Money
What is the current worth of a future sum of money or stream of cash flow given a specified rate of return.
Present Value
What is the value of an asset or cash at a specific date in the future that is equivalent in value to a specific sum today.
Future Value
Consider an investment that will pay $680 per month for the next 15 years and will be worth $28000 at the end of that time. How much is this investment worth to you today @ 5.25% discount rate?
P/y= 12 N= 15*12= 180 I= 5.25 PMT= 680
FV= 28000 PV= -97351.34
What is a decision support tool that is uses a tree-like graph or model of decision and their possible consequences including chance event outcomes, resource costs, and utility.
Decision Tree
Which of the following can serve as a cognitive explanation for misconceptions of chance?
a. People expect probabilities to even out.
b. People remember unusual sequences better than ones that appear more random.
c. People judge probabilities of future events as contingent on past events.
d. All of the above.
D
What is an individual expect that a sequence of data generated by a random process will look random even when sequence is too short for those exceptions.
Misconception of chance
What is a cognitive bias according to which better informed people find it extremely difficult to think about problems
The curse of Knowledge
What is an individuals tend to seek confirmatory information for what they think is true and fail to search for dis confirmatory evidence.
The confirmation Trap
What is the tend to be overconfident of the correctness of their judgment, answering difficult questions.
Overconfidence
Drake is a department manager in a company which has recently decided to hire a new analyst. After interviewing all candidates, Drake recommended the company hire Anne, but senior management preferred to hire Beth. Drake argued that Beth is an inferior choice, but agreed to accept her for a trial period of six months. At the end of the trial period, Drake evaluated Beth’s performance as poor. Although this evaluation may have been fair, it is also possible that it was biased by:
a. The curse of knowledge.
b. The confirmation trap.
c. Overconfidence.
d. Misconceptions of chance.
B
The human mind is better at remembering information that is
a. Interesting.
b. Emotionally arousing.
c. Recently acquired.
d. All of the above.
D
When negotiating for salary with a future employer, it is wise to make an initial offer that is ______, because of the anchoring bias
a. Low
b. High
c. It is best not to make the first offer
d. None of the above
B
What describes the inferences we make about event commonness based on the ease with which we can remember instances of that event
Availability Heuristic
What assess the frequency of a class or the probability of an event by the ease with which instances or occurrences can be bought to mind.
Availability Heuristic
What is an individuals judge events that are more easily recalled from memory, based on vividness or recency, to be more numerous than events of equal frequency whose instances are less easily recalled
Easy of Recall
What is an individuals are biased in their assessments of the frequency of events based on how their memory structures affect the search process.
Retrievability
What is it when making a judgement about an individual people tend to look for traits an individual may have that correspond with previously formed stereotype.
Representativeness
When assessing the likelihood of events individuals tend to ignore base rate if any other descriptive information is provided.
Insensitivity to Base Rate
When assessing the reliability of sample information individual frequently fail to appreciate the role of sample size
Insensitivity to Sample Size
When is the individual expect that a sequence of data generated by a random process will look random even when the sequence is too short for those expectations to be statistically valid.
Misconceptions of Chance
When an individuals tend to ignore the fact that extreme events tend to regress to the mean on subsequent trails.
The regression to the Mean
When an individual falsely that conjunctions are more global set of occurrences of which the conjunctions is a subset.
The conjunction fallacy
What is a winning streak, a lucky spell
Hot Hand
Whats is the mistaken belief if something happens more frequently than normal during some periods, then it will happen less frequently in the future.
Gambler’s Fallacy
What relates the conditional and marginal probabilities of events A and B,, where B has non-banishing probability
Bayes Theorem
What is a tendency to search for or interpret new information in a way that confirms one’s preconceptions and avoids information and interpretations which contradict prior beliefs.
Confirmation Heuristic
When is an individual tends to seek confirmatory information for what they think is true and fail to search for disconfirmatiory evidence.
The confirmation Trap
When is the individual makes estimates for values based upon an initial value an typically make insufficient adjustments form that anchor when establishing a final value
Anchoring
When is the individual exhibit a bias towards overestimation the probability of conjunctive event and understanding the probability of disjunctive events
Conjunctive and disjunctive event bias
After finding out whether or not an event occurred individuals tend to overestimate the degree to which they would have predicted the correct outcome
Hindsight and the curs of Knowledge
When an individuals tend to be overconfident of the correctness of their judgments, especially when answering difficult questions.
Overconfidence
What is the the sequence of three numbers below follows a rule and that your task is to diagnose the rule creating the number 2,4,6
*Find the difference from right and wrong.
Confirmation Trap
What is a mental shortcut that allows people to make decisions and solve problems quickly and efficiently, in which current emotion, fear, pleasure, surprise, influences decision
Affect Heuristic
What is causes the tendency to be too sure our judgement and decisions are correct leads to overly narrow confidence intervals.
Over precision
