Question

Even though the calculated expected utility is the same for a 1/100 chance of winning $100 and a 1/50 chance of winning $50, why do people choose the second option?

a) belief bias
b) conversion error
c) certainty effect
d) overconfidence

Answer 1

People often choose the 1/50 chance of winning $50 over a 1/100 chance of winning $100 due to the certainty effect, a cognitive bias that leads to a preference for more certain outcomes.

Step-by-step explanation:

The question asks why people often choose a 1/50 chance of winning $50 over a 1/100 chance of winning $100, even when the expected utility is the same. The correct answer to this question is the certainty effect, which is a type of cognitive bias. This effect describes the tendency for people to prefer options that are perceived to be more certain, even if they offer a lower value. This cognitive bias is related to risk aversion, where people are willing to settle for a smaller but more certain reward as opposed to a larger, more uncertain one.