Lecture11-ReasoningAndDecisionMaking-1.pptx

# If program d is adopted there is a one third

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If Program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor? Asian Disease Crisis 28

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Subjective Versus Objective Utility/Value For which of the following two series of coin tosses would you predict it is more likely to get tails on the next toss? H T H H T T H H H H H H next toss? next toss? 29 Gamblers’ Fallacy : The belief that if an event has not occurred for awhile, then it is more likely, by the “law of averages,” to occur in the near future.
Subjective Versus Objective Utility/Value Objective Probability 0 0.5 1.0 0.5 1.0 Subjective Probability Tversky’s Subjective Utility Curve 30

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Subjective Versus Objective Utility/Value Objective Probability 0 0.5 1.0 0.5 1.0 Subjective Probability Tversky’s Subjective Utility Curve At very low objective probabilities, people increasingly start to overestimate their odds (e.g., of winning) 31
Subjective Versus Objective Utility/Value If presented with the following two options, which would you take? (1) Win \$400 with certainty (2) Have a 50% chance of winning \$1000 32

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Subjective Versus Objective Utility/Value If presented with the following two options, which would you take? (1) Win \$400 with certainty (2) Have a 50% chance of winning \$1000 Most people choose this. 33
Subjective Versus Objective Utility/Value If presented with the following two options, which would you take? (1) Win \$400 with certainty (2) Have a 50% chance of winning \$1000 What about the following two options? (1) Lose \$400 with certainty (2) Have a 50% chance of losing \$1000 34

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Subjective Versus Objective Utility/Value If presented with the following two options, which would you take? (1) Win \$400 with certainty (2) Have a 50% chance of winning \$1000 What about the following two options? (1) Lose \$400 with certainty (2) Have a 50% chance of losing \$1000 Most people choose this. 35
Subjective Versus Objective Utility/Value Objective Gain Subjective Gain Subjective Loss Objective Loss 36

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Subjective Versus Objective Utility/Value Objective Loss Objective Gain Subjective Gain Subjective Loss -\$100 +\$100 37
Subjective Versus Objective Utility/Value Objective Loss Objective Gain Subjective Gain Subjective Loss -\$100 +\$100 Subjectively, losing \$100 hurts more than winning \$100 feels good. 38

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Subjective Versus Objective Utility/Value Objective Gain Subjective Gain Subjective Loss Objective Loss -\$100 +\$100 +\$200 -\$200 Winning more adds less and less to our happiness, but losing more adds less and less to our unhappiness 39
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