VL10 Expectancy x value theories

probability x value = expectancy value

• expectancy value is the same —> most people choose non risky option since they are risk aversive

• subjective value also plays a role!

expectancy x subjective value = expected value

• classical normative theory

• but: descriptive theories from behavioral economics

  • actual decision making deviates from this imperative

  • ecological rationality is not mathematical rationality!

• probability

• subjective utilit

1. Complete order

2. cancellation principle

3. invariance

4. dominance of A /irrelevance of unpreferred alternatives

a.       Preference ranking is independent of shared consequences

food example, waiting time beforehand should not impact choice

• all options have to be comparable by common metric

• have to be transitive to each other —> rankable

changes under circumstances

• framing of the options is irrelevant to subjective value

Asian disease problem:

even though exact same outcome people choose differently if option is framed as people living or dying (dying —> people dont chose it)

a.       If A has a higher utility than B, presenting C in addition will not change the preference order

• wine bottles

• wenn structured decision problems like lottery paradigm

• applied to domains other than financial —> social or physical —> unclear

• focus = structure (input-output) instead of the process

• bounded rationality

• ecological rationality

o   Satisficing instead of Optimizing

o   Option that we are happy enough with

o   Satisfied while sacrificing

o   Ignore some dimensions; take dimensions that subjectively are most important

o   Decision heuristics are adapted to natural contexts

• SEU inaccurate

• Examples why neuroscience important for economy

  • drug addict study

  • prisoner dilemma

  • coca cola

  • punishment conveys utility

  • charitable giving and paying taxes conveys utility

• ratings of craing and liking

• hardly any overlapt betweed rush circuit and craving circuit

• linking and craving is not unidimensional but independent of othe another

• activation in ventral striatum (reward)

• CC cooperative & cooperative

• CD cooperative & defective

• same consequences but when played against a computer huge deviation from activation in ventral striatum

• when they thought they were given pepsi

• expectancy shapes brain activation patterns even though same drink

• CONTEXT MATTERS; YOU DONT EVALUATE THE ACTUAL THING YOU CONSUME

• punishing other people but having to pay for the punishment

• costly for them but altruistic since benefits for other people

• reward receptors of the brain activated even though losing money

• mandatory charity vs not mandatory

• mandatory and non-mandatory charity both produce satisfaction —> taxpayers?

• endless

  • life

  • time

  • processing capacity

  • storage

• Context-independent judgment

• absolute judgment

• unidimensional valuation

• no curiosity

• no prosocial motivation