lsu psyc 4030 exam 1 harman

Nicolaus Bernoulli

He created The St. Petersburg Paradox

Daniel Bernoulli

He solved the St. Petersburg Paradox

using utility

How did Daniel Bernoulli solve the St. Petersburg Paradox?

utility

A measure of satisfaction an individual gets from the consumption of the commodities

Utility

A measurement of usefulness that a consumer obtains from any good

decreasing marginal utility

the utility of money decreases relative wealth

Von Neuman & Morgenstern

Created the Theory of Games and Economic Behavior

Daniel Bernoulli

Created Expected Utility Theory

outcome
probability
context

What makes a decision good?

outcome

key component in finding out what makes a good decision

probability

the likelihood that a different outcome happens

context

benefits for a given person at a given time

optimal

best outcome

1980

\_______________ was when Judgement and Decision making society was formed and had its first meeting

recent

The judgement and decision making field is \_____________________ (recent/old)

judgement

assessment or belief about a situation based on available info

decision

commitment to a course of action

normative
descriptive
prescriptive

What are the three models of decision-making?

rational model or economic model

What is another term for a normative model?

Normative models

This model will tell you what is the best decision to make

Descriptive models

This model is inherently psychological

Descriptive models

This model seeks to model how humans actually make decisions

Prescriptive models

This model aims to help people make better decisions

pros and cons list

Give an example of a prescriptive model.

pros and cons list

One of the earliest prescriptive models

Normative model

What model of decision making is this? How a rational actor would decide if certain assumptions were met

normative models

beginning in philosophy and mathematics; later formalized in economics

Chevalier de Mere

degenerate gambler who was a French aristocrat (his words not mine)

Chevalier de Mere

He wanted to figure out a way to beat the game and reached out to Blaise Pascal; Pascal reached out to Pierre de Fermat

Pascal and de Fermat

Who came up with probability?

EV \= ∑(p x o)
expected value equals the sum of probability times outcome

What is the formula for expected value?

EV\= (0.5x10) + (0.5x0)\=$5

Calculate the expected value of this gamble.
probability outcome
heads 1/2 $10
tails 1/2 $0

On average, if you played this gamble repeatedly, you can expect to make $5. If it costs more than $5 to play this game, it would be a bad idea to play this gamble

What does an expected value of $5 mean?

St. Petersburg Paradox

Game in which one player pays another for tails before heads. Probability shows expectation should be infinite.

St. Petersburg Paradox

-Game: you get to toss a coin for as many times as you need to get a "tails" and you get $2^n
-The EV for the game is an infinite amount of money [(1/2 x $2) + (1/4 x $4) + (1/8 x $8)...]
-Most people would only be willing to play for a few dollars
-This is because of the diminishing marginal utility

infinity

What is the EV of the St. Petersburg Paradox?

St. Petersburg Paradox

It says the rational thing to do is to do something no rational person would do

Daniel Bernoulli

Nicolaus Bernoulli's nephew who solved the St. Petersburg Paradox using a concept called utility

decreasing marginal utility

the value of money decreases relative to wealth

axiums

rules that must be adhered to when making decisions

2nd edition

What edition (1st or 2nd) of the Theory of Games & Economic Behavior has an appendix with the theorem for assessing decision making with the principle of maximizing EU.

maximizing

The 2nd edition of the Theory of Games & Economic Behavior has an appendix with the theorem for assessing decision making with the principle of \________________________ (maximizing/minimizing) EU

Ordering of Alternatives
Dominance
Cancellation
Transitivity
Continuity
Invariance

List 4 axioms of EUT.

ordering of alternatives

Rational decision makers should be able to compare any 2 alternatives. They should either prefer one to another or be indifferent

ordering of alternatives

They should either prefer one to another or be indifferent

Dominance

a rational actor should never choose an option (strategy) that is dominated.

Dominance

When option is as good or better than another option on every attribute (price, design, etc.)

Strong dominance

Is the following weak or strong dominance? if an option strongly dominates another option, it means one option is better than another option on every attribute

Strong Dominance

Is the following an example of weak or strong dominance? Apple watch is better than the Fitbit in price and every attribute

Weak dominance

Is the following weak or strong dominance? If they are tied on 1 attribute, but the other option is better than the other attribute

Weak Dominance

Is the following an example of weak or strong dominance? Apple watch is only better in price but tied for other attributes

Cancellation

If 2 risky alternatives include identical and equally probable outcomes, the utility of these outcomes should be ignored.

cancellation

What EUT axiom is the following an example of? Where Ariely talks about the economists and the subscription plan (print only, internet only, print and internet)

Transitivity

A\>B, B\>C \= A\>C

A\>B, B\>C \= A\>C

What is the formula for transitivity?

Transitivity

If a decision maker prefers A to B and they prefer B to C, then they must prefer A to C (A\=Apples, B\=Bananas, C\=Cotton Candy)

Intransitive (or money pump)

If you prefer A to B, and you prefer B to C, but in the end you prefer C to A, then you are \____________________

Continuity

For any set of outcomes, a decision maker should always prefer a gamble b/t the best and worst outcome to a sure immediate outcome if the odds of the best outcome are good enough.

Continuity

What EUT axiom is the following an example of? A decision maker should prefer a gamble b/t $100 and complete financial ruin to a sure $10 if the P of ruin are 1 in 1,000,000,000,000,000,000,...

Invariance

A decision maker should not be affected by the way alternatives are presented

invariance

What EUT axiom is the following an example of? 2 stage gamble H+H \> $100 vs .25 chance of $100. (H\=Heads)

The Allais Paradox

The apparent contradiction observed when the addition of the identical event to each alternative has the effect of changing the preference of the decision maker.

The Allais Paradox

What is the following an example of?
A: $1,000 (p\=1) B: $1,000 (p\=.89)
$5,000 (p\=.1)
$0 (p\=.01)

order of alternatives

Which axiom is the gamble for Lichtenstein & Slovic a violation of?

Lichtenstein & Slovic

The gamblers preferred the $2 (p\=.75) [Choice A] over the big chance of getting $0 [Choice B]. When they were asked to price the gambles, people priced Choice B higher than Choice A

Preference Construction

Consumer preferences constructed in moment when decisions elements are unfamiliar, choices present conflict, difficult to weight various factors.

compromise effect

-Double Cheeseburger for 2 euros (50% people chose this) vs Triple Cheeseburgers for 3 euros (50% people chose this)
-Single Cheeseburger for 1 euros- 30%, 60% for double, and 10% for triple
People usually choose the middle option when faced with 3 options

Herbert Simon

Known for Bounded Rationality

rationality

In decision-making, \________________ of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision

Attention
Perception
Memory

List the Cognitive Limitations

Limited resource
Selective

List the aspects of Attention

limited resource

Attention is a \_____________________________: If you are studying, listening to your roommate and watching TV, then it will be very hard. Everyone is a bad multi-tasker

not completely under our control

What does it mean that attention is selective?

Selective

Attention is \_____________________________: You can have a conversation with someone at a loud party, but if you hear your name you will automatically look to see who called you

perception

conscious awareness of the stimuli in our environment

Constructed
Error Prone
Context dependent

What are the aspects of Perception?

bottom-up

data driven processing

bottom-up processing

Stresses the importance of external stimuli in constructing our perceptions

bottom-up processing

the analysis of the smaller features to build up to a complete perception

top-down

conceptually driven processing

top-down processing

stresses the importance of our mental expectations

top-down processing

a progression from the whole to the elements; expectations that help fill in the gaps

context effects

stimuli or information in the sensory field along with target information that help us decide what the target is

context effects and top-down processing

What type of processing in perception is the following? example from class with the 3 of black hearts

error of bottom-up processing

What type of processing in perception is the following? example from class where table tops are the exact same shape and size

working memory

What is another name for short-term memory?

working memory (STM)

anything that you are consciously aware of

7+/-2 chunks of info

What is the capacity of STM?

George Miller

Who discovered the capacity of STM?

Chunks

units in STM

Chunks

a recognizable pattern

Miller experiment

What experiment is this? would flash grids of letters (e.g., AFB, IPH, DTW) in front of participants, then asked them how many they could remember, they could remember around 3-5; He then switched the letters around and they formed familiar patterns (e.g., FBI, PHD, TWA) so the participants remembered all of them

knowledge; knowledge

You need \______________________ to remember more \____________________

know; easier

The more you \______________, the \_______________it is to learn

Steve Faloon

participant in psych study; researchers were interested in trying to increase memory capacity through intensive memory training (2 hours a day); they had to remember a list of numbers; at the end, all participants remembered 7+/-2; \__________________________ was able to remember hundreds of \#s; The reason he could was b/c he was really competitive and he had loads of useless knowledge about track and field; he would use the track knowledge to remember \#s such as someone ran for 40 meters etc. etc.; we are limited to 7+/-2 chunk, but we can get around this limit by chunking information

15-30 seconds

What is the duration of STM?

rehearsal

used to exceed STM's 15-30 second duration

rehearsal

the primary way we get info into LTM

serial position curve

When presenting someone with a sequence of things, the likelihood of them remembering anything in the list depends on the position it was in

serial position curve

People are more likely to remember things at the beginning of the list (primacy effect) and at the end of a list (recency effect)