1. β = 15/16; δ = 4/5.

2. a. ₹ 95,000;

b. p = 3/5

3. a. Maximin criterion (1.5), Maximax criterion (1.5), Minimax-risk criterion (2).

b. C (max{1, 2, 3}), A (max{10, 9, 6}), and B (min{2, 1, 4}) respectively. Risk pay-off
matrix to be shown for full marks. Distribution is 1.5, 1.5, and 2 marks respectively.

4. Correct graph with T, S, and D (which is assymetrically dominated by T) clearly

marked will get 5 marks.

5. a. 3 utiles

b. 9 rupees

c. 219 utiles

d. √219 = 14.79 rupees

e. Risk averse

f. Risk prone

6. a. Loss of 2.5 units in value.

b. Loss of 10 units in value.

c. Benice

7. Discount factor δ should be identified as the extent to which the utility of future
outcomes are discounted (1). The δ function of DUT to be mentioned (2). Answer
should indicate that δ captures the extent of patience/impartience in decision making
scenarios (2).

8. Time-inconsistency should be explained as the phenomenon of one’s preferences

changing with passage of time (2). The hyperbolic discounting model or the
beta-delta model to be included in the answer (3). Two valid examples of
time-inconsistency should be present (5).

9. a. Utility function vs Value function with gain and loss realms (1), Absolute
probabilities vs Weighted probabilities (2), EU (Ai) formula vs V (Ai) formula (2).
 b. Editing Phase (Coding, Combination, Simplification) (3), Evaluation Phase (2).

c. In the domain of losses, people tend to be risk prone, except for gambles involving
a low-probability event of significant (negative) value, in which case they may be risk
averse. In the domain of gains, people tend to be risk averse, except for gambles
involving a low probability event of significant (positive) value, in which case they
may be risk prone. (5)

10. a. Define base-rate as the proportion of individuals in the population who have some
characteristic of interest (2). Explain base-rate neglect as the tendency to fail to
incorporate base-rate along with evidence and conditional probabilities that we would
see the evidence when the hypothesis is true and when it is false while making a
probabilistic judgement (2). One valid example (1).

b. Explain confirmation bias as the tendency to interpret evidence as supporting prior

beliefs to a greater extent than warranted (1). Rather than coming to agree as a
result of being exposed to the same information, individuals interpret the information
as supporting their own beliefs (1). Mechanisms: selective attention and
misinterpretation (2). One valid example (1).

c. Explain availability bias as the tendency to assess the probability of some event
occurring by the ease with which the event comes to mind (treat X as more likely
than Y if X comes to mind more easily than Y) (4). One valid example (1).

d. Define overconfidence as placing more confidence in one’s predictions than

warranted (1). Connect with the idea of calibration (1). Overconfidence and task
difficulty, knowledge (2). One valid example. (1).