lesson 16 decision making

Question 1

how we divide up time

Answer 1

past, things that were (learning and memory)

present, things that are (perception)

future, things that will be

Question 2

prospection

Answer 2

human ability to think flexibly about often far future events

Question 3

prospection vs decision making

Answer 3

prospection: ability to think about the future

decision making: what i can do right now that will allow me to avoid certain outcomes/make other outcomes more likely

Question 4

expected utility theory

Answer 4

neumann and moore: there’s a rational way to compute optimal outcome (expected value)

Question 5

economists expected value

Answer 5

given i do something, what’s the likely outcome

odds of gain * value of gain
if it comes up heads you get 10,should you pay $4 to play
(1) * 4 = 4
(1/2) * 10 = 5, chance to win high

Question 6

errors of odds (has to do with odds of gain)

Answer 6

humans are bad at just figuring out how likely it is that things will happen

-sample size neglect
-gambler’s fallacy
-availability bias
-planning fallacy

Question 7

errors of valuation (has to do with value of gain)

Answer 7

humans are also surprisingly bad at figuring out what kinds of things will feel good in the future or not
-presentism
-relative valuation
-gain/loss nonlinearity
-temporal discounting

Question 8

errors of odds: sample size neglect

Answer 8

bias where one evaluates statistical information and arrives at an erroneous conclusion after failing to consider the sample size of the data set

*example of harvard vs yale rhode scholars, harvard looks like more but harvard has more students

Question 9

errors of odds: gambler’s fallacy

Answer 9

the belief that the likelihood of a chance event is influenced by the nature of the events that preceded it

Question 10

the myth of the hot hand

Answer 10

there is no such thing- someone who is an 80% free throw shooter has an 80% chance of sinking the shot no matter if they had 5 misses of 5 makes before it

Question 11

errors of odds: availability bias

Answer 11

the human tendency to rely on information that comes readily to mind when evaluating situations or making decisions

ex: republican voters are more exposed to stories about violent crime in the us so its more important to them than democratic voters who hear about other things

Question 12

errors of odds: the planning fallacy

Answer 12

underestimate how long it’ll take to finish things due to the little things that are hard to keep in mind while making estimation

Question 13

errors of valuation: presentism

Answer 13

decide how much your future self wants to eat but you dont realize how much you cant escape the feelings thoughts or expectations you have in the present

*ex: shoppers going into grocery store hungry vs shoppers who are full buy more food

Question 14

errors of valuation: relative valuation

Answer 14

value things not in absolute terms, but relative to other things (like weber’s law, different between 1 and 2 is more noticeable than difference between 9 and 10)

Question 15

errors of valuation: gain/loss nonlinearity

Answer 15

kahneman and tversky
think of the way people subjectively value things

one consequence of this is people operate way differently in a loss vs gain domain

curve relationship

losses loom larger than gains

Question 16

the curves asymptote

Answer 16

40,000 is the same as 40,100 but 100 is different from 200

Question 16

errors of valuation: temporal discounting

Answer 16

we tend to value things in the future less than we value them now

10 now vs 12 next week- we’ll take the immediate payoff

hard time suppressive enticing aspects of the now to make rational decisions for future self

Question 17

losses loom larger than gains: the endowment effect

Answer 17

people dont like giving up things that they are endowed with because the are in a loss frame