Unformatted text preview: combine utility (value) and probability • Multiply the utility (value) of each possible outcome by the probability of that outcome and add up all the results Example: (1) winning $40 w/ a probability of .20 vs. (2) winning $30 w/ a probability of .25 = $8 = $7.5 not all equalvalue choices are equally useful 18
$40 at .20 $30 at .25 $40 at .80 $30 at 1.00 Violations of Expected Value Prospect Theory (Kahneman & Tversky) Decisions based on amount of gain or loss from what we have right now not on absolute value Gains vs. losses Feel losses more acutely than gains Psychological ‘pain’ of losing $50 greater than ‘pleasure’ of winning $50
Risk
averse attitude (facing sure gain) Risk
seeking attitude (facing sure loss) Prospect Theory (Kahneman & Tversky) Decisions based on amount of gain or loss from what we have right now not on absolute value Decision Weights diﬀerence between .40 and .50 is trivial ...
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This note was uploaded on 01/26/2014 for the course PSYCH 228 taught by Professor Broaders during the Winter '11 term at Northwestern.
 Winter '11
 broaders
 Cognitive Psychology

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