INTBUS 6 Lecture Notes - Lecture 20: Expected Utility Hypothesis, Decision Theory, Prospect Theory
6 Oct 2020
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Task 3 (framed) decisions: what are the theories of decision making, classical decision theory. The model of economic man and woman. People often believe they decide, following this model even though they don"t, and they can"t. Taking into account every aspect of a decision, evaluating each aspect, computing an average, deciding based on that. Goal of human action is to maximize pleasure (positive utility) and minimize pain (negative utility) Based on individual"s judged weightings of utility (value), not objective criteria. Also, like the other one non-descriptive, but normative. Prospect theory: what are the criteria we use in decision making, opportunity costs. When we are ready to take an opportunity, we need to evaluate what other things we give up for it. Taking a great job in san fran. Subjective expected utility theory: why do we use subjective dm when the goal is to reach an objective decision, heuristics. Mental shortcuts that lighten the cognitive load of making decisions.
