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.
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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 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
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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 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
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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 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
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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
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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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