RMI 2302 Exam 2 - FSU Dr. Nyce Questions and Answers Already Passed

RMI 2302 Exam 2 - FSU Dr. Nyce Questions and Answers Already Passed Who uses decision making ? Individuals Organizations Government Individuals use expected ____ Utility Organizations use expected ____ Value What entity is able to take on risk regardless of the reward Gov't What is one of the big problems we have with modeling how decisions are made? Decisions are made is that they do not explicitly account for biases on the part of the decision maker What is Bias? 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 1. Age biases Types of Bias 2 of 5 2. Cultural biases Types of Bias 3 of 5 3. Experience biases Types of Bias 4 of 5 4. Gender biases Types of Bias 5 of 5 5. Media biases Age Biases People in certain age groups tend to interpret information about risk differently Cultural Biases Certain culture view of risk differ. (example: religion biases) Experience Biases 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 (these are not systematic- you cannot say all men or all women think a certain way) Media Biases 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 The Capital Asset Pricing Model - only reward systemic risk and not worried about diversifiable risk. What is Efficient Frontier a graph that shows the tradeoff between risk and reward. What does the Efficient Frontier line represent? Represents the optimal combination of risk and return What is an incentive something that motivates individuals to perform an action What are the types of incentives: 1 of 7 1. Financial What are the types of incentives: 2 of 7 2. Moral What are the types of incentives: 3 of 7 3. Natural