Week 12

1. Given the choice of an 100% chance of losing $100, or a 50% chance of losing $200 and a 50% chance of losing $0, most people choose the latter. What phenomenon does this demonstrate?

• Normative decision-making

• Diminishing marginal utility

• Risk seeking in losses

• Risk aversion in gains

A medical test has a 90% true positive rate and a 10% false positive rate for detecting a rare disease with a base rate of 1%. If a person tests positive, what is the actual probability they have the disease? Research suggests most people will estimate this probability as:

• 10%

• 50%

• 90%

• 99%

3. Which of the following is NOT a phenomenon that prospect theory describes but expected utility theory does not?

• Diminished marginal utility

• Risk seeking in losses

• Gambling

• Framing effects

4. According to EUT, what would the utility curve look like for someone who’s risk averse in losses?

• A concave curve, where the person prefers small certain loss over large uncertain loss

• A concave curve, where the person prefers large uncertain loss over small certain loss

• A convex curve, where the person prefers small certain loss over large uncertain loss

• A convex curve, where the person prefers large uncertain loss over small certain loss

There are two bookstores in a town. Store A has 5,000 customers and Store B has 500 members. It is known that the number of books purchased in the two bookstores has the same mean (of 10 books) and standard deviation. Each year, both bookstores compute the average number of books purchased by their customers. Which bookstore is more likely to report an average number of books purchased greater than 12?

• Bookstore A

• Bookstore B

• Equally likely

• Insufficient information to know

6. Which of the following is NOT offered as an explanation of confirmation bias?

• Maintenance of self -esteem

• Avoidance of cognitive dissonance

• Simplifies cognitive processing

• They all are explanations of confirmation bias