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# lec11 - 4/8/09 Lecture 11: Decision-Making Expected Utility...

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4/8/09 1 FOCUS AND KEYSTONE SLIDE Expected Utility Theory Errors in Odds Errors in Value Comparing with the Past Comparing with the Possible Comparing Over Time Lecture 11: Decision-Making Expected Utility Theory Errors in Odds Errors in Value Comparing with the Past Comparing with the Possible Comparing Over Time Lecture 11: Decision-Making Homo Habilis 2,000,000 B.C. Homo Sapiens 200,000 B.C. Lecture 11: Decision-Making

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4/8/09 2 Lecture 11: Decision-Making Expected Utility Theory Errors in Odds Errors in Value Comparing with the Past Comparing with the Possible Comparing Over Time Lecture 11: Decision-Making E(u | p, X) = Σ x X p(x)u(x) Expected Utility Theory Rene Descartes and Pierre Fermat E(u | p, X) = Σ x X p(x)u(x) Expected Utility of Any Action = X Odds of Getting What You Want Value of Getting What You Want Expected Utility Theory
4/8/09 3 .5 X \$10 = \$5 If this coin comes up heads I’ll give you \$10, but I’ll charge you \$4 to play. What should you do? Expected Utility of Any Action = X Odds of Getting What You Want Value of Getting What You Want Expected Utility Theory Value of Getting What You Want Odds of Getting What You Want Errors in Value Errors in Odds Expected Utility Theory Expected Utility Theory Errors in Odds Errors in Value Comparing with the Past Comparing with the Possible Comparing Over Time Lecture 11: Decision-Making 1 ÷ 52 1 ÷ 6 1 ÷ 2 How We Should Calculate Odds __ actually Errors in Odds

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4/8/09 4 1 ÷ 6 The Availability Heuristic: “What comes to mind, comes to pass” Errors in Odds 564 90 160 6 1684 7380 506 1886 Deaths Per 200 million US residents per year Estimate Actual Errors in Odds Errors in Odds Odds You Will Get A Pet This Year Odds You Will Get A Cat This Year Errors in Odds
4/8/09 5 Odds of Getting Murdered in Michigan 100 per Year Errors in Odds > 100 per Year 200 per Year Odds of Getting Murdered in Michigan Odds of Getting Murdered in Detroit Errors in Odds Murder in Michigan Errors in Odds Murder in Detroit Murder in Michigan Errors in Odds

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6 Crashes Errors in Odds Crashes by terrorism Crashes Errors in Odds Natural Causes Errors in Odds Heart Attacks Natural Causes Errors in Odds
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## This note was uploaded on 11/07/2010 for the course PSY 1 taught by Professor Fridlund during the Spring '08 term at UCSB.

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lec11 - 4/8/09 Lecture 11: Decision-Making Expected Utility...

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