Chapter 8 Quiz: Decision-Making

Directions:
Study Chapter 8, then take this quiz and score it until you can score 100%. Then submit your score for credit. In all of the questions, EV= Expected Value Theory, EU=Expected Utility Theory, RDU=Rank-dependent utility theory, CWT=Configural weight theory.

1. The St. Petersburg paradox, in which a person prefers a small finite amount of money to a chance to play a gamble with infinite expected value, disproves which of the following theories:

a. EV
b. EV, EU
c. EV, EU, RDU
d. EV, EU, RDU, CWT
e. none of the above, it is consistent with all of the theories.

2. The paradoxes of Allais (common ratio paradox and common consequence paradox) are consistent with which one(s) of the following theory(ies)?

a. EV, EU, RDU, CWT
b. EU, RDU, CWT
c. RDU, CWT
d. CWT
e. none of the above.

3. Violations of stochastic dominance rule out (reject) which of the following theories as descriptions of human decision making?

EV
EV, EU
EV, EU, RDU
EV, EU, RDU, CWT
none of the above.

4. Suppose EU theory is true. Suppose u(x)= xb, where b = 1/2 (i.e., the square root function). What is the amount of cash that would be equal in EU to a fifty-fifty gamble to either win \$0 or \$100?

a. \$5
b. \$15
c. \$25
d. \$33
e. \$50

5. The finding that the majority of people violate stochastic dominance when gambles are presented in the coalesced form, but satisfy stochastic dominance when gambles are presented in the split form was predicted by which of the following theories?

a. EV, EU, RDU, CWT
b. EU, RDU, CWT
c. RDU, CWT
d. CWT
e. none of the above. The finding is not consistent with any of the theories.

End of Quiz!

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