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John Miyamoto
Email: jmiyamot@uw.edu
http://faculty.washington.edu/jmiyamot/p466/p466-set.htm
Psych 466: Judgment and Decision Making
Autumn Quarter 2015
Final Exam
Instructions:
• Do not discuss your answers with anyone else - you should work alone.
• Give the number of the question that you are answering as well as your answer,
e.g., "Question 3: ...." would be a good way to identify your answer to Question 3.
• To help me keep track of the files of different students, please name the file that contains your
answers as follows: <your last name>.p466.final.docx (or whatever is the extension for your
type of file). For example, if I were submitting a file, I would name it:
miyamoto.p466.final.docx.
• Answer a total of 5 out of 8 questions. There is no extra credit for answering more than 5 questions.
Every question is worth 10 points. There are additional restrictions on which questions you must
answer; these restrictions are explained below.
Due date and time for the exam: Your answers to the examination are due by 11 pm Tuesday,
December 15. Submit an electronic version of the exam to the Collect It website.
https://catalyst.uw.edu/collectit/dropbox/jmiyamot/36460
Late examinations will not be accepted at the Catalyst dropbox, but late exams can be emailed
directly to me by email attachment until Friday December 18. If an exam is late without
permission to be late, you will be penalized 2% of the total points on the exam per 24 hours that
the exam is late. If you have trouble uploading your exam to the Catalyst Drop Box website,
you should send it directly to me as an email attachment.
Reminders:
• Check that you are uploading the correct file before you upload it to the Catalyst dropbox.
Occasionally, students accidentally upload the wrong document - this usually results in a late
submission for this assignment, so make sure you don't do it.
• Make sure that you have successfully uploaded your document to the dropbox. Occasionally,
students have thought they uploaded a document when in fact they had not done so. (I'm not sure
how they do this, but it seems to happen occasionally.)
* If you are not sure that Catalyst has received your document, you can also send it to me as an email attachment. The
email will show the date that you sent it so that serves as a proof that you handed in the exam on time.
• In some of the questions, I ask you to explain why some evidence supports a particular claim. When
you answer such a question, be sure that you are clear as to why the evidence supports the claim
(i.e., what is the argument?). It is not enough just to say, here is the evidence and, yes, it supports
the claim (or so-and-so said it supported the claim). I want to see that you can explain the argument
why particular pieces of evidence support specific claims. In some cases, this may also involve
explaining why the evidence excludes alternative hypotheses that are opposed to the claim in
question.
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You must answer Questions 1 and 2
1.
2.
This question has to do with expected utility (EU) theory and its importance for the theory of
decision making.
(i) Explain what is EU theory, and why EU theory is important for the theory of economic
behavior.
(ii) EU theory and prospect theory make different assumptions and predictions about people's
preferences for risky options (lotteries or gambles). What are the main differences between
EU theory and prospect theory?
Framing effects
a) Carefully explain what is a framing effect in the psychology of preference.
b)
c)
Describe an experiment that shows that people's choices are affected by framing effects.
⦁ If you use mental accounting as the basis for your answer to Part (b) of this question, then
you are NOT ALLOWED to answer Question 5 below because that question also asks about
mental accounting. Of course, if you do not use mental accounting as the basis for answer
Part (b), then you are allowed to answer Question 5.
⦁ Be sure you describe clearly the choices that people have to make in the experiment, and why
the observed pattern of choices constitutes a framing effect.
What is the psychological explanation for why people make the choices that they have been
found to make in part (b)?
Answer 3 of the following 6 questions.
3.
Kahneman and Tversky developed the idea that there is a fourfold pattern to risk preference. The
fourfold pattern is a description of the types of gambles for which a person is likely to be risk averse
or risk seeking. Kahneman (Chapter 29) discusses this pattern with respect to plaintiff's and
defendant's willingness to settle in a law suit. Figure 13 describes four situations that I have labeled
A, B, C and D in the following table:
Gains
Losses
High Probability
Cell A
Cell B
Low Probability
Cell C
Cell D
For each of the situations, Cells A, B, C and D, that are decribed in Figure 13,
(i) Give an example of a real-world situation that fits the description of the particular cell, e.g., if
you are giving an example for cell B, you would need an example that has a high probability of
a loss. Make sure that your example does fit the description of the particular cell. In your
answer to part (i), you are NOT ALLOWED to use Kahneman's example of negotiations in a
lawsuit as the basis for your answer.
(ii) What is the predicted behavior of a decision maker who finds himself or herself in the situation
described by the particular cell.
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(iii) Describe what you think is the typical attitude towards risk, as expressed in the choices people
make when they find themselves in the situation of a particular cell, A, B, C or D. Do you
think that the actual behavior of a decision maker in this situation has the risk attitude (risk
averse or risk seeking) that is predicted for this cell?
Note that for this question, Question 3, you need to discuss (i), (ii) and (iii) for four different
examples, one example for each of Cells A, B, C and D.
4.
Loss aversion and the endowment effect
(i) Explain what it means to say that people are loss averse.
(ii) Explain what is the endowment effect. Give an example of a situation where people's behavior
exhibits an endowment effect.
(iii) According to prospect theory, why do people exhibit an endowment effect? Hint: Loss aversion
implies that people's preferences should exhibit an endowment effect. Why?
5.
6.
Mental accounting
(i) What is mental accounting?
(ii) Give an example of an experimental result that shows that people use mental accounting when
making choices. Describe the experiment carefully so that it is clear that choices are affected by
mental accounting rather than some other factor.
(iii) What are the pros and cons of people's use of mental accounting? What would you say are the
main ways that it is a good or bad habit for decision makers to use mental accounting in forming
their preferences?
Peak-end model
a) What is the peak-end model for experienced utility? What does it claim about the memory for an
experience like having a cavity filled at the dentist or eating a tasty meal?
b) Give an example of an empirical finding that supports the main claim of the peak-end model.
c) Imagine that you own a restaurant. You know that customers generally think that the experience
of eating at your restaurant is reasonably good, but not great. I.e., the food is satisfactory but not
great, the atmosphere is satisfactory but not great, the service is satisfactory but not great. Of
course, you would like to make eating at your restaurant be a great experience in every respect,
but suppose that you simply don't have the time, money or business/cooking experience to do
this. If you can only afford to focus on improving a few aspects of your restaurant, what should
you focus on to produce the biggest improvement in how your customers remember the
experience of eating at your restaurant? Hint: Of course, I'm asking you to use the peak-end
model to think of where you can make improvements that will have the biggest impact on your
customers' memory of the restaurant experience.
7.
Focusing illusion and impact bias.
(i) What are the focusing illusion and the impact bias? Are the psychological factors that cause the
focusing illusion and impact bias similar? What do you think they are?
(ii) Is there anything that you can do to prevent or mitigate your own tendencies towards focusing
illusions or impact biases?
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Weaknesses or deficiencies of the heuristics and biases probram
In Psychology 466, we spent a good deal of time talking about the heuristics and biases program
(availability, representativeness, sunk costs, framing effects, etc.). What do you think are the
greatest weaknesses or deficiencies of this program from the standpoint to psychology? As you
describe the greatest weaknesses or deficiencies, you should explain why these weaknesses or
deficiencies are serious from the standpoint of the development of a scientific theory of judgment
and decision making.
END OF EXAM - YOU SHOULD HAVE COMPLETED A TOTAL OF 5 QUESTIONS.
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