Bias 24: Monty Hall Case

    Congratulations! You have been invited to be on a famous TV game called Monty Hall. To win a beautiful car, you have to open the right door. The car is behind one of them while two goats are behind the other doors. Reference: Financial engineering and rationality: experimental evidence based on the Monty…

Bias 23: Partition Dependence Bias

You have to allocate some resources among three business units of your firm, located on three different continents. Let’s say the three business units have the same needs and profitability. What is your allocation choice in the first case? In the second case? Though the problem is the same in both situations, experiments on MBA…

Bias 22: Simultaneous vs. Sequential Choice

Let’s go for a run! We want some music on our cell-phone. Scenario 1: We have an old cell-phone. We have to download, let’s say 20 songs we want to listen to during our run. Most of the time, we choose different artists and genres of music so we don’t get bored. Scenario 2: We have…

Bias 21: Unit Dependence

Let’s say you have the choice to invest in two portfolios, M and S as described below, which one do you choose? For a similar value, portfolio S could be the optimal choice because the risks seem to be better distributed between Apple and IBM assets. Then, same question: Now, is it not portfolio M…

Bias 20: Loss Aversion

  CONGRATULATIONS! We are invited to play a famous TV money game. To play, we have the choice between several lotteries: Lottery 1: We win €100 with a 50% chance and winning nothing. Lottery 2: We lose €100 with a 50% of chance of winning €300. What do we choose? And now? Lottery 1: We lose…

Bias 19: Mere Exposure Effect and Familiarity bias

  Auth Your are in the supermarket, which soda do you buy? Though the content of the product will be the same, most consumers prefer the soda with the famous logo on the left, just because they have seen this logo many times before. This is the mere exposure effect. The main application of this…

Bias 18: Overconfidence

Are you overconfident? Let’s take this small test to get an answer! Please answer each question and indicated how confident you are in your answer. Which city has more inhabitants? Paris Rio de janeiro Chennai Confidence degree: 10% 30% 50% 70% 100% Which the capital of Ouzbekistan? Tashkent Tshakent Tshekant Confidence degree: 10% 30% 50%…

Bias 17:Local Representativeness Bias

We hired this girl two months ago and she has already been sick three times. What do you conclude? She has a fragile nature She will often be sick Nothing Local representativeness (Tversky and Kahneman, 1971) implies that we rely on the average of our own limited experiences to estimate the expected value of a phenomena,…

Bias 16: The Ellsberg Paradox

Which bet do you prefer? Bet on the success, which makes us €1.1 M profit and nothing otherwise, of an industrial project about which we have no information. Bet on a stock with 50% chance to net €1M and nothing otherwise? Which bet do you prefer? Bet on the failure, which makes us €1.1 M…

Bias 15: The Allais Paradox

Auith     As a financial director, we have the choice to invest in: Scenario 1: Stock A where we have 11% of chance to earn €1M and 89% to earn nothing Stock B where we have 10% of chance to earn €5M and 90% to earn nothing Which one do we choose? Scenario 2:…

Bias 14: Conjunction Fallacy

A   We work in an international import/export firm with an etremely large distribution of our products worldwide. We have just received a new stock of toys and we discover that one of them is a nice doll with a lovely pink dress who says ”Ti amo” when we press a button on her back….