Question

Problems:

1. Consider the following situation: 100 people are gathered in a room and 50 of them are selected at random and given a mug, those that were given the mug are asked for the minimum amount of money they would need to give up the mug and those without the mug are asked for the maximum amount they would be prepared to pay for the mug.

(a) What does standard theory predict the average amounts written down in each of the groups (those given the mug and those not given the mug)?

(b) What would you predict about the amounts written down by people in each group? Which effect is at work?

(c) Which element of Prospect Theory is consistent with the observations typically found in experiments of this type.

2. Match each of the following descriptions to phenomena (for example heuristics) that you have seen during the course, provide a brief description in each case:

(a) Hugo was offered a cable TV subscription service for e40 a month, initially he was reluctant as he considered that the price was higher than his valuation of the service. The cable company said he could enjoy the service for a month for free at which point he could call and cancel the service, Hugo accepted expecting to make the call. At the end of the month he considered that he would prefer to give up AUD 40 than the cable TV.

(b) Sarah lost all her luggage the last time she checked it in on a flight. She is never going to check her luggage in again, even if it means having unpleasant arguments with flight attendants.

(c) Franz is contemplating the future success of the German men’s football team, he considers that it is quite unlikely that Germany will win the World Cup in 2018, but he thinks there is strong chance that Germany will win the European Championships in 2020. When an interviewer asks him about the possibility that Germany could win both the European Championship and the World Cup, he says he thinks it is more likely than Germany winning the World Cup.

(d) Steve and James are entering a contest, they have to guess the weight in kilograms of actor Matt Damon, the nearest guess wins a prize. Prior to providing their answers Steve and James were asked for their own weights, they weighed 63kg and 105kg kilograms respectively. Steve guessed 75kg and James guessed 90kg.

3. Consider the following problem: The probability of breast cancer is 1% for a woman at age forty who participates in a routine screening. If a woman has breast cancer, the probability is 80% that she will get a positive mammography. If a woman does not have breast cancer, the probability is 9.6% that she will also get a positive mammography. A woman in this age group had a positive mammography in a routine screening. What is the probability that she actually has breast cancer?

(a) Using Bayes’ rule give the correct answer to this question.

(b) When faced with this question respondents frequently report answers between 70% and 80%. What type of error are respondents committing? Consider the following alternative formulation of the problem. 10 out of every 1,000 women at age forty who participate in routine screening have breast cancer. 8 of every 10 women with breast cancer will get a positive mammography.

Consider the following alternative formulation of the problem. 10 out of every 1,000 women at age forty who participate in a routine screening have breast cancer. 8 of every 10 women with breast cancer will get a positive mammography. 95 out of every 990 women without breast cancer will also get a positive mammography.

There is a new representative sample of women at age forty who got a positive mammography in a routine screening. What proportion of the sample do you expect to have breast cancer?

(c) When faced with this alternative formulation respondents are typically much closer to the correct answer. Provide an explanation for the difference in responses for the two questions.

4. A coroner in the UK investigated four cases of suicides among teenage boys in the UK within a short space of time. During the fourth inquest he commented that all the boys were owners of the well-known computer game Call of Duty and recommended that use of the game by under 18s should be restricted. In response to the coroner’s recommendation it was suggested that the coroner was guilty of Base Rate Neglect in reaching his conclusion.

(a) Provide a suggestion of which base rate the coroner may be ignoring.

(b) Provide a brief description of base rate neglect.

(c) Suppose that in subsequent inquests into suicides of teenage boys the same coroner finds that some owned Call of Duty while others had never played the game. Assuming that the coroner is susceptible to Confirmation Bias, how would you expect his belief in the hypothesis that Call of Duty is a causal factor in teenage suicides to be affected by the subsequent evidence?

Answer 1

ans..........................

1)