Amount of taiwanese food youll eat how much youll

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Amount of Taiwanese food you’ll eat? How much you’ll actually learn? Will you make a lot of friends? Will you get a job after graduation? List the outcomes you considered.
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Simple Choices A degree from MCU in Taiwan A degree from University B in Country B What is the value of each? The utility ?
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Choices MCU in Taiwan University B in Country B Did you think about how likely these outcomes were? The probabilities? How much weight did you assign to the likelihood of each outcome actually occurring?
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Risky Choices How should you make a choice when risk is involved? How do you make a choice when risk is involved?
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Risky Choices Expected Values, Expected Utility & Prospect Theory
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Expected Value Theory (pre-1738)
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Coin Flip: What are the possible outcomes? What are the values and probabilities of these outcomes ? 50% chance to win $10 and 50% chance to lose $10.
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Imagine flipping a fair coin thousands of times. How much would you expect to win or lose? 50% chance to win $10 and 50% chance to lose $10.
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GROUPS: For any outcome for which you know the values and the probabilities of the outcomes, how can you calculate the expected value ? X% chance to win $A and Y% chance to lose $B.
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Expected Value – Sum of the probability-weighted values. 0.5 x 10 = 5 0.5 x -10 = -5 Expected Value = $0
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Choose one of the below. 80% chance to win $100 and 20% chance to win $10. USD $80
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Imagine playing a game with these odds 1000 of times. What would you expect the average value of each game to be? 80% chance to win $100 and 20% chance to win $10.
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You would probably win $100 800 times, giving you 800 x $100 = $80,000 You would probably win $10 200 times, giving you 200 x $10 = $2,000. Your total would be 82,000 over 1000 games, so your average per game would be $82. 80% chance to win $100 and 20% chance to win $10.
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If you could play 1000 times, which should you choose? If you can only play once, which would you choose? 80% chance to win $100 and 20% chance to win $10. USD $80
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80% chance to win $100 and 20% chance to win $10. USD $82 USD $80
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Risky Choices Based on expected values, choose the 80%-20% option
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Is this how we really make choices?
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What should you do according to Expected Value Theory IS THAT WHAT YOU REALLY WOULD DO? 50-50 chance to have $1 million or $7 million. EV = $? $4 million
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You should be indifferent – willing to accept either one Are you? 50-50 chance to have $1 million or $7 million. EV = 4 million $4 million
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Expected Utility Theory Daniel Bernoulli (1700-1782)
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