NSCS 320 Lecture Notes - Lecture 24: Subjective Expected Utility, Oskar Morgenstern, Amos Tversky
21 Nov 2016
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Document Summary
A normative theory of choice, preference, and decisions. The normative theory states: no outcome can be infinitely less or more preferred than another outcome. Games that have monetary outcomes may not have the same utility between people. Which is why, we introduce utilities not pure dollars, this will eliminate that problem. The sensation of preference between two outcomes is psychologically primitive, it cannot be decomposed to other states. If and only if, these preferences obey a certain fixed (small) set f rules (the axioims of the theory), then they can me mapped onto a function with (cid:374)u(cid:373)erical values . Analyzes how real people make decisions in real life. Because the rational norms of seu are violated frequently by real people making real life choices, therefore we need a realistic (descriptive-cognitive) theory to replace the normative theory. It"s not natural, in general, to translate psychological states into numbers. The intensity of our expectation that a given outcome will materialize = probability.
