University of Kansas, Fall 2006
Philosophy 666: Rational Choice Theory
Ben Eggleston—eggleston@ku.edu

Survey of initial responses—
with responses and comments

On the first day of class, the following survey was completed. After each question I have listed the responses given, along with some comments from me. Some responses have been edited for clarity or to preserve privacy. I assigned each student a random number from 1 to 14 to designate his or her responses.

Please write your answers to the following questions in the space below the questions and on the back of this sheet. These questions may seem strange to you, and it is not expected that you can answer these questions with depth and rigor (though maybe you can). The purpose of this survey is simply to document the answers to these questions that occur to you at the start of this course.

question:

  1. Suppose you have $1,000 to invest and you have two options, each resulting in a payout of some amount or other at the end of one year. One option is to buy a CD paying 5 percent interest, resulting in a guaranteed payout to you, at the end of one year, of $1,050. The other option is to buy a junk bond paying 50 percent interest. But the bond might be worthless at the end of the year—that’s why they have to offer such high interest rates to get people to buy them. You estimate that the bond has a 80-percent chance of a payout of $1,500 at the end of one year, and a 20-percent chance of a payout of $0 (i.e., your investment is lost). How would you compare these two investments, and which one would you end up choosing?

responses:

  1. “Compare the risk and reward; is a 1/5 chance of failure worth the extra $450? My choice would depend on how important my $1,000 is to me. As a college student, I would take the safe road. Three years ago, when I was making more money, I would have went with the risk.”
  2. “Gambling is fun and 80% is a big nod in my favor, so I might go that route and have the fun of checking its performance regularly. However, a guaranteed 50 bucks is also attractive, but not very well worth the wait. If I had more initial capital, a guaranteed 5% could be very beneficial but I don’t, so I will gamble.”
  3. “To compare them I would find our the equation that would make them equivalent and then choose. But on the face of it I would choose the (wrong) decision of gambling.”
  4. “The junk bond seems more favorable to me because it has a high payout, and the success rate also seems high enough to warrant the risk. I would pick the junk bond.”
  5. “One investment is low-risk but is also low gain. The other option is high-risk, but high gain. My decision is merely to determine whether the risk is worth it. At this stage in my life, I can gamble with investments more freely than if retirement were impending, and 4/5 odds aren’t all that bad. I’d buy the junk bond.”
  6. [no response]
  7. “With an 80% chance of success, I would risk the $1,000 to get the $1,500 payout.”
  8. “I would take the junk bond because 80% is pretty good odds, especially when there’s a $450 difference between it and the CD.”
  9. “CD—the risk/reward of the bond is too great (up $500 or down $1,000), while the CD is a purely profitable option.”
  10. “I would probably choose the assured bond [the CD] and get $1,050 but that’s just because I hate losing money and I live in Kansas where we don’t take chances often. Although I believe if I would have lived somewhere else where I think people take greater risks more often then the other one would be better.”
  11. “$1,050 guaranteed or 4/5 chance of $1,500 vs. 1/5 chance of $0? What one would end up choosing depends on one’s psychology—is one a risk-taker or not?”
  12. “Weigh the risk of importance of $1,000. If loss is even slightly acceptable, risk it. If not, don’t. I’m a gambler, so [I would take the] bond.”
  13. “The expected value of the bond is (0.80)($1,500) + (0.20)($0) = $1,200, compared to $1,050 for the CD. The natural log of $1,200 is greater than that of $1,050, so the utility of the bond is greater than that of the CD.”
  14. “Not sure if this is the kind of answer you had in mind, but . . . : Two background factors would determine my decision, the first being how much my financial outlook depended on it. For example, if I had multiple other investments, some junk bonds, the 80% chance of a $1,500 return is nice. But only if that chance is surrounded by other investments, some of which will probably succeed and some probably won’t. The other factor is the “How screwed would I be?” test. If the investor were the sole bread-winner of a family with a net income of $3,000, having a 20% chance of losing 1/3 of it is ridiculously unwise. If, however, the lost money may not even be missed, the chance of a large return would be a rational chance to take, based on the fact that there is an over 50% chance.”

question:

  1. Suppose you own one of two discount furniture stores in a college town. You and the owner of the other store can each advertise a lot or advertise a little. If you each advertise the same amount (whether a lot or a little), then you will split the market approximately evenly. If one of you advertises a lot and the other advertises a little, then the one who advertises a lot will gain enough market share to more than offset the extra expense of advertising a lot, while the other have virtually no revenue at all. So, your possible outcomes are as follows. The best outcome for you is if you advertise a lot, and your rival advertises a little. Then you have the whole market and make a lot of money. The second-best outcome for you is if you and your rival both advertise a little—if the two of you are going to split the market, you might as well not spend too much money on advertising. The third-best outcome for you is if you and your rival both advertise a lot—the two of you split the market, and pay a lot to do so. But this is still better (for you) than the worst outcome for you, in which you advertise a little and your rival advertises a lot—for then you have virtually no revenue at all. You know that your rival is in the same situation as you. Due to antitrust laws and antagonism between you and your rival, the two of you must make your decisions independently of each other. How would you decide what to so, and which strategy (advertise a lot or advertise a little) would you end up choosing?

responses:

  1. “Two of the three best outcomes are with me advertising high. The risk of advertising low is not worth potentially saving a couple of bucks.”
  2. “I hate marketing but in this society you can’t let your brand be forgotten (plus Pay-Less seems to be doing well) so I’d advertise a lot.“
  3. “You must advertise a lot under these circumstances without any communication or previous agreement.”
  4. “It would be in my best interest always to choose to invest a lot, to minimize my potential of losing the market.”
  5. “Advertising a little leaves me with either #2 or #4 on my preference list. Advertising a lot leaves me either with #1 or or #3. The preference is clear; I advertise a lot. In any case, advertising a lot doesn’t allow me to lose market share, while advertising a little at best is a draw, at worst a loss.”
  6. [no response]
  7. “This is basically the prisoner’s dilemma. I would advertise a lot because this would get me the 1st or 3rd best outcome.”
  8. “I would advertise a lot in the hope that my partner would play it safe and only advertise a little thinking I would do the same, in which case I come out ahead. But even if he also chooses to advertise a lot as well, I’m still better off than the worst scenario. And choosing to advertise a little just isn’t worth the risk.”
  9. “I have no choice, I must advertise a lot to avoid having no revenue, although I risk the third best option. 1 and 3 are better than 2 and 4.”
  10. “Option 3 is the only option. Assuming the other guy wants the same as me.”
  11. “If I advertise a lot, then there’s a 50% chance that I get all the market, and a 50% chance that my rival and I split the market. The odds are better for me to turn a profit by advertising a lot than by advertising a little, because the worst that could happen if I advertise a lot is that I split the market with my rival, whereas the worst that could happen if I advertise a little is that my rival gets all the market. If I advertise a little, it would be unlikely that my rival also advertises a little. So, betting on my rival to advertise regardless, I should, too.”
  12. “Revenue is out of the question. Advertise a lot. At least you will have options.”
  13. [There’s a table showing the following information: “With a lot and a lot, you have 2, 2. With a lot and a little, you have 5, 0. With a little and a lot, you have 0, 5. With a little and a little, 3, 3.” Then all except the last one are circled.”]
  14. “Your clear choice should be to advertise a lot. This rationale is shown in this complicated chart. [Then there’s a chart, nicely done, and not too complicated.] There are four possible events: if you advertise a lot, your opponent can either advertise a little or a lot, and vice versa. If you advertise a lot, the outcome will be either very favorable or somewhat favorable to you. If you advertise a little, the outcome will be either somewhat favorable or non-favorable to you.”

question:

  1. Suppose you are in charge of taking four children out for lunch one Saturday. You can take them to McDonald’s, Wendy’s, or Burger King, but unfortunately they do not all have the same preferences. Specifically, one prefers McDonald’s, then Wendy’s, then Burger King; the second prefers McDonald’s, then Burger King, then Wendy’s; the third prefers Wendy’s, then Burger King, then McDonald’s, and the fourth prefers Burger King, then McDonald’s, then Wendy’s. Assuming you want to take them where they collectively most want to go, how would you go about aggregating their preferences into one collective preference, and which option (McDonald’s, Wendy’s, or Burger King) would you end you regarding as the children’s collectively most-preferred place to have lunch?

responses:

  1. “Assign 3 points to favorite, 2 to next, and 1 to least. Add them up. Wendy’s is the lowest preferred so scratch it. McDonald’s and Burger King both have 1 person that dislikes, so it is a push. Burger King has 2 middle and 1 high to McDonald's 2 high and 1 middle so McDonald's is the higher rated. Most good for most people.”
  2. “McDonald’s has two 1sts , a 2nd, and a 3rd choice.
    Burger King has one 1st, two 2nds, and a 3rd choice.
    Wendy’s has one 1st, one 2nd, and two 3rd choices.
    Since all kids will eat any fast food (especially if their friends are eating it) I’d pick McDonald’s since it is the mode 1st choice and only one kid’s least preferred option. (I would eat nothing there, however, except some fries.)”
  3. “McDonald’s, highest average ranking between kids.”
  4. “I would assign values to their preferences and see if one is valued overall more so than the others. [A table follows.] Lowest # should be most liked overall. M = 7, W = 9, BK = 8.”
  5. “The preferential balloting system used in student congress (high school speech & debate competition format) would award preference to McDonald’s because it received the highest number of first place votes. This seems reasonable because then half of the children receive their top choice, while only one receives their lowest choice.”
  6. [no response]
  7. “Taco Bell. Not Wendy’s, because two children wrote it as 3rd preference and not Burger King, because it was 2nd twice. McDonald’s seems to be the highest ranked in general (and they have happy meals).”
  8. “I would pick McDonald’s because if you rank the preferences by giving a 3 to all 1st choice rankings, a 2 for 2nd, and a 1 for 3rd, McDonald’s gets a total of 9, Burger King gets an 8 and Wendy’s gets a 7.”
  9. “McDonald’s, then Burger King, then Wendy’s.”
  10. “I have no idea, take them to Taco Bell.”
  11. “Go to Burger King, because 2 out of 4 children make it their 2nd choice, and one makes it their first, so 3 out of 4 children would at least have it as their 2nd choice, and only one lists it as their third choice.”
  12. “100 for first, 50 for second, 0 for third. McDonald’s—250, Wendy’s—150, Burger King—200.”
  13. “Ask them to associate their preference with a number, like from 10 to –10, with 10 being love it and –10 hate it. The restaurant with the highest score wins.”
  14. “Give a point value for each restaurant for each child, with preference 1 receiving 10 points, P2 gets 5 points, and P3 gets only 1 point.”

question:

  1. Have you liked thinking about the foregoing questions, or has it been rather unpleasant?

responses:

  1. “Enjoyed. I have never approached any of the situations from a logical perspective. So it is opening a new vein of thought.”
  2. “It’s fun to solve problems.”
  3. “Fun, frustrating.”
  4. “I liked thinking about these problems. Question 2 recalled previous ideas I had heard of before (Prisoner’s Dilemma type problem) and Question 3 seemed like a question of election methods as I’ve had in a Political Science class.”
  5. “I have enjoyed these examples, but wonder at whether or not the methods we will learn later fall prey to the same limitations as Bentham’s Hedonic Calculus.”
  6. “Excellent questions; but how are they philosophical enterprises/questions, I am not sure.”
  7. “That was enjoyable but admittedly difficult.”
  8. “It wasn’t too unpleasant.”
  9. “Yes, I did enjoy answering said questions.  :-)”
  10. “I think the questions were interesting although obviously I don’t know how to answer them.”
  11. “a little of both”
  12. “I liked it very much!”
  13. [no response]
  14. “I liked it.”