Decision Making

Question 1

Decision

Answer 1

a choice one makes after considering different alternatives

Question 2

Expected Value (Rational Choice)

Answer 2

● Average outcome if a scenario is repeated many times
● Calculated using probabilities and values of possible
outcomes

● Example: a gamble
● 75% chance of winning $200,
● 25% chance of winning $0.
● EV = (.75 × $200) + (.25 × $0) = $150

Question 3

In order to maximize average outcome _______

Answer 3

Choose option with greatest expected value

● Option A: You win $125.
● EV = 1.0 × $125 = $125
● Option B: 25% chance you win $400,
75% chance you win $0.
● EV = (.25 × $400) + (.75 × $0) = $100
● Therefore, you should choose Option A.

Question 4

Advantages to using Expected Value

Answer 4

● Clear prescription for “correct” choices
● Leads people, on average, to maximize monetary
gains given what they know about the world
● Keeps people’s decisions internally consistent

Question 5

Problems to using Expected Value

Answer 5

● Difficult to apply for non-monetary decisions

● Doesn’t explain actual choices by actual people

Question 6

Kahneman & Tversky Developed ______ Theory

Answer 6

Prospect

Question 7

What is Prospect Theory?

Answer 7

A descriptive approach to decision making in which we focus on HOW we decide

Question 8

What is Rational Choice Theory?

Answer 8

A Prespective approach to decision making in which we focus on how we SHOULD decide using expected values

Question 9

Behavioural Economics

Answer 9

People do not make decisions based on expected
values, probabilities, and absolute outcomes.
People make decisions based on subjective utility,
decision weights, and relative outcomes.

Question 10

Ultility

Answer 10

Usefulness or desirability of an outcome

Question 11

Loss Aversion

Answer 11

Refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5.
=Losses loom larger than gains
Losing $20 feels worse than winning $20 feels good

Question 12

Subjective Utility - prospect

Answer 12

Individual differences in sensitivity to loss

Question 13

Utility Function (see notes Decision 1 for graph)

Answer 13

1. Diminishing marginal utility: Utility function curves
2. Loss aversion: Utility function is steeper for
   losses than gains

Question 14

Decision Weight - prospect

Answer 14

People transform objective probability into subjective decision weights

Small probabilities (but greater than 0%) are overweighted
● 1% feels like much more than 0%
● 51% feels about the same as 50%

Large probabilities (but less than 100%) are
underweighted
● 99% feels like a lot less than 100%
● 50% feels about the same as 51%

Question 15

Decision weight Graph see notes Decision part 1)

Answer 15

1. Underweighting of large probabilities

2. Overweighting of small probabilities

Question 16

Influences of ‘gain’ Framing on decision making

Answer 16

In terms of gains, safe net option selected

= A. You gain $200. Net: $200

instead of

B. 33% chance you gain $600, Net: $600
66% chance you gain $0. Net: $0

Question 17

Influences of ‘loss’ framing on decision making

Answer 17

A. You lose $400. Net: $200

is a 50/50 split

B. 33% chance you lose $0, Net: $600
66% chance you lose $600. Net: $0

Question 18

Frame Effect - prospect

Answer 18

People make decisions based on gains and losses
relative to a point of reference, not based on
absolute outcomes.

● Changing the way a question is asked to create a
different point of reference leads to different
valuations and thus different choices.

Question 19

People make decisions based on individual: (3)

Answer 19

Subjective utilities
● Diminishing marginal utility & loss aversion

Decision weights
● Underweight large probabilities & overweight small
probabilities

Relative outcomes
● Reference dependence, gain & loss framing

Question 20

Reinforcement Learning

Answer 20

We perform actions in the world and experience
the resulting outcomes as good (reward) or bad
(lack of reward or punishment).

Question 21

How do we make predictions and compare the real outcome with the predicted outcome.?

Answer 21

“actual” outcome vs. “expected” outcome

• “violation of expectations” - > “adjustment of behavior”
• > meeting expectations -> maintenance of behavior

Question 22

Which part of the brain measures reward/pleasure?

Answer 22

mid brain; but mid brain does not just do reward stuff

● Activity of midbrain dopamine neurons is related to reward
● But dopamine neurons do more than simply report occurrence of reward
● They code deviations from predictions about time and magnitude of reward

Question 23

Reward Prediction Error (RPE)

Answer 23

Actual Reward – Expected Reward

RPE > 0, Better than expected
RPE = 0, As expected
RPE < 0, Worse than expected

Question 24

What happens to dopamine rewards after repeated good experiences?

Answer 24

rewards go from GOOD to good to just ok, fire less and less

Question 25

our favorite menu item. The waiter tells you they are out. What happens to your dopamine?

Answer 25

decrease in activity

Question 26

We take actions to _______

Answer 26

maximize our future reward

Question 27

We are continuously predicting ________

Answer 27

expected future reward

Question 28

What happens when we receive information that violates our expectations?

Answer 28

it generates a reward prediction error

Question 29

What results from a reward prediction error

Answer 29

we update our predictions, which may alter our actions

Question 30

Dopamine pathways in the brain

Answer 30

Midbrain dopamine neurons project to: basal ganglia, prefrontal cortex, and many other areas!

Question 31

How does reinforcement learning relate to addiction?

Answer 31

over time dopamine neuron activity begins to fire at the cue of a reward instead of the reward itself; it is intensified for drugs as it fires heavily at sight of drug paraphanalia AND drug consumption

Question 32

Functions of the prefrontal cortex (5)

Answer 32

``` ● Maintenance and updating of goals ● Inhibition of prepotent actions ● Shifting between rules, sets, and tasks ● Monitoring and adjusting performance ● Integrating multiple sources of value All central to decision making and the selection of actions ```

Question 33

Rostral Prefrontal Cortex

Answer 33

● Complex ● Abstract ● Long timeframe = long term goals, complex actions, cognition, rule guided behaviour Basketball example: ``` -What sport am I playing? Basketball -What position am I playing? ● Forward -What play are we running? ● Alley-oop ```

Question 34

Caudal Prefrontal Cortex

Answer 34

● Simple ● Concrete ● Short time-frame = simple movements, = basketball example: What do I need to do next? ● Jump!

Question 35

Ventral Prefrontal Cortex

Answer 35

● What ● Why ● Meaning oriented Basketball shot example =What am I doing and why? ● On offense ● Need to put ball through hoop to score

Question 36

Dorsal Prefrontal Cortex

Answer 36

● Where ● How ● Action oriented ``` Basketball shot example =How do I do it, and where should I be? ● Approaching basket ● Catch ball at apex ● Slam it through the hoop! ```

Question 37

Medial Prefrontal Cortex

Answer 37

● Hot/affective/motivation ● Value-based ● Internal/body-oriented ``` Basketball shot example: Why do I care? ● Need to score to win! ● Don’t want to make a mistake ● Completing an alley-oop feels good! ```

Question 38

Lateral Prefrontal Cortex

Answer 38

● Cold/cognitive/rules ● Feature-based ● External/environment oriented ``` Basketball example: Why is this right play? ● Positions of players allows it ● High-percentage shot ● Quick play needed due to shot clock ```

Question 39

Insula (anterior insula)

Answer 39

Key player in risk aversion

Question 40

Right insula

Answer 40

involved when selling

Question 41

ventral striatum and medial prefrontal cortex

Answer 41

Involved when buying

Question 42

Subjective value

Answer 42

medial prefrontal cortex valuing the overall deal and desirability of doing it in the first place

Question 43

Highest Rationality

Answer 43

those with strongest activation in the ventromedial cortex and orbitofrontal cortex during decision making

Question 44

Axiom of revealed preferences

Answer 44

idea that we can learn how people assign subjective value to different options by offering them a choice between two options and seeing which one they select

Question 45

Intertemporal Choice

Answer 45

subjects can assign different values to a reward that occurs soon versus reward that occurs in the more distant future

Question 46

Corticostriatial loops

Answer 46

reward circuits through the ventral striatum receive outputs from the orbitofrontal cortex

Question 47

Dopaminergic loop circuits

Answer 47

connect common subjective "common currency" to ventral striatum region

Question 48

Endowment effect

Answer 48

People value what they own or their material as more than it is worth and judge others stuff or material as less than it is worth

Question 49

Intuition system (system 1)

Answer 49

operates unconsciously and implicitly: people can use it to identify a preference, but cannot say precisely why they took to arrive at their choice

Question 50

Rational system (system 2)

Answer 50

operates consciously and explicitly: people deliberate their way to a logical conclusion and understand their choice and the route they took to get there

Question 51

Which brain region is heavily involved in decision making when there is a threat and a quick decision must be made?

Answer 51

amygdala

Question 52

When an individual makes a moral decision based on the strategy "do no harm", this region of the brain is active:

Answer 52

medial prefrontal

Question 53

The "goal-tracking" region of the brain during decision making is the:

Answer 53

frontopolar cortex

Question 54

The "plan-selecting" region of the brain during decision making is the:

Answer 54

dorsomedial prefrontal cortex

Question 55

Which brain region is associated with assigning subjective value to punishments and rewards?

Answer 55

Orbitofrontal cortex

Question 56

"Into Thin Air" deaths

Answer 56

Lack of oxygen - impaired decision making - death dt bad decision making