Week 4: Decision Trees

Part of:
Practical Decision-Making
Instructor:
Matt Freeman

Before our class session, please watch the video below for an overview of the subject matter we will be discussing, and familiarize yourself with the background materials linked below.

This week our goal is to master the concept of utility and learn the fundamental techniques for employing utility in decision-making, including the Certain Equivalent technique. We will also map our utility with respect to money.

Reading Material

No reading is required, but transcripts of the main YouTube videos are available under the Supplemental materials.

Lectures

  • What Utility Is and Isn’t will provide our working definition of utility in context of decision-theory, and explain how this is distinct from other definitions of utility you may have used in the past.
  • The Certain Equivalent explains a powerful tool for helping you quantitatively value outcomes that may feel very emotionally different.
  • Utility in Money provides the means by which we calculate our own utility curve for money.

Homework

  • Structure a decision that you’re facing in your life (with at least three possible outcomes) in terms of a certain equivalent between a middle-preferred option, and a weighted-coin flip between the most and least preferred option. Be prepared to discuss with your cohort.
  • Continue to make predictions on Metaculus.
  • Fill in the table below with your certain equivalents on a 50% coin flip, and plot your own utility curve in money. (Use your own familiar currency, as appropriate.) Do not share your results, but be prepared to discuss anything you learned from the experience.
Value ($) Certain Equivalent
5
100
500
1000
2000
5000
10000
50000

Cohort

General

  • Try to keep discussions on topic.
  • If students have questions for the instructor, directly contact the instructor with the question. The instructor may not be able to reply immediately, so try not to let the question hold up further discussion.
  • When leading a discussion, tap individuals to speak rather than waiting for someone to jump in first. Over the course of the session, try to vary who speaks first.

This week

  • (15 minutes) Lead a discussion on utility. Invite students to explore the idea of decision-theoretic utility and how it differs from other commonly-used definitions.
  • (15 minutes) Discuss the utility-in-money exercise. Do not collect everyone’s results, but encourage them to share any surprising or interesting insights.
  • (30 minutes) Invite the cohort to share their personal decision problem and its certain-equivalent framing. Explore the idea of seeking indifference between options.

Optional

  • Continue making predictions and bets between guild members.
  • Write a short essay explaining why the concept of a Utility Monster is incompatible with the framework of decision-theoretic utility.

Supplemental

Community Notes

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