BUS 221 Lecture Notes - Lecture 8: Decision Theory, Inductive Reasoning, Deductive Reasoning
25 Nov 2015
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Brain is wired to look for causes when they may not be there. Correlation: 2 things are found together in a pattern: it can be causal hint, sometimes correlation is random chance. Don"t assume x causes y just because y happens after x. We hired dave, and next thing you know sales went down! : causal complexity. When we say x causes y that is a huge over-simplification. Don"t jump to conclusions just because you see the cause. Probability tells you the worth and what to expect from each decision you make. Always think in long-term strategical thinking, like investors. Expected value: as what the average value of some action would be if repeated over many times. Most financial actions have more than one possible financial outcome. Decide what all the possible outcomes are. Take the value of each outcome and multiply it by how likely that outcome is (% or decimal) Example: invest in safe company stock.
