Document

Report
Or
Why We’re Not Really As
Rational As We’d Like to
Believe
Kahneman and Tversky:
•The Value Function
•The Risk Function
•Reference Points
The Value Function
For gains people are risk
averse
For losses people are
Risk Seeking
Steeper Curve for losses
than for gains.
Imagine that the United States is preparing for the
outbreak of an unusual disease, which is expected to
kill 600 people. Two alternative programs to combat
the disease have been proposed. Assume that the
exact scientific estimates of the consequences of the
program are as follows:
If program A is adopted 200 people will be saved
If program B is adopted, there is a 1/3 probability
that 600 people will be saved, and a 2/3 probability
that no people will be saved.
Imagine that the United States is preparing for the
outbreak of an unusual disease, which is expected to
kill 600 people. Two alternative programs to combat
the disease have been proposed. Assume that the
exact scientific estimates of the consequences of the
program are as follows:
If program A is adopted 400 people will die.
If program B is adopted, there is a 1/3 probability
that no people will die, and a 2/3 probability that
600 people will die.
Two gains
A)A two hour lecture
by Danny
B) 2 one hour
lectures by Danny
Two losses
A)A twenty minute
shock
B) 2 ten minute
shocks
The Risk Function
Overweighting of small
percentages
Underweighting of large
percentages
Certainty is a special case
0
100
probability
Lotteries
Medical
Warnings
0
100
probability
Which do you prefer:
Option A
5% of $12
5% of $14
90% of $96
Option B
10% of $12
5% of $90
85% of $96
10% of $12 and 90% of $96
5% of $12
10% of $12
5% of $12
5% of $96
90% of $96
85% of $96
5% of $12
10% of $12
5% of $14
5% of $90
90% of $96
85% of $96
You are lying on the beach on a hot day. All you
have to drink is ice water. For the last hour you
have been thinking about how much you would
enjoy a nice cold bottle of your favorite beer. A
companion gets up to make a phone call, and
offers to bring back a beer from the only nearby
place where beer is sold, a fancy resort hotel. He
asks how much you are willing to pay for the beer.
Assuming your friend would not inflate the price,
what price do you tell him?
You are lying on the beach on a hot day. All you
have to drink is ice water. For the last hour you
have been thinking about how much you would
enjoy a nice cold bottle of your favorite beer. A
companion gets up to make a phone call, and
offers to bring back a beer from the only nearby
place where beer is sold, a small, run-down
grocery store. He asks how much you are willing
to pay for the beer. Assuming your friend would
not inflate the price, what price do you tell him?
Summary:
•The Value Function
•The Risk Function
•Reference Points
Why Self-Report Fails:
Split brain
Priming Studies
Other manipulations
1) No Self-Reports
2) Knowing when the system fails, helps us
understand how the system works
3) The most persuasive evidence is counterintuitive
4) Soooo much fun!
Do more people die each year from shark attacks
or being hit by falling coconuts?
Vs.
On his way out, Sanders staggered against a serving table,
knocking a bowl to the floor
On his way out, Sanders staggered against a serving table,
knocking a bowl of guacamole dip to the floor, and
splattering guacamole on the white shag carpet
Jack is a 45 year old male. He is generally
conservative, but shows little interest in
political or social issues. He spends his
free time on his hobbies which include HAM
radio and mathematical puzzles. The
probability that Jack is one of 30 engineers
in a sample of 100 individuals is _____%
Jack is a 45 year old male. He is generally
conservative, but shows little interest in
political or social issues. He spends his
free time on his hobbies which include HAM
radio and mathematical puzzles. The
probability that Jack is one of 70 engineers
in a sample of 100 individuals is _____%
In a random group of five people, which set of birthdays is
more likely:
March 5th , Jan 26th, July 17th, August 1st, August 12th
May 1st, May 3rd, May 5th, May 7th, May 9th
Assume the following:
1 out of 1000 women who gets a mammogram has cancer
Mammograms detect 99% of breast cancer cases
Mammograms have a .5% false alarm rate
What are the odds that a
woman who tests positive
actually has cancer?
Cancer
Detected
No Cancer
Detected
Has
Cancer
99
No Cancer
1
99400
500
Only 1 in 6 women who have cancer
detected actually have cancer!!!
You have 10 seconds to estimate the answer to
the following problem:
10 x 9 x 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 = _____
You have 10 seconds to estimate the answer to
the following problem:
1 x 2 x 3 x 4 x 5 x 6 x 7 x 8 x 9 x 10 = _____
(Actual answer = 3628800)
Estimations are biased even for absurd anchors!
Is Danny older than 65?
Is Danny younger than 10?
How old is Danny?
RULE: If a card has a vowel on one side,
then it has an odd number on the other.
Which cards do you have to turn over to know
if the rule is true?
A
B
1
2
RULE: If somebody is drinking, they
must be over 21 years of age
Which cards do you have to turn over to know
if the rule is true?
Drink
Not
Drink
21
18
People don’t want to have to change from
the current situation, and require great
incentive to do so.
The mean IQ of the population of 8th graders is known to be
100. You have selected a random sample of 50 children for
a study on educational achievements. The first child you
test has an IQ of 150. What do you expect the mean IQ to
be for the whole sample?
What are the odds that in the next 10 years India and
Pakistan will get involved in a nuclear war, which will
draw in other nuclear powers such as the United States
and Russia leading to an all out Nuclear war.
What are the odds that in
the next 10 years United
States and Russia will be
involved in an all out
Nuclear War?
1) Prospect Theory’s Value Function, Risk
Function, and Reference Points make it the
premier Decision Making Theory
2) Errors are an excellent way of examining how
we think
3) We use heuristics to lighten the cognitive load
of difficult tasks
4) Making your friends look irrational advances
the cause of science

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