Unit 2 Activity

To complete this assignment you must review and complete the Unit 2 activity To do this go to Classroom Materials, Unit 2 Multimedia Course Material and click on the "activity" icon. After completing the activity answer the following questions:

1. Reexamine all of your choices for each situation within the Unit 2 activity. What principles were demonstrated in each situation? What information helped you to arrive at your answer?

2. What do the principles and models you identified within the Unit 2 activity imply about the ways in which we make decisions?

3. When do we make rational decisions? Under what circumstances are we likely to make irrational choices?

4. Do decisions even need to be rational? Why or why not?

The Allais paradox is the first principle which focuses on the obvious choices conflicting with the utility theory. The risks in expected payoff, or utility are ineffective to the decision making process. I felt that the options with lower risk were more reasonable. Kahneman and Tversky's Prospect Theory introduced the second principle which also dealt rationalizing, but focused on individual desires to either extinguish risk or to decrease its possibility. Even though later calculations revealed that choice #2 could have yielded a larger profit, I felt more comfortable with the eliminating risk instead of lessening it (Plous, 1993).

It's a 50-50 chance depending on the outcome of the choices that you must make. The gain and the loss potential were equal in probability and therefore cancel each other out as considerations. Since there is no clear choice between the two policies in this game of 50/50 it is often best to go with the "sure bet."

We make rational decisions when our choices are influenced primarily by exercising the different choices, which results in a desired and more reasonable result. Rational decisions are made everyday and usually do not require much thought and are based off of our being, morals, personality and surroundings. We make rational decisions when