Imagine you face the following pair of concurrent decisions. First, examine both sets of choices, then choose the option you prefer from each. 1. Choose A or B. A. A sure gain of $2400 B. a 25% chance to gain $10,000 and a 75% chance to gain nothing. 2. Choose C or D. C. A…
As we all know, if you roll a fair, six-sided die, you can choose any number between one and six, and you will clearly have a one-sixth chance of being correct. Now, let’s assume you were told that the last three rolls of the die have produced the number 4. If you were to roll…
Let’s say, for example, you have no cash and you have to sell a current position in a stock in order to have the $10,000 cash needed for a new purchase. You can sell either of two stocks you hold. Both are currently worth $10,000. Which stock would you sell? A This stock holds a…
Consider this bet on a coin toss: Heads you win $20, tails you lose $20. Would you take this gamble? 1. Yes 2. No What if you won $100 earlier? Now would you take this gamble? 1. Yes 2. No What about if you had lost $20 earlier, would this gamble look any different to…
Are you a good driver? Compared to other drivers on the road, are you: A. Above average B. Average C. Below average The way that you respond to this question may tell a lot about your approach to investing. Most investors are overconfident. Psychologists have determined that overconfidence causes investors to overestimate their knowledge, underestimate…
