Deck 13: Are You a Rational Person Check Yourself

Question 1

Which of the following is the first step in the multiattribute utility technique?

A) evaluating the utility of dimensions
B) identifying the alternatives
C) identifying the attributes of the options
D) defining the priorities of dimensions

Answer 1

B

Question 2

________ involves choosing between two or more readily available options.

A) Risky choice
B) Jagged selection
C) Decision making under uncertainty
D) Riskless choice

Answer 2

D

Question 3

An individual has short listed three properties to build a house on.He has to choose from these three properties.This is an example of a ________.

A) jagged selection
B) decision making under uncertainty
C) risky choice
D) riskless choice

Answer 3

D

Question 4

Rational models serve a diagnostic purpose to negotiators.

Question 5

Decision making under uncertainty refers to a decision making situation where only the probabilities of events are known.

Question 6

You are organizing a team outing to Alabama.You have to make a choice between hunting,fishing,and outing at an amusement park.However,you have little idea about the weather in Alabama and its impact on each of these alternatives.The decision making under these circumstances is an example of ________.

A) riskless choice
B) decision making under uncertainty
C) probabilistic decision making
D) risky choice

Question 7

Which of the following terms is most closely associated with the expected utility theory?

A) decision making under uncertainty
B) riskless negotiation
C) collective decision making
D) rational behavior

Question 8

According to the ________,one alternative leads another if it is strictly better on at least one dimension and at least as good on all others.

A) expectation principle
B) regressiveness principle
C) dominance principle
D) symmetry principle

Question 9

According to the regressiveness principle,extreme values of some quantity deviate to a large extent from the average value of that quantity.

Question 10

If a person's utility function is convex,his or her decisions will be risk-neutral and identical to those predicted by expected value maximization.

Question 11

According to the uniqueness axiom,a unique solution exists for each bargaining situation.

Question 12

The betweenness axiom asserts that gambles that have prizes about which people are indifferent are interchangeable.

Question 13

In risky choice decision making situations,________.

A) the decision maker is ignorant of the likelihood of events
B) the decision maker has to choose between two or more available options
C) the likelihood of events is unknown
D) the probabilities of events are known to the decision maker

Question 14

Game theoretic rationality focuses on how ________.

A) people make independent decisions
B) people make interdependent decisions
C) perception influences individual decisions
D) people make decisions using their legitimate power

Question 15

In the multiattribute utility technique,after evaluation,each attribute is given a weight based on ________.

A) how important that attribute is to him or her
B) the difficulty involved in carrying out the alternative
C) the relative utility or value of each alternative
D) the complexity in evaluating the alternative

Question 16

Expected utility theory is a theory of choices made by an individual actor.

Question 17

You are going to buy an apartment in Alaska.You have to choose between eleven different proposals.This decision making scenario is an example of a risky choice.

Question 18

________ rationality focuses on how people make independent decisions.

A) Game theoretic
B) Probabilistic
C) Virtual
D) Individual

Question 19

The observed reluctance to pay to play a game,despite its objective attractiveness,is known as the St.Petersburg paradox.

Question 20

According to the expected utility theory,we need to be able to compare everything to be truly rational.

Question 21

You want to purchase bonds from a bank that offers high interest.However,you know that the bank's profitability has declined in recent times.Which of the following would you choose to help you make the best possible decision under these circumstances?

A) the dominance principle
B) the expected value principle
C) the elimination technique
D) the random choice decision making

Question 22

The ________ axiom asserts that if x is preferred to y,then x must be preferred to any probability mixture of x and y,which in turn must be preferred to y.

A) reducibility
B) continuity
C) substitutability
D) betweenness

Question 23

If a utility function is concave,a decision maker will ________.

A) always choose a risky gamble
B) always choose a sure thing
C) always make a decision in uncertainty or ignorance
D) choose a prospect whose expected value is identical to a sure thing

Question 24

Which of the following is a key assumption of the utility function?

A) Gambles of the form (x, p, y) should be equal to gambles of the form (y, p, x).
B) Gambles are not interchangeable even if the prizes are similar.
C) A person's attitude toward a lottery is not solely dependent on the ultimate prizes.
D) Every object considered for gambling is comparable.

Question 25

Which of the following terms refers to the point at which objective probabilities and subjective weights coincide?

A) utility point
B) crossover point
C) reference point
D) reservation point

Question 26

Which of the following statements describes the principle of diminishing marginal utility?

A) Constant additions to monetary amounts result in less and less increased utility.
B) Trivial or marginal prizes offered in a gamble reduce its monetary value.
C) Total utility increases proportionally with every additional gamble played.
D) The value of a gamble diminishes as more and more people become interested in it.

Question 27

The utility of a gamble equals ________.

A) the extent of uncertainty associated with utility of the gamble
B) the expected utility of its outcomes
C) the actual utility of its outcome or prize
D) the level of risk associated with the gamble

Question 28

People tend to overweight low probabilities and underweight high probabilities.This is referred to as the ________ effect.

A) extremity
B) possibility
C) utility
D) certainty

Question 29

Which of the following statements depicts the regressiveness principle?

A) Adding two probabilities, p1 and p2, should yield a probability p3 = p1 + p2.
B) The utility function of an individual should be either convex or concave.
C) Extreme values of a quantity do not deviate very much from the average value of that quantity.
D) Except for guaranteed or impossible events, weights for complementary events do not sum to 1.

Question 30

Which of the following refers to the possibility effect?

A) the tendency to overweight low probabilities and underweight high probabilities
B) the tendency to overweight outcomes that are possible relative to outcomes that are impossible
C) the tendency to overweight certain outcomes relative to outcomes that are merely probable
D) the tendency to remain neutral toward outcomes with low probabilities and high probabilities

Question 31

Which of the following statements describes the substitutability axiom?

A) The probabilities of two gambles can be interchanged if they are related to each other.
B) All sorts of gambles can be interchanged without value exchanges.
C) Gambles that have prizes about which people are indifferent are interchangeable.
D) If x is preferred to y, then x must be preferred to any probability mixture of x and y.

Question 32

Which of the following is a valid characteristic of the value function?

A) The shape of the value function does not change at the reference point.
B) The value function is noticeably steeper for losses than for gains.
C) At some focal amount of the pertinent outcome, negotiators consider larger amounts as losses and smaller amounts as gains.
D) The shape of the value function remains constant for an individual.

Question 33

Which of the following situations provides an example of the St.Petersburg paradox?

A) A bond offers high returns, but the public interest in it is low.
B) Employees are interested in increasing productivity, but their efforts are minimal.
C) Managerial productivity is hard to measure, but they get paid more than the others.
D) A company's profits have increased in a financial year, but it refuses to pay dividend.

Question 34

Which of the following relationships is true according to the closure property?

A) (x, p, y) = (y, p, x)
B) (x, p, y) = (y, 1/p, x)
C) (x, p, y) = (y, 1- p, x)
D) (x, p, y) = (x, 1/p, y)

Question 35

A(n)________ is the quantification of a person's preferences with respect to certain objects such as jobs,potential mates,and ice cream flavors.

A) inverted-S function
B) utility function
C) probability weighting function
D) expected value

Question 36

Ronald is an electrical engineer.He gets job offers from three companies,A,B,and C.Ronald prefers the offer from A over the offer from B and the offer from C over the offer from A.Hence it is evident that he prefers the offer from C over the offer from B.This scenario explains the ________ property of a utility function.

A) reducibility
B) closure
C) comparability
D) transitivity

Question 37

Which of the following statements best describes the law of large numbers?

A) Large numbers of people should be involved if a gamble has to be successful.
B) Risk involved in a gamble is low when the money invested in it is large.
C) The mean return will get closer and closer to its expected value the more times a gamble is repeated.
D) Risk involved in a gamble is low when the prize is large.

Question 38

According to the ________ effect,people have a tendency to overweight certain outcomes relative to outcomes that are merely probable.

A) possibility
B) probability
C) extremity
D) certainty

Question 39

A manager's utility function is identified to be a concave curve.Which of the following investment opportunities is likely to be chosen by him?

A) investment in a real estate company that promises attractive returns
B) venture capital to a small business, administered by a group of young entrepreneurs
C) a bond issued by the federal government that offers guaranteed interest of 2 percent
D) investing in a large corporation that is planning to extend its business overseas

Question 40

Which of the following is an example of a situation in which the law of large numbers does not apply to the expected-value decision principle?

A) The investment decision is a once-in-a-lifetime opportunity.
B) Average return expected of a project is low.
C) The project requires a series of investments over the years.
D) Average return expected of a project is high.

Question 41

The ________ states that a distinctive solution exists for each bargaining situation.

A) substitutability axiom
B) symmetric bargaining principle
C) uniqueness axiom
D) Pareto-efficient frontier

Question 42

Nash's bargaining theory specifies ________.

A) how to deal with irrational people during a negotiation
B) how negotiators should divide the pie
C) how negotiators can ensure personal growth
D) the measures of perfecting a rational model

Question 43

Alturo Corporation provides IT products and services in five European countries.Its services include IT infrastructure,maintenance services,and technology-based support services.In an attempt to explore the Asian market,Alturo considers a joint venture with CST Corporation,a Chinese company that provides services and products for computer hardware products.The company initiates negotiations with the executives of CST Corporation.Which of the following pieces of information,if true,would construct a symmetric bargaining situation under this circumstance?

A) Alturo Corporation is financially stronger than CST Corporation and is considering an acquisition also.
B) Alturo Corporation has been experiencing a dip in their sales at home and the alliance is very crucial for them to better their performance.
C) CST Corporation is expected to benefit more from the joint venture than Alturo Corporation.
D) CST and Alturo are large corporations in terms of financial strength and both companies are expected to benefit evenly from the joint venture.

Question 44

Which of the following,according to Nash's theorem,is a property of the unique solution obtained?

A) Unique point maximizes the geometric average of the gains available to people as measured against their reservation points.
B) The agreement point, u, of a negotiation will not satisfy the independence of irrelevant alternatives axiom.
C) The bargaining process might yield outcomes that both people find less desirable than some other feasible outcome.
D) The Pareto-optimality and symmetry axioms are not used to define the agreement points of a symmetrical game.

Question 45

Which of the following refers to the set of outcomes corresponding to the entire set of agreements that leaves no portion of the total amount of resources unallocated?

A) Pareto-efficient frontier
B) the Nash solution
C) the uniqueness axiom
D) the symmetric bargaining principle

Question 46

Which of the following axioms states that the best outcome in a feasible set of outcomes will also be the best outcome in any smaller subset of feasible outcomes that still contains that outcome?

A) the reducibility axiom
B) the betweenness axiom
C) the independence of irrelevant alternatives axiom
D) the substitutability axiom

Question 47

Can you think of two situations where you,or someone known to you,made a decision that was consistent with the certainty effect?

Question 48

Two companies are involved in a discussion regarding the formation of a joint venture company.Both the companies are equally strong financially and stand to gain equally if the negotiation succeeds.This situation is an example of ________.

A) parallel negotiation
B) neutral bargaining
C) symmetric bargaining
D) vertical negotiation

Question 49

Briefly explain the three main types of decisions to be made by a decision maker.

Question 50

Which of the following is a situation where the negotiator agrees on an outcome though there is another outcome that is Pareto-superior?

A) A negotiator selects his preferred outcome though it decreases the utility for the other party.
B) The negotiator abstains from engaging in discussion with the other parties involved.
C) A negotiator wins over a compromise to obtain a win-win to all the parties involved.
D) The negotiator makes an ineffective bargain resulting in losses to all the parties involved.