Direction: Von Nuemann and Morgenstern assume a decision framework in which all options are thoroughly considered, each option being independent of the others, with a numerical value derived for the utility of each possible outcome (these outcomes reflecting, in turn, all possible combinations of choices). The decision is then made to maximize the expected utility.
(71), such a model reflects major simplifications of the way decisions are made in the real world. Humans are not able to process information as quickly and effectively as the model assumes; they tend not to think (72) as easily as the model calls for; they often deal with a particular option without really assessing its (73), and when they do assess alternatives, they may be extremely nebulous about their criteria of evaluation.
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NA
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- Substitutes
- Disadvantages
- Utility
- Alternatives
Correct Option: A
Let’s first get some background knowledge into what has been described in the passage. Von Nuemann and Morgenstern were amongst the most famous mathematicians and economists; they together formed the mathematical field of ‘game theory’ and how it could be applied to economics. The given paragraph talks about the theory they developed: they formulated a theory which one can use to make a choice among the different available options. The paragraph mentions a term, ‘expected utility’ which is basically a way to balance risk versus reward with the help of a mathematical function. Utility can be described as a measure of one’s preferences amongst the options or choices available. We just have to grasp the context of passage in order to pick the right options. So, they are basically talking about a seemingly complex and thorough mathematical model which is aimed at helping someone make a better choice.
Option ( a ) is right , because substitutes or alternatives mean ‘options or the different choices available to choose from’. It is a fairly easy question because the words which follow are giving us a big hint. It states ‘… without really assessing its [3], and when they do assess alternatives’, so what humans are not doing, is assessing the alternatives. Hence, ‘substitutes’ is the right option. ‘Alternatives’ is also correct, but since it is used in the next line, we can avoid it.
