Decision-making under risk and uncertainty

Question 1

Prospects consist of outcomes and associated probabilities

Answer 1

True, 3

Question 2

The axiom of … for EUT means that

For all prospects q and r
either q >= r
or r >= q
or both

Answer 2

Completeness

Question 3

The axiom of … for EUT means that

For all prospects q,r and s,
if q >= r and r >= s,
then q >= s

Answer 3

Transitivity

Question 4

The axiom of — of EUT means that

For all prospects q,r, and s,
where q >= r and r >= s,
there exists some probability p such that there is indifference between the middle-ranked prospect r and the compound prospect (q,p; s, i-p)

Answer 4

Continuity

Question 5

The axiom of … of EUT means that
For all prospects q, r, and s, if q >= r
then (q,p;s,1-p) >= (r,p;s,i-p)

Answer 5

INdipendence or substitution

Question 6

The axiom of … in EUT means that:

preferences are defined by probability distributions of outcomes and they do not depend on the elicitation method

Answer 6

Descriptive Invariance

Question 7

The axiom of …. of EUT means that

if a prospect has at least one probability higher than the other given the same amount of value, given all the other pairs of values and probability as equal, then the former dominates the latter

Answer 7

Monotonicity or stochastic dominance

Question 8

The common consequence effect violates the cancellation axiom

Answer 8

True, 10

Question 9

The common ratio effect violates the stochastic dominance axiom

Answer 9

False, 13

Question 10

Conventional theories alternative to EUT are able to explain all the observed violations of independence

Answer 10

False, 16

Question 11

Multiple price list format is used to elicit real risk preferences

Answer 11

True, 23

Question 12

In the Multiple Price List, a risk.neutral decision maker should switch from A to B in the 5th choice

Answer 12

True, 23

Question 13

In the Multiple Price List, option A is riskier and option B is safer

Answer 13

False, 23

Question 14

There is no framing effect in the Multiple Price List

Answer 14

False, 24

Question 15

Inconsistencies have been observed in experimental settings for the Multiple Price List

Answer 15

True, 24

Question 16

One method of eliciting the risk preferences is the Bomb Risk Elicitation Task

Answer 16

True, 25

Question 17

The Columbia Card Task is used for understanding strategic interactions

Answer 17

False, 25

Question 18

Three treatments are implemented in Columbia Card Task

Answer 18

False, 26

Question 19

Some non-conventional theories for EUT are bounded rationality, heuristics and Prospect Theory

Answer 19

True, 28

Question 20

Regret theory was invented for explaining violations of cancellation

Answer 20

False, 30

Question 21

The reference point is a concept coming from prospect theory

Answer 21

True, 32

Question 22

In prospect theory, these two prospects

(x1, p1; x1, p2)
and
(x1, (p1+p2))

Are equivalent

Answer 22

False, combinations must take into account the weighting function, 32

Question 23

Segregation in prospect theory means that the riskless component of prospects can be segregated from the risky component

Answer 23

True, 33

Question 24

Cancellation is part of the editing phase of prospect theory

Answer 24

True, 35

Question 25

In prospect theory, outcomes that are extremely improbable are likely to be ignored

Answer 25

True, 37

Question 26

In the editing phase of prospect theory, simplification means that some prospects may dominate others

Answer 26

False, that’s detection of dominance, 37

Question 27

In the editing phase of prospect theory detection of dominance means that decision-makers may simplify prospects by rounding probabilities and or outcomes

Answer 27

False, that’s simplification, 37

Question 28

In prospect theory, probabilities are associated with a decision weight such that

pi(p)

Answer 28

True, 41

Question 29

In prospect theory, gains and losses are objective

Answer 29

False, 41

Question 30

In the evaluation phase of strictly positive and strictly negative prospects, these are segregated into two components

Answer 30

True, 42

Question 31

Loss aversion is a concept of prospect theory

Answer 31

True, 43

Question 32

According to prospect theory, when people expect a pau rise of 10%, and then they get just 5%, they are nevertheless happy

Answer 32

False, 44

Question 33

The status of others has no influence on our reference point

Answer 33

False, 44

Question 34

According to prospect theory, people need time to adapt to losses and gains

Answer 34

True, 44

Question 35

In prospect theory, it is always true that

v(x) < - v(-x)

Answer 35

True, 45

Question 36

Disposition effect is similar to loss aversion

Answer 36

True, 45

Question 37

A concave function means risk aversion

Answer 37

True, 46

Question 38

A convex function means risk aversion

Answer 38

False, means risk-seeking, 46

Question 39

The decision weights overweight low probabilities ?????????????????????

Answer 39

True, 47

Question 40

In CPT, people react to gains with low probability with risk aversion and to losses with low probability with risk seeking

Answer 40

False, 50

Question 41

In CPT people react to gains with risk aversion and with losses with risk-seeking behaviors

Answer 41

True, 50

Question 42

CPT contemplates possible violations of stochastic dominance

Answer 42

True