chapter 4 notes

chapter 4 notes - Chapter 4 Choice process o An individual...

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Chapter 4 Choice process o An individual makes a decision as if he were going through these steps Examine all possible plans of action and see what possible outcomes can result from each Judge how desirable each outcome is and how likely it is to occur as result of following the particular plan of action Choose the plan of action with the highest expected value o Theorized rational choice process being modeled Examine all possible plans Identify all possible out comes Value each outcome Estimate probability of each outcome Choose outcome with highest expected value Probability o Relative frequency notion—probabilities must all be within range 0 to 1 o They designate something that is certain to occur and something that is certain not to occur—why its limited to these numerical values Two common mistakes with probabilities o Assume that because there are two possible outcomes the probability of each of them is .5 o Gamblers fallacy being due for a red card Drawing decision trees o Lines to designante all possible outcomes
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o Highest expected value to determine best choice Normative model one that tells you how to do something, how to behave in order to achieve a goal o Give advice Descriptive model one that ells you what people do; it enables you to predict behavior o Predict behavior AGGREGATION or LAW OF LARGE NUMBERS—sometimes applied in order to use a normative model for prediction
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chapter 4 notes - Chapter 4 Choice process o An individual...

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