Read the summary and the most important questions on JDM

• 2 LOSS AVERSION FRAMING OF DECISIONS

  This is a preview. There are 7 more flashcards available for chapter 2
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• Which to types of decisions are there?

  Major reflective decisions & Low level decisions

• WHAT FACTORS SHOULD AFFECT A DECISION?

  1. What you want & avoid
  2. Preference?
  3. What factors or events will affect whether the outcome will be good, mediocre or bad, and to what degree?
  4. How likely are the different possibilities?

• What assumptions does the Rational Decision Making Process make? (5)

  – Assumes the decision maker is rational
  – Assumes the problem is clear and unambiguous
  – Assumes the decision maker has complete information
  – No time or cost constraints
  – Choice will be one with the maximum payoff

• What is the NORMATIVE DECISION ANALYSIS? (5)

  • Enumerate options
  • Enumerate outcomes
  • Construct a decision analysis for the decision
  • Evaluate the probabilities of different possible outcomes
  • Determine which option has the greatest "expected utility.”

• What is the framing effect?

  The framing effect is when our decisions are influenced by the way information is presented.

• How do people think about uncertain events?

  • Gambles have two components:
  1. Probability, p
  2. Value, v
  • The expected value of a gamble (EV) = p x v

• What is the Dominance Principle?

  Alternative gambles can be ranked from best to worst in terms of expected value.

• What kind of utility from prospects? Risky/Sure

  Gains: utility from risky and sure close together
  Losses: utility from risky and sure bigger distance

• What is the Pseudo certainty effect?

  The potential “certainty” in problem 2 is contingent upon reaching the second stage of the game (still uncertain)

• 3 MENTAL ACCOUNTING

  This is a preview. There are 13 more flashcards available for chapter 3
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• What is mental accounting?

  • Compare with financial/managerial accounting
  • “set of operations used by individuals and households to organize, evaluate, and keep track of financial activities”