Week 4

Week four was about decision making under risk and uncertainty, as a group we were told to read the: The priority heuristic: making choice without trade-offs. To understand this article I read chapter 7 in Davids book and it simplified the subject. The start of the lecture David went to explain generally what decision making is all about and how people tend to make decision under risk and uncertainty. He also gave us some examples in gambling, how people tend to be more risk aversion when faced with options that has sure amount of money, but again in second alternative people becomes more risk seeking when presented with less money for certain. Then we further went into expected utility theory which means that we consider our wealth whenever we are making any decisions. The article we read were testing how accurately the heuristic predicts people’s choices, compared to previously proposed heuristics. According to Branstatter, E., and Gigerenzer, G., (2006), the reason for choosing are often negatively correlated with one another, high returns go with low probabilities, and low returns go with high probabilities, and Shanteau & Thomas, 2000 suggest that negative correlations between reasons cause people to experience conflict, leading them to make trade-offs. The topic of this week were very interesting as we face decision making during our daily life, and the decision we make is informed by our judgment. We were told to do an exercise to measure our utility. This two graphs show certainty and probability equivalence.

In my two graphs it shows that am risk averse when it comes to high amount of money, but again am risk seeking if the money i have is small and the winning price is higher. Which I think is common behavior among people generally, however it might differ for gamblers.