INTL4260_Mar25 - I N T L 4260 Berejikian Tues/Thurs...

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Unformatted text preview: I N T L 4260 Berejikian Tues/Thurs 11:00-12:15 Tuesday, 25 M a rch 2008 Objective Rationality Prospect Theory o Under rational choice, the relationship between benefits/costs and value is constant. With each unit increase, we get an equal increase in how we value i t. So, the value is subjective. Realized that's not t rue Counter Diminishing return to payoffs eventually, increases in objective payoffs don't equate to equal increases in value. Ex: If I give you $1,000, you'll be happy but if I give you $1B and then $1,000, you're not as excited about the $1,000. o o Assumption: we evaluate gains/losses along a value curve. We t reat gains and losses differently than rational choice says we do Frame dependence o When we are confronted with choices that involve gains, we tend to avoid r isk. When we are confronted with choices that involve losses, we pursue r isks. o Ex: [$80] or [$100 + r isk] The way we shape the frame determines the decision Subjective Rationality Tuesday, 1 Apr i l 2008 Anchoring & Adjustment Getting a piece of information and then making a guess of it later on o Ex: Thickness of folded paper We often anchor to i r relevant information o Anchor ini tial piece of information that t ies you to your next judgment o If you are certain, the anchor affects your confidence Bias, incorporates i r relevant information into their judgment Robust results are the same when money is involved Car ries outside the laboratory ...
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This note was uploaded on 04/15/2008 for the course INTL 4260 taught by Professor Berejikian during the Spring '08 term at University of Georgia Athens.

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INTL4260_Mar25 - I N T L 4260 Berejikian Tues/Thurs...

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