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More on Anomalies. Economics 437. [Would you accept a gamble that offers]. Yes No. 10 percent change to win $ 95 90 percent chance to lose $ 5. How about this. Would you accept a gamble that offers: 10 percent chance to win $ 95 90 percent chance to lose $ 5 Would you pay $ 5
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More on Anomalies Economics 437
[Would you accept a gamble that offers] • Yes • No 10 percent change to win $ 95 90 percent chance to lose $ 5
How about this • Would you accept a gamble that offers: • 10 percent chance to win $ 95 • 90 percent chance to lose $ 5 • Would you pay $ 5 • 10 % chance to win $ 100 • 90 % chance to win nothing Absolutely no difference between these two choices
Guessing Game • Take out a sheet of paper • Guess a number between 1 and 1000 • Winning guess will be the closest to • 2/3 of the average guess
A Representative Sample • Has the following characteristics • Similar to population in characteristics • Reflects “randomness” as people see it (not too regular a pattern) • Few of all possible samples meet these constraints • Most samples do not meet satisfy these characteristics and therefore appear do not appear “random”
Mental Accounting • Imagine that you are going to purchase • Jacket for $ 125 • Calculator for $ 15 • Saleman tells you that the calculator is on sale for $ 10 if you simply walk up three flights of stairs • Suppose instead you are told that the Jacket can be purchased for $ 120 by walking up the same three flights of stairs • Same answer?
[Would you pay $ 5?] • Yes • No 10 percent chance to win $ 100 90 percent chance of winning nothing
Other • Does the decision to sell a stock depend upon the purchase price? (even if there are no tax considerations) • Does investment manager behavior change after the third of four quarters in a year? • The mysterious results of Capuchin monkey study at Yale