SPRING Decision Making Flashcards
shafir and le boef view of rationality 2002
largely entitles to own preferences so long as adhere to basic rules of logic and probability
not be formed on the basis of immaterial factors ie mood or contrext
what types of decisions can we make
riskless
decision under risk
decision under uncertainty
define decision under risk
outcome of each decision known
define decision under risk
probabilities of outcome known but not true outcome
define decision under uncertaintly
dont know probability or exactly what cold occur
must estimate or guess
what is expected vaue theory
outcome = probability of occurance x monetary value
what you shold do based on an idealised version of the world - always a dominant right answer
what is expected utility theory
outcome = probability of occurance x utility value
utility value is subective and doesnt have exact monetary value
what is subjective expected utility theory
outcome = subjective probability x subjective utility value
subjective prob - not ebery situation is probabalistic - percieved likelihood of occurance when there is no set value - rely on estimates of the world
assumptions of subjective expected utility
seek to maximise SEU
tansitivity of preferences
invariance of preferences
consistency = rationality
assumptions of SEU maximise
wish to chose option of greatest gain
assumptions of SEU transitivity of preferences
assumes choices are well order ie a>b and b>c then a>c
assumptions of SEU invariance of preferences
preferences remain the same irrespective of the way the options are described (descriptive invariance), the way the choice is made (procedural invariance) or regardless of how the choice is expressed
elimination by apects (tversky 1972) violation of SEU
start with most important attribute and set cut off value - all below are eliminated
continue to next attribute etc until only one option remains
- big choices
satisficing (simon 1956) violation of SEU
consider one alternative at a time in the order they are presented - compared to predetermined cut off
first to pass all cut offs is selected
violating transitivity (tversky 1969) violations of SEU
dont always have transitive preferences
chose between a (more social but less intelligent) or e (less social but more intelligent) chose E even though prev chose a
larger diff compared to a>b etc
violative descriptive invariance (tversky and kahenman 1981) violations of SEU
framing effects
aisian disease problem - people saves chose a (least risky) but people die chose b (more risky)
more sensitive to loss so chose risk to prevent as much as possible
risk averse for gains and risk seeking for loss
kahenman and tversky 1979 prospect theory
expected utility not as straight as economic choice assumes
marginal value of gains and lossess decreases with mag (ie 200 vs 300 > 1200 vs 1300)
depend on reference point (what you have adapted to ie temp) in how you judge and compare outcomes - ie object hot or cold dependent on the temp to which one has adapted (same with wealth ie pov see high gain)
eval relative to what could have happened
BUT feel loss stronger than feel gains
coucil tax and prospect theory
offered rebait on council tax (gain back loss) or money for insulating homes
more chose tax back as seen as getting back loss
ie lottery lose more value
donoval and jallen 2000 framing effects in real world
immunisation problem
a. 90% chance no side effect or b. 10% chance side effect
increased choice of a becuase positively framed
violating procedural invariance (lichtenstein and slovic 1971) violation of SEu
given EV choce of betting
a. 99! win £4, 1% chance lose £1 or b. 33% chance win £16.67 and 67% chance lose £2
EV best choice is a by one penny
but when pay more to bet chose b - focus more on potential winnings than the highest probability