Making Better Decisions introduces readers to some of the principal aspects of decision theory, and examines how these might lead us to make better decisions. O Introduces readers to key aspects of decision theory and examines how they might help us make better decisions O Presentation of material encourages readers to imagine a situation and make a decision or a judgment O Offers a broad coverage of the subject including major insights from several sub-disciplines: microeconomic theory, decision theory, game theory, social choice, statistics, psychology, and philosophy O Explains these insights informally in a language that has minimal mathematical notation or jargon, even when describing and interpreting mathematical theorems O Critically assesses the theory presented within the text, as well as some of its critiques O Includes a web resource for teachers and students
Preface viii Acknowledgments x 1 Background 1 Suggested Reading 5 2 Judgment and Choice Biases 6 Introduction 6 Problems Group A 9 Problems Group B 12 Framing Effects 15 Brainstorming and Formal Models 20 Endowment Effect 22 Sunk Costs 27 Decision Trees 30 Representativeness Heuristic 34 Availability Heuristic 39 Anchoring 44 Mental Accounting 46 Dynamic Inconsistency 51 Exercises 53 3 Consuming Statistical Data 57 Introduction 57 Problems 58 Conditional Probabilities 63 Gambler s Fallacy 72 Biased Samples 77 Regression to the Mean 80 Correlation and Causation 81 Statistical Significance 84 Bayesian and Classical Statistics 85 Exercises 93 4 Decisions under Risk 98 Introduction 98 Problems 99 The Independence Axiom 102 Von Neumann and Morgenstern's Result 110 Measurement of Utility 113 Risk Aversion 116 Prospect Theory 123 Exercises 130 5 Decisions under Uncertainty 133 Introduction 133 Problems 134 Subjective Probability 141 Learning From the Fact We Know 151 Causality 163 The Sure Thing Principle 166 Alternative Models 171 Objective Probabilities 172 Exercises 174 6 Well-Being and Happiness 178 Introduction 178 Problems Group A 179 Problems Group B 180 Measurement Issues 184 What's Happiness? 186 Exercises 188 Appendix A: Optimal Choice 191 Appendix B: Probability and Statistics 195 Solutions 204 Index 210
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