| Avoiding Uncertainty: a common response |
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Reward results and punish failure |
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Cut research & training during budget crises |
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$140,000 to prevent a highway death;
$5,000,000 to prevent a death from radiation |
A Normative Background to Risk:
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probability, expected value, risk considerations |
The Framing of Information
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4 plants, 6000 jobs are at risk:
save one plant, 2000 jobs,
or 50% chance of saving 3 plants, 6000 jobs
50% chance of saving none
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lose 2 plants, 4000 jobs,
or 50% chance of losing none
50% chance of loing all 3 plantsm 6000 jobs
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p.49 "rational decision makers should be immune to the framing of choices." |
| The Framing of Risky Decision |
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Gains versus Losses ("The Framing of Choices")
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| Choose 1 row from left column,
1 row from right column |
| (A1) A sure gain of $240 |
(B1) A sure loss of $750 |
| (A2) 25% chance of $1000 gain,
75% gain nothing
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(B2) 75% chance to lose $1000,
25% lose nothing
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Choose 1 row:
(C1) 25% chance of a $240 gain, 75% chance of $760 loss
(C2) 25% chance of a $250 gain, 75% chance of $750 loss |
Click here for Comments |
| Anchors Matter |
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Lose the tickets on the way to the theater: do you buy new
ones at the door?
Lose the cash you were going to use to buy tickets at
the door; do you charge the tickets?
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Certainty Effect
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Choose one row from each column
(D1) Winning $50 with probability .5
(D2) Winning $30 with probability .7
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(E1) Winning $50 with probability .8
(E2) Winning $30 with probability 1.0
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Click here for Comments |
Pseudocertainty:
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| problem 4: |
choose between $30 for sure or an 80% chance at $45,
20%
of zero |
| problem 5: |
75% chance of being out of the gam in round 1;
if you win round 1, choose between $30 for sure or an
80% chance at $45, 20% of zero |
| problem 6: |
choose between 25% chance at $30 & 75%
of zero,
or a 20% chance of $45 80% of zero |
Problems 5 & 6 are mathematically indentical |
"Insurance Premiums:" Sound Better Than "Guaranteed Loss"
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Transactional Utility ("What's It Worth
to You?")
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friend brings you a bottle of beer from fancy resort or rundown grocery |
| How Much is Your Time Worth? |
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20 minutes to get something for $25 instead of 50
20 minutes ot get something for $475 instead of $500 |
| The Value We Place on What We Own |
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Historical cost, replacement cost, and real utility
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