Podcast
Questions and Answers
Which program resulted in a higher preference in the first framing scenario?
Which program resulted in a higher preference in the first framing scenario?
- Program A (correct)
- Both programs equally
- Program B
- Neither program
In the second framing scenario, what was the probability of nobody dying under Program B?
In the second framing scenario, what was the probability of nobody dying under Program B?
- ½
- ¼
- â…“ (correct)
- â…”
What percentage of individuals preferred Program D over Program C in the second framing scenario?
What percentage of individuals preferred Program D over Program C in the second framing scenario?
- 33%
- 67% (correct)
- 76%
- 50%
What was the key difference in how the two groups analyzed their investments?
What was the key difference in how the two groups analyzed their investments?
According to the findings, what behavior was exhibited in framing 1 compared to framing 2?
According to the findings, what behavior was exhibited in framing 1 compared to framing 2?
What is the most common choice pattern regarding acceptance of a second gamble?
What is the most common choice pattern regarding acceptance of a second gamble?
According to the sure-thing principle, what dictates taking action X?
According to the sure-thing principle, what dictates taking action X?
In the scenario of purchasing a vacation package, what was the likely choice of students who passed the exam?
In the scenario of purchasing a vacation package, what was the likely choice of students who passed the exam?
What is the reaction of individuals after experiencing a loss in the first gamble?
What is the reaction of individuals after experiencing a loss in the first gamble?
What choice did individuals frequently make when faced with an uncertain outcome on the exam?
What choice did individuals frequently make when faced with an uncertain outcome on the exam?
How does the complexity of an alternative action influence the attractiveness of the default option?
How does the complexity of an alternative action influence the attractiveness of the default option?
What is a common reason why people choose the default option?
What is a common reason why people choose the default option?
Which of the following considerations should policy-holders balance when choosing defaults?
Which of the following considerations should policy-holders balance when choosing defaults?
In the context of decision-making, how do defaults function when individuals lack a clear preference?
In the context of decision-making, how do defaults function when individuals lack a clear preference?
What is a primary concern when defaults may lead to misclassification?
What is a primary concern when defaults may lead to misclassification?
What is one of the psychological implications of selecting a default option?
What is one of the psychological implications of selecting a default option?
What effect does accepting a default option generally have on decision-making effort?
What effect does accepting a default option generally have on decision-making effort?
How does the concept of the default relate to the status quo?
How does the concept of the default relate to the status quo?
What happens to the pot in the St-Petersburg game each time a head appears?
What happens to the pot in the St-Petersburg game each time a head appears?
Why do few people are willing to pay a large amount to play the St-Petersburg game despite its infinite expected value?
Why do few people are willing to pay a large amount to play the St-Petersburg game despite its infinite expected value?
Which characteristic best describes risk-averse individuals?
Which characteristic best describes risk-averse individuals?
In which scenario are individuals more likely to become risk seekers?
In which scenario are individuals more likely to become risk seekers?
What does prospect theory emphasize in decision making?
What does prospect theory emphasize in decision making?
How does the concavity of a utility function relate to risk preferences?
How does the concavity of a utility function relate to risk preferences?
What do losses loom larger than gains mean in the context of decision making?
What do losses loom larger than gains mean in the context of decision making?
What does risk loving behavior imply about an individual's utility?
What does risk loving behavior imply about an individual's utility?
What is the primary factor that leads to different WTA and WTP values in the context of the given scenarios?
What is the primary factor that leads to different WTA and WTP values in the context of the given scenarios?
What does loss aversion in prospect theory indicate about our perception of ownership?
What does loss aversion in prospect theory indicate about our perception of ownership?
Which describes the disjunction effect?
Which describes the disjunction effect?
In the classroom experiment, what behavior did choosers exhibit compared to buyers and sellers?
In the classroom experiment, what behavior did choosers exhibit compared to buyers and sellers?
Why is WTA typically higher than WTP according to the findings from the experiments?
Why is WTA typically higher than WTP according to the findings from the experiments?
What is the significance of reference dependence in economic decisions?
What is the significance of reference dependence in economic decisions?
What was the observed behavior when a gamble with a potential outcome was presented?
What was the observed behavior when a gamble with a potential outcome was presented?
What was the general conclusion drawn from the behavior of the groups in the classroom experiment regarding ownership?
What was the general conclusion drawn from the behavior of the groups in the classroom experiment regarding ownership?
What decision did the majority of physicians make regarding the patient's medications before hip replacement surgery?
What decision did the majority of physicians make regarding the patient's medications before hip replacement surgery?
In the organ donation experiment, which default option yielded the highest consent rates?
In the organ donation experiment, which default option yielded the highest consent rates?
What is the decoy effect in decision-making?
What is the decoy effect in decision-making?
In the economist experiment comparing 2 versus 3 subscription options, what happened with the internet-only subscription when a third option was added?
In the economist experiment comparing 2 versus 3 subscription options, what happened with the internet-only subscription when a third option was added?
What was the outcome when both trips to Rome and Paris were presented with and without an added breakfast option?
What was the outcome when both trips to Rome and Paris were presented with and without an added breakfast option?
What does expected value calculation assume about decision-making?
What does expected value calculation assume about decision-making?
What is a key difference between expected value and expected utility?
What is a key difference between expected value and expected utility?
What is the outcome when tossing a fair coin repeatedly until tails appears in the St-Petersburg experiment?
What is the outcome when tossing a fair coin repeatedly until tails appears in the St-Petersburg experiment?
Why did majority of physicians decide to pull the patient back and try medications in the first scenario?
Why did majority of physicians decide to pull the patient back and try medications in the first scenario?
What was found regarding the 'default' options in the organ donation study?
What was found regarding the 'default' options in the organ donation study?
Flashcards
Default Effect
Default Effect
The tendency to choose the default option when facing a complex decision, even if other options might be better.
Default Option
Default Option
The preselected or pre-chosen option in a decision making process.
Decision Complexity
Decision Complexity
The difficulty of a decision, often determined by the number of steps or choices involved.
Effortless Choice
Effortless Choice
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Status Quo Bias
Status Quo Bias
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Policy Maker Influence
Policy Maker Influence
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Trade-off
Trade-off
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Decision-maker Preference
Decision-maker Preference
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Risk Neutrality
Risk Neutrality
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Expected Utility (EU)
Expected Utility (EU)
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St. Petersburg Paradox
St. Petersburg Paradox
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Prospect Theory
Prospect Theory
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Risk Loving
Risk Loving
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Risk Aversion
Risk Aversion
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Value Function
Value Function
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Probability Weighting
Probability Weighting
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Opt-in vs. Opt-out
Opt-in vs. Opt-out
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Decoy Effect
Decoy Effect
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Expected Value
Expected Value
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Expected Utility
Expected Utility
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Hip Replacement Decision
Hip Replacement Decision
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Organ Donor Default
Organ Donor Default
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Two-option vs. Three-option comparison
Two-option vs. Three-option comparison
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Subscription Choice Experiment
Subscription Choice Experiment
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Rome or Paris Experiment
Rome or Paris Experiment
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Framing Effect
Framing Effect
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Risk Seeking
Risk Seeking
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Portfolio Allocation
Portfolio Allocation
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Frequency of Observations
Frequency of Observations
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Sure-thing Principle
Sure-thing Principle
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Decision under Uncertainty
Decision under Uncertainty
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Endowment Effect
Endowment Effect
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WTA vs. WTP
WTA vs. WTP
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Reference Dependence
Reference Dependence
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Disjunction Effect
Disjunction Effect
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Study Notes
The Default Effect
- The default (status quo) option influences complex decisions
- Complexity of the alternative makes the default more attractive
- People choose the default when unsure
- Defaults are considered suggestions from policy-makers
- Defaults represent the existing state
- Changing defaults often involves a trade-off
- Defaults need to balance between ethical and psychological factors
Organ Donor Experiment
- Physicians were asked about medication and surgery decisions for patients
- Majority of physicians in the first scenario chose to treat the patient with the medication
- Second scenario, majority of physicians opted for the surgical procedure
Decoy Effect
- Decoy Effect: options will influence decision-making, especially when an inferior option changes choices between two similar options.
- Presenting options in pairs vs triplets causes significant choice change
- Trip to Rome vs Paris expenses paid: one option with a slightly better deal becomes more popular
Expected Value and Utility
- Expected value = outcome multiplied by probability
- Calculated without sentimental attachment
- Assumes equally valued gains & losses
- Assumes people pick option with highest expected value
- Expected Utility: subjective value related to outcome
St-Petersburg Paradox
- Expected value of a coin toss game is infinite.
- Few people would pay more than a small amount to play.
- People prefer certainty over a gamble in terms of utility.
Prospect Theory
- Prospect theory amends Expected Utility Theory
- Decisions are based on gains and losses relative to a reference point
- Value function is steeper for losses than gains
- Diminishing marginal sensitivity to gains and losses
- Losses weigh more heavily than gains
- Risk averse for gains
- Risk seeking for losses
Disjunction Effect
- Disjunction effect occurs when someone agrees to do X if A occurs, if A doesn't occur, but isn't willing to carry out X when the outcome of A is unknown.
- People can't make a rational decision when options aren't clear.
Neurofinance
- Interdisciplinary field that explores how the brain influences financial decisions
- Prefrontal and parietal cortex are involved (rational decision-making part of the brain )
- Somatic markers: anticipatory emotions that help assess risk and reward
Social Preferences
- Unfair offers in ultimatum games activate emotional responses in the brain
- Ethical implications influence decisions about fairness and altruism
Moral Reasoning
- Moral dilemmas often trigger strong emotional responses, overriding purely logical reasoning
- Important to consider the emotional responses in ethical decision-making
Intertemporal Choice
- Decisions involve trade-offs between costs and benefits at different time points.
- Current reward often outweighs future gains
- People discount future payoffs.
- Impulsive behavior related to the reward system.
Risk Taking
- Baseline dopamine and phasic dopamine response affect risk perception
- Higher serotonin levels lead to lower risk tolerance.
- Testosterone linked to higher risk-taking behavior.
Ambiguity Aversion
- Ambiguity aversion is when people prefer known odds over unknown odds.
- Ambiguity can lead people to avoid risks when knowing the probabilities and details concerning the risk.
Information Processing
- Limited cognitive abilities lead individuals to rely on heuristics (mental shortcuts) for decision-making.
- This affects accuracy, as people might not consider full details of factors or all variables.
Belief Perseverance
- Tendency to stick to initial beliefs, even facing conflicting evidence
- Confirmation bias causes people to prioritize information that supports current beliefs.
Overconfidence
- Overconfidence is when people overestimate their abilities and accuracy.
- Causes over-extension and poor investment decisions.
Herding Behaviour
- Herding occurs when an individual makes a decision based on observing the behavior of other people. They believe the group is more informed
- Overconfidence is related as investors try to estimate market confidence.
Disposition Effect
- Selling winning investments too early and holding losing investments for too long.
- Emotional decisions on gains vs losses.
Household Finance
- Many households save inadequately for retirement due to poor financial literacy or lack of self
- control.
- 2006 US Law to include auto-enrollment
Nudges
- Subtle interventions that influence choices in ways that achieve positive outcomes.
- Automatically enroll to retirement plans
- Using positive reinforcement in combination with negative reinforcement
- This influences positive behavior by reducing negative emotions.
Corporate Finance
- Corporate malfeasance/misconduct reduces trust and leads to financial losses.
- Ethical procedures in place and strong leadership are very important in reducing misconduct.
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Description
This quiz explores key concepts in behavioral economics, focusing on the default effect, organ donor decision-making, and the decoy effect. Understand how defaults influence choices and the implications of decision-making scenarios in medical contexts. Test your knowledge on these fascinating psychological phenomena.
