CHAPTER 18: Discussion Questions and Problems
1. Differentiate the following terms/concepts:
a. Personality types and money attitudes
b. Planners and avoiders
c. Moderating and adapting to biases
d. “Perfectible judges” and “incorrigible judges”
2. Say the level of the market as measured by the Dow Jones Industrial Average
is currently at 12,000. A forecaster has made a prediction of 13,300 for the level
of the market in one year, along with a 95% confidence interval whose lower
bound is 12,500 and whose upper bound is 14,500. You know from experience
that this particular forecaster tends to be both excessively optimistic and
miscalibrated. Describe how you might debias this individual. Give a numerical
example (making up relevant numbers as appropriate).
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3. What steps must occur before bias can be successfully expunged? Describe
the process.
4. Risk tolerance comes from risk capacity and risk attitude. What are the major
determinants of risk capacity and risk attitude?
Risk tolerance is a function of both risk capacity and risk attitude. To clarify the
5. Describe how educational efforts should be directed towards avoiders.
The chapter addresses this question in detail. The key is customization to the relevant
audience, that is, to avoiders. If education is to have any impact for avoiders, it must