Download Probability and Decision Making Winter 2014

Department of Philosophy
Philosophy 216
Probability and Decision Making
Winter 2014
Monday and Wednesday
2:30-3:50 pm, Hagey Hall 1104
Instructor Information
Instructor: Professor Steven Weinstein
Office: Hagey Hall 319
Office Phone: x33632
Office Hours: To be announced
Email: [email protected]
I tend not to check voicemail regularly, so please email if you need to leave a message.
Course Description
In the broadest sense, decision theory has to do with making decisions under conditions of uncertainty.
Uncertainty can arise in science, when you have more than one hypothesis that could account for the
data; in economics and finance, where there are numerous uncertainties regarding resources, interest
rates, and the behaviour of other consumers; and politics, where you might be uncertain as to the
intentions of either an ally or an enemy.
The theory of rational choice, sometimes called “normative decision theory”, is concerned with how we
should ideally go about making decisions. Given a well-defined set of preferences as to the outcomes,
and given some probabilities as to the likelihood of the outcomes, what should we do? We’ll spend the
first part of the course on this, using the excellent, short, and not-too-technical book by Gilboa.
In the second part of the course, we’ll read a good portion of Daniel Kahneman’s book on how people
actually make decisions, which is not always the same as how they should make decisions. This is
obviously relevant to economics, which is why the field (which he co-invented) is sometimes called
“behavioural economics”. More broadly, one can call it “descriptive decision theory”, as it attempts to
describe the way that people actually reason. Kahneman, a psychologist, won the Nobel prize in
Economics for this work, because of its importance in understanding actual economic behaviour.
Moreover, it’s important to understanding ourselves.
Prerequisites
You should be comfortable with basic arithmetic and algebra, of which there will be a modest amount.
No previous Philosophy courses are required.
1
Course Goals and Learning Outcomes
Upon completion of this course, students should be able to:

Understand the basics of expected utility theory, on which much of modern economics is
based.

Understand the objective and subjective notions of probability, and the use of probability in
scientific inference.

Understand the basics of voting theory and game theory, two cornerstones of political
science.

Understand the recent Nobel prize winning work on “behavioural economics”, which is
playing an increasingly important role in not only economics but psychology, sociology, and
marketing.

Have a better understanding of your own decision making process, and the biases to which
you are naturally prone.
Course Requirements and Assessment
Requirements: Do the reading, come to class, take the exams!
Assessment
Homework (4 times)
Midterm exam
Quiz (2 times)
Final
Total
Date
Feb 26
-
Weighting
20%
35%
10%
35%
100%
Homework: There will be homework assignments on the material in weeks 3, 4, 5 and 6.
Midterm: There will be a midterm exam of one hour and twenty minutes.
Quizzes: There will be two in-class quizzes on the Kahneman material.
Final: There will be a final exam during the exam period. This will primarily be concerned with the
Kahneman material. The exam will be no longer than the midterm.
Required Texts


Rational Choice, Itzhak Gilboa, MIT Press, Cambridge, 2010.
Thinking, Fast and Slow, Daniel Kahneman, Farrar, Straus & Giroux, New York, 2011.
2
Course Outline
Week
1
2
3
4
5
6
7
8
9
10
11
12
Date
January 6, 8
January 13, 15
January 20, 22
January 27, 29
February 3, 5
February 10, 12
February 24, 26
March 3, 5
March 10, 12
March 17, 19
March 24, 26
March 31 and April 2
Topic
No class
Rationality and Utility Maximization
Expected Utility
Probability and Statistics
Voting Theory
Game theory
Intro to psychology of decision making. Exam.
Two systems for decision making
Two systems for decision making
Choices and rationality
Choices and rationality
Thinking about life. Review.
Readings Due
None
Gilboa chapters 1- 3
Gilboa chapter 4
Gilboa chapter 5
Gilboa chapter 6
Gilboa chapter 7
Kahneman Intro
Kahneman Part I
Kahneman Part I
Kahneman Part IV
Kahneman Part IV
Kahneman Part V
Late Work
Late work will not be accepted. Absence from exams is permitted on the condition that you submit a
Verification of Illness form.
Electronic Device Policy
Cellphones may not be used in class. Computers may be used only for note-taking and course-related
searches.
Attendance Policy
You are expected to attend class.
Institutional-required statements for undergraduate course outlines approved by
Senate Undergraduate Council, April 14, 2009
Cross-listed course
Please note that a cross-listed course will count in all respective averages no matter under which rubric
it has been taken. For example, a PHIL/PSCI cross-list will count in a Philosophy major average, even if
the course was taken under the Political Science rubric.
Academic Integrity
Academic Integrity: In order to maintain a culture of academic integrity, members of the University
of Waterloo are expected to promote honesty, trust, fairness, respect and responsibility.
Discipline: A student is expected to know what constitutes academic integrity, to avoid committing
academic offences, and to take responsibility for his/her actions. A student who is unsure whether an
action constitutes an offence, or who needs help in learning how to avoid offences (e.g., plagiarism,
cheating) or about “rules” for group work/collaboration should seek guidance from the course
3
professor, academic advisor, or the Undergraduate Associate Dean. When misconduct has been found
to have occurred, disciplinary penalties will be imposed under Policy 71 – Student Discipline. For
information on categories of offenses and types of penalties, students should refer to Policy 71 - Student
Discipline.
Grievance: A student who believes that a decision affecting some aspect of his/her university life
has been unfair or unreasonable may have grounds for initiating a grievance. Read Policy 70 Student Petitions and Grievances, Section 4.
Appeals: A student may appeal the finding and/or penalty in a decision made under Policy 70 - Student
Petitions and Grievances (other than regarding a petition) or Policy 71 - Student Discipline if a ground for
an appeal can be established. Read Policy 72 - Student Appeals.
Other sources of information for students
Academic integrity (Arts) Academic Integrity Office (uWaterloo)
Accommodation for Students with Disabilities
Note for students with disabilities: The AccessAbility Services office, located in Needles Hall Room
1132, collaborates with all academic departments to arrange appropriate accommodations for students
with disabilities without compromising the academic integrity of the curriculum. If you require academic
accommodations to lessen the impact of your disability, please register with the AS office at the
beginning of each academic term.
4