Psy353 Expected Value/Utility

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12 Terms

1
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What is the definition/formula for Expected Value/Utility?

Summation of P(outcome) * Payout/Utility.

2
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What is the St. Petersburg paradox?

For a coin flip that offers 2^n payout per flip, one should pay an unlimited amount to play because the payout is infinite.

3
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What is utility?

How “good'“ or “bad” an outcome is.

4
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What does diminishing marginal utility entail?

The more one has of something (like money), gaining more of that thing (money), decreases the util gains from subsequent gains.

Have $2000=2000 utils; numbers past 2000 will no longer follow a 1:1 ratio.

5
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What is the axiom of completeness?

For any x or y, there is a either a preference of:
x to y
y to x
or indifference

6
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What is the axiom of transivity?

If there is a preference of x to y, and a preference of y to z, then the preference follows of x over z.

7
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What is the axiom of independence?

If there is a preference of x to y, adding z won’t change the preference.

8
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What is the axiom of continuity?

If there is a preference of x to y, & y to z, then a combination of x and z can equal y.
pX + (1-p)Z = y

9
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How is the axiom of independence violated?

With the Allies paradox.

10
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How is the axiom of transitiveness violated?

When there is a small set of changes that add up to the large changes that one would normally reject.

11
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What is the framing effect?

Outcomes described as a gain/loss result in people make different choices (usually favoring the gain)

12
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What is the certainty effect?

Tendency to overweight and/or prefer/avoid guaranteed outcomes.