RMI 2302 EXAM 2 - FSU DR. NYCE QUESTIONS AND
ANSWERS
Who uses decision making ? - Answers - Individuals
Organizations
Government
Individuals use expected ____ - Answers - Utility
Organizations use expected ____ - Answers - Value
What entity is able to take on risk regardless of the reward - Answers - Gov't
What is one of the big problems we have with modeling how decisions are made? -
Answers - Decisions are made is that they do not explicitly account for biases on the
part of the decision maker
What is Bias? - Answers - 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 - Answers - 1. Age biases
Types of Bias 2 of 5 - Answers - 2. Cultural biases
Types of Bias 3 of 5 - Answers - 3. Experience biases
Types of Bias 4 of 5 - Answers - 4. Gender biases
Types of Bias 5 of 5 - Answers - 5. Media biases
Age Biases - Answers - People in certain age groups tend to interpret
information about risk differently
Cultural Biases - Answers - Certain culture view of risk differ. (example: religion biases)
Experience Biases - Answers - 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 - Answers - (these are not systematic- you cannot say all men or all
women think a certain way)
Media Biases - Answers - 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 - Answers - The Capital Asset Pricing Model - only reward systemic risk and not
worried about diversifiable risk.
What is Efficient Frontier - Answers - a graph that shows the tradeoff between risk and
reward.
What does the Efficient Frontier line represent? - Answers - Represents the optimal
combination of risk and return
What is an incentive - Answers - something that motivates individuals to perform an
action
What are the types of incentives: 1 of 7 - Answers - 1. Financial
What are the types of incentives: 2 of 7 - Answers - 2. Moral
What are the types of incentives: 3 of 7 - Answers - 3. Natural
What are the types of incentives: 4 of 7 - Answers - 4. Coercive
What are the types of incentives: 5 of 7 - Answers - 5. Personal
What are the types of incentives: 6 of 7 - Answers - 6. Social
What are the types of incentives: 7 of 7 - Answers - 7.Political
Financial Incentive - Answers - expect some form of material reward in exchange for
acting in a particular way.
Moral Incentive - Answers - "do the right thing"
Natural Incentive - Answers - "curiosity, fear, anger, pain, joy, pursuit of happiness"
Coercive Incentive - Answers - negative reinforcement
Personal Incentive - Answers - motivate an individual through their tastes, desires, and
the ambition to achieve remarkable feats.
ANSWERS
Who uses decision making ? - Answers - Individuals
Organizations
Government
Individuals use expected ____ - Answers - Utility
Organizations use expected ____ - Answers - Value
What entity is able to take on risk regardless of the reward - Answers - Gov't
What is one of the big problems we have with modeling how decisions are made? -
Answers - Decisions are made is that they do not explicitly account for biases on the
part of the decision maker
What is Bias? - Answers - 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 - Answers - 1. Age biases
Types of Bias 2 of 5 - Answers - 2. Cultural biases
Types of Bias 3 of 5 - Answers - 3. Experience biases
Types of Bias 4 of 5 - Answers - 4. Gender biases
Types of Bias 5 of 5 - Answers - 5. Media biases
Age Biases - Answers - People in certain age groups tend to interpret
information about risk differently
Cultural Biases - Answers - Certain culture view of risk differ. (example: religion biases)
Experience Biases - Answers - 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 - Answers - (these are not systematic- you cannot say all men or all
women think a certain way)
Media Biases - Answers - 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 - Answers - The Capital Asset Pricing Model - only reward systemic risk and not
worried about diversifiable risk.
What is Efficient Frontier - Answers - a graph that shows the tradeoff between risk and
reward.
What does the Efficient Frontier line represent? - Answers - Represents the optimal
combination of risk and return
What is an incentive - Answers - something that motivates individuals to perform an
action
What are the types of incentives: 1 of 7 - Answers - 1. Financial
What are the types of incentives: 2 of 7 - Answers - 2. Moral
What are the types of incentives: 3 of 7 - Answers - 3. Natural
What are the types of incentives: 4 of 7 - Answers - 4. Coercive
What are the types of incentives: 5 of 7 - Answers - 5. Personal
What are the types of incentives: 6 of 7 - Answers - 6. Social
What are the types of incentives: 7 of 7 - Answers - 7.Political
Financial Incentive - Answers - expect some form of material reward in exchange for
acting in a particular way.
Moral Incentive - Answers - "do the right thing"
Natural Incentive - Answers - "curiosity, fear, anger, pain, joy, pursuit of happiness"
Coercive Incentive - Answers - negative reinforcement
Personal Incentive - Answers - motivate an individual through their tastes, desires, and
the ambition to achieve remarkable feats.
