PSYC 741 Lecture Notes - Lecture 15: Executive Functions, Posterior Parietal Cortex, Insular Cortex
Document Summary
Multiply the probability of each outcome by its associated reward. Expected value is a rational and absolute concept. However, it doesn"t work like this in day to day life. Value of choice is dependent on value of what one already has. Example: ,000 to bill gates is different than ,000 to me. Humans do not make decisions based on rationality (expected value or expected utility) The difference between 0 and 1,000 is different than the difference between. Probability weighting: overestimate low probability events, underestimate high probability events, example: Risk-averse behaviors in high-probability gains (being cautious in investments) Risk-seeking behaviors in high-probability losses (underestimate the chance of losing at blackjack) Risk-averse behaviors in low-probability losses (paying loads for insurance because overestimating the low probability of needing it) Risk-seeking behaviors in low probability gains (spending money on lottery tickets even though the chances of winning are very small they overestimate the small chance of winning) Has two components: reference dependence, probability weighting.
