Exam 2 RMI 2302 - FSU
Who uses decision making ? - ✔✔Individuals
Organizations
Government
Individuals use expected ____ - ✔✔Utility
Organizations use expected ____ - ✔✔Value
What entity is able to take on risk rega
...
Exam 2 RMI 2302 - FSU
Who uses decision making ? - ✔✔Individuals
Organizations
Government
Individuals use expected ____ - ✔✔Utility
Organizations use expected ____ - ✔✔Value
What entity is able to take on risk regardless of the reward - ✔✔Gov't
What is one of the big problems we have with modeling how decisions are made? -
✔✔Decisions are made is that they do not explicitly account for biases on the part of the
decision maker
What is Bias? - ✔✔an inclination of temperaments or outlook to present or hold a partial
perspective at the expense of alternatives in reference to objects, people, or groups.
Types of Bias 1 of 5 - ✔✔1. Age biases
Types of Bias 2 of 5 - ✔✔2. Cultural biases
Types of Bias 3 of 5 - ✔✔3. Experience biases
Types of Bias 4 of 5 - ✔✔4. Gender biases
Types of Bias 5 of 5 - ✔✔5. Media biases
Age Biases - ✔✔People in certain age groups tend to interpret
information about risk differently
Cultural Biases - ✔✔Certain culture view of risk differ. (example: religion biases)
Experience Biases - ✔✔People who have experienced a low-probability/high-consequence event
tend to overestimate its likelihood, people who have not experienced one, tend to underestimate
(example: control biases)
Gender Biases - ✔✔(these are not systematic- you cannot say all men or all women think a
certain way)
Media Biases - ✔✔risks that garner a lot of media attention (murder, terrorism, kidnapping, etc.)
are typically overestimated, while other risks (car accidents, health risks) tend to be
underestimated
CAPM - ✔✔The Capital Asset Pricing Model - only reward systemic risk and not worried about
diversifiable risk.
What is Efficient Frontier - ✔✔a graph that shows the tradeoff between risk and reward.
What does the Efficient Frontier line represent? - ✔✔Represents the optimal combination of risk
and return
What is an incentive - ✔✔something that motivates individuals to perform an action
What are the types of incentives: 1 of 7 - ✔✔1. Financial
What are the types of incentives: 2 of 7 - ✔✔2. Moral
What are the types of incentives: 3 of 7 - ✔✔3. Natural
What are the types of incentives: 4 of 7 - ✔✔4. Coercive
What are the types of incentives: 5 of 7 - ✔✔5. Personal
What are the types of incentives: 6 of 7 - ✔✔6. Social
What are the types of incentives: 7 of 7 - ✔✔7.Political
Financial Incentive - ✔✔expect some form of material reward in exchange for acting in a
particular way.
Moral Incentive - ✔✔"do the right thing"
Natural Incentive - ✔✔"curiosity, fear, anger, pain, joy, pursuit of happiness"
Coercive Incentive - ✔✔negative reinforcement
Personal Incentive - ✔✔motivate an individual through their tastes, desires, and the ambition to
achieve remarkable feats.
Social Incentives - ✔✔takes into account the situation faced by any individual in a given
position within a given society by takin
[Show More]
.png)
