PSYC 532 Lecture Notes - Lecture 4: Allais Paradox, Blaise Pascal, Daniel Bernoulli

• School: McGill University
• Department: Psychology
• Course: PSYC 532
• Professor: Stevan Harnad

Document Summary

Psyc 532: lecture 12 decision making lecture. Decision making is everywhere, important in life course: who to mate with who to hire what investments to make what to buy and what to eat, all of life is about decision making both psychological and computational. Probabilistic theories of gambling blaise pascal, pierre fermar: 17th century. Daniel bernoulli (1738) created a second version, goal: generalize the previous formula from money (value) to everything else (utility). Explains why we value our first dollar made more than the next ones. Kahneman & tversky (1979: replace ps with subjective decision weights, an s shaped function of x, function defined with respect to reference point @ x = 0. For gains, concave (risk averse: function is steeper for losses than gains, predicted preferences that are never empirically observed, limited to binary outcomes, poor predictions with a larger number of outcomes. 5- similarity effect - tversky (1972: b when {a, b, a when {a, b, s}