Avoiding Uncertainty: a common response 

Reward results and punish failure 

Cut research & training during budget crises 

$140,000 to prevent a highway death;
$5,000,000 to prevent a death from radiation 
A Normative Background to Risk:


probability, expected value, risk considerations 
The Framing of Information


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

lose 2 plants, 4000 jobs,
or 50% chance of losing none
50% chance of loing all 3 plantsm 6000 jobs

p.49 "rational decision makers should be immune to the framing of choices." 
The Framing of Risky Decision 

Gains versus Losses ("The Framing of Choices")

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

(B2) 75% chance to lose $1000,
25% lose nothing

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 
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Anchors Matter 

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?

Certainty Effect


Choose one row from each column
(D1) Winning $50 with probability .5
(D2) Winning $30 with probability .7

(E1) Winning $50 with probability .8
(E2) Winning $30 with probability 1.0

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Pseudocertainty:


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"

Transactional Utility ("What's It Worth
to You?")


friend brings you a bottle of beer from fancy resort or rundown grocery 
How Much is Your Time Worth? 

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 

Historical cost, replacement cost, and real utility
