Chapter 1: Introduction

Question 1

Logic

Answer 1

Study of rules of proper reasoning

Question 2

Decision Theory

Answer 2

Theory of rational decision making.

Question 3

In Decision Theory, there is a ___________ ____________ who is presented with a ___________ of ________________, for which there will be an _____________ that depends on the true ___________ of the ___________ (the way in which the ____________ __________).

Answer 3

decision maker; set; alternatives; outcome; state; world; world; works

Question 4

The true state of the world is only ______________ known to the _______________ _______________.

Answer 4

partially; decision maker

Question 5

Decision Matrix

Answer 5

Visualizes a formal representation of a decision problem graphically.

Question 6

Aim of Decision Theory

Answer 6

To form hypothesis about rational decision making that are as accurate and precise as possible.

Question 7

Descriptive Decision Theory

Answer 7

Explains / predicts WHY people make decisions

Question 8

Normative Decision Theory

Answer 8

Explains what people are rationally required /ought to do

Question 9

Why do we study Normative instead of Descriptive decision theory?

Answer 9

Descriptive Theory theorizes WHY people make decisions – that’s bound to change across time and cultures.

Normative Theory will likely remain unchanged & withstand the test of time.

Question 10

Normative assessments are based on ________________, _____________, and ___________.

Answer 10

standards; values; ideas

Question 11

David Hume’s contribution to modern idea of decision theory is that decisions are largely based on ______________ and ______________.

Answer 11

belief; desire

Question 12

Decisions theorists are more concerned with ______________ decisions than ______________ ones.

Answer 12

rational; right

Question 13

A decision can be _____________ w/o being __________ and _________ w/o being _________________.

Answer 13

rationale; right; right; rational

Question 14

Theories of rationality rely on _____________ available at the ____________ point in time, not ________________ available at some time _____________ in the ____________.

Answer 14

information; present; information; later; future

Question 15

Right Decision

Answer 15

A decision is a right decision if and only if the outcome is at least as good as every other potential ouctome.

Question 16

Rational Decision

Answer 16

A decision is a rational decision if and only if the decision maker makes the choice that she has the most reason to choose at the time of the decision being made.

Question 17

In instrumental rationality, one has an _______ and expects to reach that _______.

Answer 17

aim; aim

Question 18

Instrumental Rationality

Answer 18

To do whatever one has the most reason to in fulfilling one’s aim.

Question 19

The _________ itself in ________________ _______________ cannot be considered _______________.

Answer 19

aim; irrational

Question 20

Decisions under Risk

Answer 20

decisions made when decision maker knows outcome.

Question 21

Decisions under Ignorance

Answer 21

decisions made when probabilities are unknown/nonexistent

Question 22

Problems of decisions under ignorance can be solved with choices under _________________.

Answer 22

dominance

Question 23

Strict Dominance

Answer 23

Option A strictly dominates Option B iff. the outcome of A is better than the outcome of B no matter the true state of the world.

Question 24

Weak Dominance

Answer 24

Option A weakly dominates Option B iff. the outcome of A is at least as good as the outcome of B no matter the state of the world, AND strictly better than at least one state.

Question 25

With decisions under ignorance, where you have to use dominance, START BY MAKING a ______________ ____________. Set up your _____________, _________, and _____________.

Answer 25

decision matrix; states; acts; outcomes

Question 26

States

Answer 26

What’s your state of the world?

(e.g. you misheard, or heard correctly)

Question 27

Acts

Answer 27

From the problem, what actions are available to you?

(e.g. buy from Dealership A or from Dealership B)

Question 28

Outcomes

Answer 28

Results from State of the world and actions

What course of action is now available?

Question 29

The Principle of Maximizing Expected Value

Answer 29

• Only applied when making desicions under risk (You Know The Outcome)
• Total value of an action = sum of values of possible outcomes × probability for each outcome.

Question 30

Expected Monetary Value (EMV). Expected in this case means _______________. If the outcomes have the same __________, then the EMV is that ______________. If not, then the EMV is calculated by ______ of the values of the ___________ ___________ x the ______________ of each ______________.

Answer 30

Average; value; number; sum; possible outcomes; probability; outcome.

Question 31

Maximin

Answer 31

-Only applied when making decisions under ignorance (probabilities unknown/non-existent).

• Take the Best of the worst possible outcomes

Question 32

Social Choice Theory

Answer 32

• Focuses on making decisions collectively (>1 person)

!!Focuses on aggregating different desires and beliefs of heterogenous individuals towards of collective opinion!!

Question 33

Game Theory

Answer 33

• Focuses on decision making based on another person’s decision.

Question 34

Baye’s Theorem

Answer 34

• Calculates conditional probabilities.
• p(B|A) = p(B) * p (A) / [p(B) * p(A|B)] + [p(¬B) * p(A|¬B)]

Question 35

Frequency Format of Bayes Theorem

Answer 35

1) Assume
2) Base Rate Cut
3) Hit Rate Cut
4) False Alarm Rate Cut
5) Comparison: True positives among total positives