Decision Making

Each day, we are faced with multiple decisions. What should I wear? What should I eat? Should I go out tonight or stay home and study? What classes should I take? What apartment should I rent? Should I go to graduate school after I finish college? Should I stay in this relationship or should I move on? As these examples illustrate, some decisions are quick and simple, whereas others are complex and require considerable thought. As noted in your textbook, a great deal of research has been devoted to understanding the cognitive strategies that we use when making decisions.

Question 1

Daniel Kahneman and Amos Tversky proposed prospect theory to help explain how individuals manage risk and uncertainty. Conduct an online search of prospect theory. Briefly describe the main features of this theory. Include the URL for the Website that you used.

Question 2

How does prospect theory compare to the three models of decision making described in your textbook?

Question 3

Reflect back on an important decision that you have had to make. Be sure to select a decision that you are comfortable sharing with classmates and/or your instructor. Which decision-making model best describes the steps you took to make your decision? Do you think the outcome of your decision would have been similar if you had relied on one of the other models presented in your textbook? Explain your answer.
Reflect back on an important decision that you have had to make. Be sure to select a decision that you are comfortable sharing with classmates and/or your instructor. Which decision-making model best describes the steps you took to make your decision? Do you think the outcome of your decision would have been similar if you had relied on one of the other models presented in your textbook? Explain your answer.

Question 4

As noted in your textbook and in prospect theory, some decisions involve a high degree of uncertainty. In these instances, we may rely on one of two types of heuristics—the availability heuristic or the representativeness heuristic. Briefly describe each heuristic, and provide an example for each. Do not use the examples provided in your textbook. Instead, use an example from your own experiences or from a hypothetical situation.
As noted in your textbook and in prospect theory, some decisions involve a high degree of uncertainty. In these instances, we may rely on one of two types of heuristics—the availability heuristic or the representativeness heuristic. Briefly describe each heuristic, and provide an example for each. Do not use the examples provided in your textbook. Instead, use an example from your own experiences or from a hypothetical situation.

Question 5

According to the ____ model of decision making, you generate a list of the factors that are most important to you. You evaluate the features of one alternative at a time, and then you compare the various alternatives.

A.
B.
C.
D.

Question 6

Li is shopping for clothes but is on an extremely tight budget. She visits a store in her local mall and decides to only purchase clothes that are on sale. As she browses for jeans, she selects the two cheapest pairs. Which model best describes Li’s decision making?

A.
B.
C.
D.

Question 7

The _____ is likely to be used when people rely on their long-term memory to determine the likelihood of events occurring.

A.
B.
C.
D.
The _____ is likely to be used when people rely on their long-term memory to determine the likelihood of events occurring.

Question 8

Liam and Brynn are on a vacation in Las Vegas. Their approaches to gambling are quite different. Liam tends to engage in risk-aversion, whereas Brynn leans more toward risk-seeking. While playing slot machines, Liam hits a jackpot worth $1,100. He can either cash out or bet it all for a chance to win $2,200. The odds are 1 in 7 that he will win the bigger jackpot. According to Kahneman and Tversky’s prospect theory, how will Liam likely respond? How would Brynn respond if confronted with the same decision?
Liam and Brynn are on a vacation in Las Vegas. Their approaches to gambling are quite different. Liam tends to engage in risk-aversion, whereas Brynn leans more toward risk-seeking. While playing slot machines, Liam hits a jackpot worth $1,100. He can either cash out or bet it all for a chance to win $2,200. The odds are 1 in 7 that he will win the bigger jackpot. According to Kahneman and Tversky’s prospect theory, how will Liam likely respond? How would Brynn respond if confronted with the same decision?
Because Liam tends to engage in risk-aversion, he is likely to choose the certain $1,100 jackpot rather than risk losing everything (i.e., the uncertain $2,200 jackpot). Brynn, on the other hand, will most likely select the risky alternative. She will risk losing the $1,100 in order to possibly double her winnings.
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