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Prospect theory

Prospect theory
The paper "Prospect Theory: An Analysis of Decision under Risk"[1] has been called a "seminal paper in behavioral economics".[2] Model[edit] The formula that Kahneman and Tversky assume for the evaluation phase is (in its simplest form) given by where is the overall or expected utility of the outcomes to the individual making the decision, are the potential outcomes and their respective probabilities. is a function that assigns a value to an outcome. is a probability weighting function and captures the idea that people tend to overreact to small probability events, but under react to large probabilities. Example[edit] To see how Prospect Theory can be applied, consider the decision to buy insurance. 1. 2. These expressions can be computed numerically. in losses, and hence the insurance looks unattractive. In this example, a strong overweighting of small probabilities undo the effect of the convexity of in losses: the potential outcome of losing $1,000 is overweighted. Applications[edit] Related:  Collaboration is to Reduce Asymmetrical Informationphilippez77rynysel

Prospect Theory Rational ignorance Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide. Ignorance about an issue is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any potential benefit one could reasonably expect to gain from that decision, and so it would be irrational to waste time doing so. This has consequences for the quality of decisions made by large numbers of people, such as general elections, where the probability of any one vote changing the outcome is very small. The term is most often found in economics, particularly public choice theory, but also used in other disciplines which study rationality and choice, including philosophy (epistemology) and game theory. The term was coined by Anthony Downs, An Economic Theory of Democracy (New York: Harper & Brothers, 1957; p. 244–46, 266–71). Example[edit] Applications[edit] In marketing[edit] In politics[edit]

Sunk costs In economics and business decision-making, a sunk cost is a retrospective (past) cost that has already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. Both retrospective and prospective costs may be either fixed (continuous for as long as the business is in operation and unaffected by output volume) or variable (dependent on volume) costs. [1] Sherman notes, however, that many economists consider it a mistake to classify sunk costs as "fixed" or "variable." For example, if a firm sinks $1 million on an enterprise software installation, that cost is "sunk" because it was a one-time expense and cannot be recovered once spent. In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Sunk costs should not affect the rational decision-maker's best choice. Description[edit] Sunk costs may cause cost overrun.

Waking Up At 4:30 For 21 Days On April 2, I put myself to a new challenge. It was one of the biggest life hacks I’ve ever done. The challenge was simple: waking up 21 consecutive workdays at 4:30 a.m., a challenge I gave the name of #21earlydays. I chose to only do the challenge on workdays because I knew that weekends and holidays are radically different for me. And why 21 days? But what was the final goal in all this? So, what have I learned from this? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Duizend en één uur bidden in kerkhuis Bethel Kerkasiel duurt voort en wordt beweging “Kijk, hier zien we Jozef terwijl hij de omslagdoek voor het kindje Jezus verwarmt.” Marry Schuurman, predikantsvrouw uit Deventer toont bij wijze van preek op haar laptop religieuze afbeeldingen van Jozef, de man van Maria. Kind van de rekening Theo Hettema, voorzitter van de Algemene Kerkenraad van de Protestantse Kerk Den Haag, is één van de organisatoren van het kerkasiel. Hettema en de zijnen zijn na alle media-aandacht terughoudend geworden. Steeds nieuwe voorgangers en groepen houden de dienst gaande. Op die drukke avond konden we ook even praten met de kinderen, Seyran (15), Warduhi (19) en Hayarpi (21). Uitzichtsloos Al het preken, bidden en hopen lijkt vooralsnog in het andere Den Haag weinig weerklank te vinden. Het buurt- en kerkhuis Bethel in de Thomas Schwenckestraat. Het wordt wat lichter, op de druilerige donderdag. Dossier TamrazyanDe familie Tamrazyan – vader, moeder, twee dochters en een zoon – vraagt in 2010 asiel aan.

Prospect Theory Explanations > Theories > Prospect Theory Description | Research | So What? | See also | References Description We tend to value a gain that is certain more than a gain that is less than certain, even when the expected value of each is the same. The opposite is even more true for losses: we will clutch at straws to avoid a certain loss, even if it means taking even greater risks. In general, when we perceive higher risk we focus on loss, whilst when risk is seen to be lower, we switch to gains. Research Tversky and Kahneman told people to assume there was disease affecting 600 people and they had two choices: Program A, where 200 of the 600 people will be saved . The majority of people selected A, showing a preference for certainty. Program C, where 400 people will die. Most people now selected D, seeking to avoid the loss of 400 people. Notice how the framing makes the difference. So what? Using it To get people to adopt something, focus on the gain. If they perceive high risk, focus on loss.

Psychohistory Psychohistory is the pseudoscientific study of the psychological motivations of historical events.[1] It attempts to combine the insights of psychotherapy with the research methodology of the social sciences to understand the emotional origin of the social and political behavior of groups and nations, past and present. Its subject matter is childhood and the family, and psychological studies of anthropology and ethnology. Description[edit] Rembrandt's painting of the sacrifice of Isaac (Gen.22). Psychohistory derives many of its concepts from areas that are perceived to be ignored by conventional historians and anthropologists as shaping factors of human history, in particular, the effects of parenting practice and child abuse. Psychohistory relies heavily on historical biography. Areas of psychohistorical study[edit] There are three inter-related areas of psychohistorical study.[6] 1. 2. 3. Emergence as a discipline[edit] Independence as a discipline[edit] Psychogenic mode[edit] Notes[edit]

Errors and Bias in Judgment The fact that people's intuitive decisions are often strongly and systematically biased has been firmly established over the past 50 years by literally hundreds of empirical studies. Psychologist Daniel Kahneman received the 2002 Nobel Prize in Economics for his work in this area. The conclusion reached by Kahneman and his colleagues is that people use unconscious shortcuts, termed heuristics, to help them make decisions. "In general, these heuristics are useful, but sometimes they lead to severe and systematic errors" [1]. Understanding heuristics and the errors they cause is important because it can help us find ways to counteract them. For example, when judging distance people use a heuristic that equates clarity with proximity. Figure 1: Haze tricks us into thinking objects are further away. Some of the dozens of well-documented heuristics and related errors and biases include: Status Quo Bias Would you trade? Admittedly, there are often good reasons for leaving things unchanged.

Suomalaistutkijat tekivät uudenlaisen hakukoneen Suomalaiset yliopistotutkijat ovat luoneet hakukoneen käyttöliittymän, joka näyttää osan hakutuloksesta kuvana. Kuvan tehtävä on auttaa käyttäjää hahmottamaan aihetta, johon hän on sukeltamassa. Se näyttää kerralla useita hakusanaan liittyviä aihealueita ja antaa helppoja välineitä haun ohjaamiseen. Käyttöliittymän tutkimusprototyyppi on nimeltään SciNet. – Se auttaa, kun hakija ei tiedä tarkasti, mitä etsii, vaan haluaa hankkia näkökulmia uuteen asiaan, sanoo hankkeen koordinaattori Tuukka Ruotsalo Helsingin yliopiston ja Aalto-yliopiston yhteisestä tietotekniikan tutkimuslaitoksesta Hiitistä. – SciNet toimii kuin älykäs ihminen, joka ei ymmärrä kysymystä, vertaa Hiitin johtaja, professori Samuel Kaski. – Se kysyy, tarkoititko tätä, vai kenties tätä.

European Debt Crisis Fast Facts Cyprus: July 11, 2011 - A munitions explosion at a naval base kills 13 people and destroys the country's main power station. The resulting blackouts severely impact the tourism and finance sectors of the economy. December 23, 2011 - After a series of credit downgrades and exposure to the financial crisis in Greece, Cyprus signs an agreement with Russia for an emergency loan worth €2.5 billion to shore up its economy. Cyprus agrees to pay the loan back over 4.5 years with a 4.5% interest rate. June 25, 2012 - The government of Cyprus announces that it will seek a bailout from the European Union (EU) and the International Monetary Fund (IMF) to prop up its banks. January 21, 2013 - The Eurozone finance minister tells the government of Cyprus that a bailout will be delayed over concerns that the bailout of €17 billion is too large. February 24, 2013 - Conservative Nicos Anastasiades is elected president by a double-digit margin. March 28, 2013 - Banks reopen.

Mental Accounting Parametric determinism Parametric determinism refers to a Marxist interpretation of the course of history formulated by Prof. Ernest Mandel, and it could be viewed as one variant of Karl Marx's historical materialism or as a philosophy of history.[1] In an article critical of the Analytical Marxism of Jon Elster, Mandel explains the idea as follows: Dialectical determinism as opposed to mechanical, or formal-logical determinism, is also parametric determinism; it permits the adherent of historical materialism to understand the real place of human action in the way the historical process unfolds and the way the outcome of social crises is decided. Men and women indeed make their own history. The outcome of their actions is not mechanically predetermined. In formal-logical determinism, human action is considered either rational, and hence logically explicable, or else arbitrary and random. Brief explanation of the concept[edit] In this sense, Karl Marx had written: Ten implications[edit] Skeptical reply[edit]

A priori and a posteriori The terms a priori ("from the earlier") and a posteriori ("from the later") are used in philosophy (epistemology) to distinguish two types of knowledge, justification, or argument: A priori knowledge or justification is independent of experience (for example "All bachelors are unmarried"). Galen Strawson has stated that an a priori argument is one in which "you can see that it is true just lying on your couch. You don't have to get up off your couch and go outside and examine the way things are in the physical world. You don't have to do any science There are many points of view on these two types of knowledge, and their relationship is one of the oldest problems in modern philosophy. The terms a priori and a posteriori are primarily used as adjectives to modify the noun "knowledge" (for example, "a priori knowledge"). Examples[edit] The intuitive distinction between a priori and a posteriori knowledge (or justification) is best seen in examples. A priori A posteriori History[edit] Notes[edit]

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