Chapter 01 – Behavioral Foundations
CHAPTER 1
Behavioral Foundations
1. This question presents a simple choice task designed to help identify stochastic
dominance. Typically, people compare the two risks by comparing how they perform by
2. This is a judgmental question that focuses on how to differentiate between base rate
information, singular information, and combine the two. Although it can be formulated as a
Bayesian problem, most people will not do so. The base rate information is the proportion of
engineers relative to lawyers, in this case 70/30. The singular information is the description
correct answer is above 90 percent.
A good way to discuss this problem is to explain why 45 percent is the correct answer to part
a, as it reflects randomly drawing one of a hundred bags, of which 45 satisfy the criterion.
Someone who had no additional information about the bag would only be able to count on
base rate information. However, part b provides additional information. Some people will
them to think about what “scaling number” they would multiply by their part a answer to
reflect the new information. If the new information favors the bag consisting predominantly
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6. This question pertains to whether people rely on representativeness to make predictions.
For the actual population of students, the mean graduating GPAs respectively corresponding
to 2.2, 3.0, and 3.8 were 2.7, 2.9, and 3.3. Most people underpredict GPA for the 2.2 and
overpredict GPA for the 3.8. In discussing this question, a good question to ask is whether
people viewed the student with a high school GPA of 2.2 as representative of someone low in
ability and the student with a high school GPA of 3.8 as representative of someone high in
ability? If so, placing too much weight on the stereotype leads people to underestimate
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7. This question pertains to anchoring-and-adjustment. People get anchored on the number
8. The answer to part a should be contrasted with the answer to question 2. People who
answer part a and this question the same way completely ignore base rate information. The
class histogram for answers to part a is typically much wider than the histogram of responses
to question 2.
9. This question pertains to framing. Most people who answer this question do so by
eliminating common outcomes, as was described in the answer to Question 1, would
eliminate white. That leaves them considering the perceived advantage of choosing Urn B —
a higher probability of winning $45 if red comes up and a lower probability of losing $15 if
yellow comes up — and the perceived advantage of choosing Urn A – winning $30 instead of
losing $10 if green comes up. Those who regard the perceived advantage of choosing A as
important will be inclined to choose Urn A over Urn B.
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reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
$15. Likewise for Urn B of Question 1, combine the probabilities of the two events
10. Question 5 features the drawing of 12 chips with replacement from the selected bag of
chips. Here x is 8, n is 12, and the probability p is 0.7 for the bag containing predominantly
black chips and p is 0.3 for the bag containing predominantly red chips.
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reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Minicase
Case Analysis Questions
1. One way to analyze this question is to go through the list of ten major phenomena
described in the chapter and look for evidence consistent with each one. Below are examples
for phenomena that appear to be germane.
Excessive optimism: In respect to completing the project on time, the Grupo Unidos por el
Canal consortium did not make the August 2014 deadline, as the first container ship passed
confirmation bias, mentioned below, as well as excessive optimism.
Overconfidence: Consider two issues. First, although the project’s approach to fixing
Chapter 01 – Behavioral Foundations
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©2018 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
the concrete lasting for a century. This remains to be seen. Second, the canal dimensions
leave very little margin for error for tug boats to move alongside the ships, especially on
windy days. This issue pertains directly to the width of confidence intervals.
Confirmation bias: The ACP appears to have given low weight to the fact that the
consortium’s budget for concrete was 71 percent smaller than that of the next lowest bidder,
Representativeness: If the Belgian locks were portrayed as prototypical, then it is possible
2. It does provide for at least the appearance of a conflict of interest. A possible example
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3. If the low bid reflected the use of low quality material, then the same concerns might apply