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Final Exam Preparation PHI 2100 01 Note Any material from the notes readings lectures may be on the exam Concepts you should be able to explain and recognize examples of Representativeness Heuristic tend to make interpretations based on stereotypes as more likely or probable Clustering Illusion Base Rate Paradox Conjunction Fallacy a more specific demanding description that fits our stereotype will seem more probable than a less specific description that doesn t fit our stereotype Easy Explanation Regression Fallacy Availability Heuristic convenient memory Biased Interpretation pet belief hot hands he just missed cold hands he can t buy a basket almost confirming it even though you have every reason to dismiss the pet belief Fortune Cookie Problem Optional Stopping certain pet belief negative evidence undergoes critical scrutiny no scrutiny for positive evidence Not ignoring negative evidence simply treating them differently Sharpening Leveling when context are deemphasized or ignored Expected Value Be able to do the calculation Explain the difference between Expected Utility and Expected Value Sunk Costs Reputation Costs Opportunity Costs Mental Accounting Loss Aversion Framing Effects Decision Paralysis Trade Off Contrast Extremeness Aversion Status Quo Bias People prefer to keep things the way that they are even though it could be more rational to switch strategies Endowment Effect Regret Aversion Paradox of Regret Aversion Decision Paralysis Financial effects of ignoring Inflation Base rates clustering illusion Money Illusion Planning Fallacy Herd Investing Sample Questions 1 Sam says The reason Joe has relationship problems is that his mother was very distant What are the two tests for determining whether Sam has offered an easy explanation The two tests are 1 should the opposite have happened could I have explained this too 2 is this predictable 1 The reason Joe is so good at relationships is because since his mother was so distant he learned to connect to other people 2 Not predictable The answer needs to be no for question 2 and yes to question 1 This is an easy explanation 2 A doctor is going to apply a test for schizophrenia to a population in which this condition occurs 1 of the time The test is 95 accurate The doctor says Aha George tests positive So it is very likely in fact there s a 95 chance that George is schizophrenic Is the doctor correct What is this kind of reasoning an example of The doctor is wrong Pr Tests Has schizophrenia 95 590 It is unlikely a 16 chance George has schizophrenia Base rate paradox 3 Larry argues I ll never buy or live in a mobile home Tornadoes are more likely to hit them If you don t believe this you must not watch the news Larry s belief is false What is the most plausible explanation for why he believes it Availability heuristic Larry remembers it because it s the only thing he picks up on from the news He is less likely to remember tornado hitting non mobile homes 4 Rob and Gus disagree about affirmative action They examine the evidence There is some evidence that suggests that affirmative action helps protected class individuals e g women minorities other evidence suggests that affirmative action hurts protected class individuals Gilovich would argue that after examining the evidence Rob and Gus would tend to a be more certain of their differing opinions b be less certain of their differing opinions c stay the same Explain a The two would both be more certain Rob and Gus are experiencing biased interpretation of the evidence Gus believing he is in the right will put more emphasis on that which suggests he is in the right and less on that which opposes his belief Optional stopping 5 Peter believes that when he plays games of pure chance he occasionally gets hot streaks And he bets more when he s on a hot streak Gilovich argues that there are no such things as hot streaks in games of pure chance Why do people believe in hot streaks according to Gilovich Clustering illusion Peter believes something to be streakier than it really is based on events prior 6 Fred works at a large company that must satisfy the conditions of a contract within the next month or go out of business Fred has been pursuing a strategy that he now regrets He decides to continue pursuing that strategy and his reasoning is as follows I ve already spent over a million dollars pursuing this strategy If I don t switch my bosses are going to have serious doubts about my ability to be successful in this business So I m sticking with my current strategy Does Fred violate the sunk cost principle Explain No he does not Rather he is victim to reputation cost choosing to do that which he believes will give him a better reputation by adhering to his own strategy 7 Pat has invested in the stock market for the past year She owns two stocks ABC and XYZ XYZ has gone up over the past year while ABC has gone down Pat suffers from loss aversion If she has to sell half her stocks what is she likely to sell Why Makes sure she gets profit by selling XYZ loss aversion Holds on to ABC thinking it ll shoot up Sell too early hold on for too long 8 Betty owns a donut stand She sells three different kinds of donuts and 50 of the people who stop by her stand buy a donut She decides to significantly expand her selection of donuts because this is bound to increase her sales Is this necessarily true Why or why not Decision paralysis 9 The stock market is very strong it has been rising dramatically for the past 2 years Leslie decides that it s a good time to invest in the stock market After a couple of years the stock market falls dramatically Leslie decides it s a good time to get out of the stock market What kind of investor is Leslie What is the likely result of this kind of investing Herd investing Buying high selling low Low or no profit 10 I go out to Little Italy with my mother She takes a look at the wine list and sees the following selection 5 Carlo Rossi 6 Barefoot 10 Coppola 17 Penfold Usually my mother is leaning toward ordering a glass of Barefoot Which item should Little Italy remove from the wine list if they want her to order a more expensive wine Why Take out Carlo Rossi Don t want the cheapest option not the most expensive Expected Value Problems 11 You throw a 6 sided fair die If the number comes up even you win 20 If it comes up odd you lose 50 What is the expected value of this gamble Should you take the bet 15 if gamble 0 if no gamble Don t gamble 12 a A bag contains 6 red


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FSU PHI 2100 - Final Exam

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