Making Decisions: Sections 01 and 02

Quiz 1: Making Decisions

• Quiz 1: Making Decisions covered sections 01 and 02
• The quiz had 6 questions and was worth 6 points
• The quiz had a time limit of 4 minutes
• The quiz was closed book and closed notes
• The student's final score was 3 out of 6
• Two questions on the quiz were regraded

Question 1: Regression to the Mean

• The scenario presented a track and field athlete, Sarah, who had a personal best time after intensive training
• Sarah's next performance was slower despite her feeling her skills were similar
• Sarah's coach attributed this to regression to the mean
• Regression to the mean is the statistical phenomenon where extreme values are likely to be followed by less extreme values

Question 2: Prospect Theory

• Prospect Theory describes how people make decisions under risk and uncertainty
• People generally prefer a certain gain over a probable larger gain
• People tend to be risk-seeking when facing gains, but risk-averse when facing losses
• People value potential losses more than potential gains

Question 3: Representativeness Heuristic

• The scenario presented two hospitals with different birth rates
• Pat, the town mayor, incorrectly assumed the hospitals had similar occurrences of days where more than 60% of babies born were boys
• Pat was applying the representativeness heuristic
• This heuristic leads people to rely on stereotypes and probabilities perceived as representative of a given category, ignoring important statistical factors

Question 4: Escalation of Commitment

• Escalation of Commitment refers to the phenomenon where decision-makers continue to invest resources into a failing course of action
• This commitment is often driven by a desire to justify past investments, even when evidence suggests the course of action is failing

Question 5: Overconfidence

• The executives in a multinational corporation were asked to predict next year’s sales figures
• Many executives gave specific predictions with a narrow range, even though historically only 10% of their predictions were accurate
• This overconfidence is often associated with a lack of appreciation for the complexity of factors influencing outcomes

Question 6

• The text does not include the question 6 content

This quiz explores key concepts in decision-making strategies, focusing on regression to the mean and prospect theory. It includes practical scenarios to better understand how people approach risk and uncertainty in their decisions. Test your knowledge with 6 questions and see how well you grasp these important concepts.