PSYC 336 Lecture Notes - Lecture 12: Risk Aversion

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We use our values and goals in making decisions. Each decision will have certain costs and benefits attached to it. You seek a path that minimizes the costs and maximizes benefits. Choose the one that provides the best balance of benefits and costs. Utility maximization the proposal that people make decisions by selecting the option that has the greatest utility. The framing of the decision has an enormous impact. A term referring to how the options for a decision are described. Choose one: program a = 200 people will be saved, program b = there is a probability will not be saved, will be saved. 78% choose program b the word probability. Framing participants treating one option as a sure case, and one as a gamble. If the frame casts a choice in terms of losses, decision-makers tend to be risk-seeking. They prefer to gamble, attracted by the idea that maybe they"ll avoid the loss.

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