COMM402 Exam 2 Study Guide Chapter 4 What is the choice process being modeled in this chapter Theorized rational choice process being modeled doesn t mean we assume that all humans are rational we just have a rational standard So using models we can see the degree to which people act rationally Examine all possible plans we model people as though the examined all of the possible choices they could make we re not saying they did that we re just modeling them that way Identify all possible outcomes we look at all the possible outcomes of a situation and assign all of the outcomes with values Value each outcome you place a value on each outcome Estimate probability of each outcome 20 prob you get offered a crappy job 10 outcome no job ect Choose outcome with highest expected value ie value x probability the rational choice is to choose the plan of behavior with the highest expected value which is value multiplied by probability How do you calculate Expected Value EV EV Pi Vi for i possible outcomes the I s are just counters they refer to the number of possible outcomes If you have 5 outcomes you have to do the multiplication 5 times It s the sum of the products Expected value value x probability the probability is where the word expected comes from If you think that saying hello to you would give me 10 and there s an 80 you ll say hello the expected value of the in interaction is 8 What is the numerical range of probability Why is probability limited to these numerical values Probability 0 to 1 Decimals or percentages What are the two common mistakes people make when they apply probabilities in their decisions 1 Avoid reasoning error of assuming that all outcomes are equally likely o Lottery two outcomes so 50 chance of winning people think that that are two things that could happen I could win or lose FALSE there s 1 in 300 chance you get your money back 1 in 3 million odds you win 2 Gambler s fallacy being due for a red card etc if you flip a coin and it comes up heads 3 times in a row What the heads its heads on the 5th toss STILL 50 So don t think that because you ve been losing that you re going to win eventually its still the same odds How do you draw a decision tree How do you use a decision tree to choose Decision trees merely a graphical aid to seeing which outcome has maximum EV these are teaching aids Go look at the example of expected cost of a car So the expected cost of fixing the car is 208 or 175 for a car that 100 will work the rational choice is to buy the roommates car Draw out the whole tree including all the contingent branches once you ve drawn them all the way out to the right you do math all the way back to the left and attach values to each thing Then start collapsing to the left until you end with only the branches representing the first choice the basic choice was buy your roommates car or repair your care The largest EV predicts the first choice Continue the process o Given the first choice collapse back to the next decision ie second choice How can a decision tree be simplified Alternatively can just multiply probabilities along each branch and list the product at the end of the final branch point if you don t like decision trees you can multiply the values for each branch ect o If a thing can happen N ways add up all N probabilities to estimate its likelihood What rule do you use to determine i e predict the best choice in this model How do you predict the last choice EV predicts the best choice What is utility How do you obtain it How is it measured Utility an all purpose metric 15 off may not get a millionaire into a restaurant but it may convince a college kid Money doesn t mean the same thing to everyone So we need an all purpose metric Dollars are inconvenient and misleading but there can be some translations so everyone is on the same metric Can ask people to rate value of 100 a puppy and a quick meal on the same scale maybe 1 to 10 Teacher offers to hire someone to kill a puppy Almost everyone has a price that they would agree to do it So everyone has a place on this scale We can translate puppy killing to dollars So the point is that you can take a thing and make a value of it WE USE A METRIC OF UTILITY because a dollar is meaningful So we will talk about how many utils We may need an anchor point It s a nice neutral scale How do you build Subjective Expected Utility SEU models When ask people to make their own probability estimates call these subjective probabilities rolling a dice is an objective probability when looking a humans it is subjective probability Everyone right now can give a probability that they will get a good paying job when they graduate If we have an estimate of the persons utility and probability to predict a person s behavior we have to figure out their subjective probabilities ex whats the probability you are going to graduate Get SEU models subjective expected utility not in textbook called expected values in the book Notice normative character of EV and SEU models o Predict rational choice given the starting info we DON T assert that humans are rational We assert that we have a rational model that predicts what large groups of people will do We can hold up the rational choice next to the actual choice People think about what the rational choice and they have built models that are based on a normative standard and logical grounds we haven t assumed that everyone is rational we just have a standard to measure people against o Other social science is descriptive which is predictive we evaluate the descriptive work was it a dumb choice or a great choice We can tell the difference because we have a normative standard We can do this with models that come out of the choice frame o If people are rational in some domain testable then same model can be both What s the difference between normative and descriptive models What s the difference between normative and descriptive models o Normative predict rational choice given the starting info give advice o tells you how you should behave but can t predict people will actually behave that way o tells you how to do something how to behave in order to achieve a goal o Descriptive is predictive predict behavior o tells you what people do enables you to predict behavior If people are rational in some domain testable then same model can be both What is aggregation o Aggregation or the law of large numbers sometimes applied in order to …