Question 1

You are asked whether you would prefer milk or dark chocolate, and choose milk, but then are asked if you would rather have white chocolate instead. You change your mind and go for the white chocolate. What is the term for this?

Accepted Answer

Relative preference refers to the idea that preferences can change when new options are introduced, as seen when the choice shifted from milk to white chocolate.

Question 2

What is an absolute preference?

Accepted Answer

An absolute preference is a choice that remains constant regardless of the presence or absence of other options.

Question 3

When you go to your favorite restaurant, you always choose the same dish. It doesn't matter the time of year, time of day, cost of the dish, or what new items are on the menu. This dish would be a(n):

Accepted Answer

An absolute preference is a consistent choice that does not change regardless of external factors, such as time or new options.

Question 4

What is the point of indifference?

Accepted Answer

The answer of What is the point of indifference?
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Question 5

What does it mean to be risk averse?

Accepted Answer

Being risk averse means you prefer to avoid risk and may be willing to incur a cost or penalty to minimize exposure to risk, rather than avoiding all risks at any cost or not considering risky options at all.

Question 6

If given the opportunity to enter a drawing for $500, or, take $10 right now, what kind of choice would it be considered to take the $10?

Accepted Answer

Taking the $10 immediately instead of entering a drawing for a potentially larger amount is considered risk-averse behavior, as it involves choosing a certain, smaller reward over a chance at a larger, uncertain one.

Question 7

When do humans become risk seeking?

Accepted Answer

Humans tend to become risk-seeking when the potential reward is large enough to outweigh the perceived risks, making the gamble seem worthwhile.

Question 8

Why are insurance companies so successful?

Accepted Answer

Insurance companies are successful because people prefer to pay a smaller, predictable amount now (the premium) to avoid the risk of having to pay a much larger, unpredictable amount later in the event of a loss. This risk aversion makes insurance an attractive option for many individuals.

Question 9

Why does the lottery system make so much money?

Accepted Answer

The lottery system makes money because people are willing to spend a small amount of money for the chance to win a large prize, despite the low odds of winning.

Question 10

In an experiment, I tell two groups that 200 people are infected with a deadly disease. If I tell Group A that they must choose between a 50% chance of saving the lives of all 200 people, or a 100% of saving the lives of only 50 people, and Group B that they must choose between a 50% chance of all 200 people dying and a 100% chance of 50 people living, what should we expect to happen, given the framing effect?

Accepted Answer

The framing effect suggests that people make decisions based on how choices are presented. Group A is likely to choose the 50% chance of saving everyone due to the positive framing of saving lives, while Group B is likely to choose the 100% chance of saving 50 people due to the negative framing of deaths.

Question 11

Which of these may be a side-effect of the endowment effect?

Accepted Answer

The endowment effect is closely related to loss aversion, as people tend to value what they own more highly, fearing the loss of it.

Question 12

What is delay discounting?

Accepted Answer

Delay discounting refers to the decrease in the present value of a reward or benefit as the delay to its receipt increases.

Question 13

What do humans TEND to do when faced with the decision of pleasure now, or more pleasure later?

Accepted Answer

Humans often exhibit a tendency known as "temporal discounting," where they prefer immediate gratification over a potentially greater reward in the future.

Question 14

Why is it interesting that people tend to choose $250 in 53 weeks over $200 in 52 weeks, but also choose $200 now versus $250 in one week?

Accepted Answer

The answer of Why is it interesting that people tend...

Question 15

Which behavior shows steep discounting?

Accepted Answer

Steep discounting refers to the preference for immediate rewards over larger, delayed rewards. All the behaviors listed involve choosing immediate gratification at the expense of long-term goals.

Question 16

Which is true about human decision making?

Accepted Answer

Humans often exhibit a tendency known as "present bias," where they prefer immediate rewards over delayed ones, even if the delayed rewards are more beneficial. This is due to the influence of emotions and cognitive biases on decision making.

Question 17

Other primates seem to have what in common with humans when making decisions?

Accepted Answer

The answer of Other primates seem to have what in...

Question 18

When capuchin monkeys show a preference for fruit over cereal when they are already in possession of fruit, and a preference for cereal over fruit when they are already in possession of cereal, they are displaying:

Accepted Answer

The endowment effect refers to the phenomenon where individuals value an item more highly simply because they own it. In this case, the monkeys value the item they already possess more, showing a preference for it over the alternative.

Question 19

Food is an example of a(n):

Accepted Answer

Food is considered a primary reward because it is a basic necessity that fulfills a biological need and is inherently rewarding.

Question 20

When operating under the intuitive system, people:

Accepted Answer

The intuitive system operates unconsciously, leading people to make decisions without being able to articulate the reasoning behind their preferences.

Quiz 12: Decision Making