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More on Anomalies

More on Anomalies. Economics 437. [Would you accept a gamble that offers]. Yes No. 10 percent change to win $ 95 90 percent chance to lose $ 5. How about this. Would you accept a gamble that offers: 10 percent chance to win $ 95 90 percent chance to lose $ 5 Would you pay $ 5

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More on Anomalies

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  1. More on Anomalies Economics 437

  2. [Would you accept a gamble that offers] • Yes • No 10 percent change to win $ 95 90 percent chance to lose $ 5

  3. How about this • Would you accept a gamble that offers: • 10 percent chance to win $ 95 • 90 percent chance to lose $ 5 • Would you pay $ 5 • 10 % chance to win $ 100 • 90 % chance to win nothing Absolutely no difference between these two choices

  4. Guessing Game • Take out a sheet of paper • Guess a number between 1 and 1000 • Winning guess will be the closest to • 2/3 of the average guess

  5. A Representative Sample • Has the following characteristics • Similar to population in characteristics • Reflects “randomness” as people see it (not too regular a pattern) • Few of all possible samples meet these constraints • Most samples do not meet satisfy these characteristics and therefore appear do not appear “random”

  6. Mental Accounting • Imagine that you are going to purchase • Jacket for $ 125 • Calculator for $ 15 • Saleman tells you that the calculator is on sale for $ 10 if you simply walk up three flights of stairs • Suppose instead you are told that the Jacket can be purchased for $ 120 by walking up the same three flights of stairs • Same answer?

  7. [Would you pay $ 5?] • Yes • No 10 percent chance to win $ 100 90 percent chance of winning nothing

  8. Other • Does the decision to sell a stock depend upon the purchase price? (even if there are no tax considerations) • Does investment manager behavior change after the third of four quarters in a year? • The mysterious results of Capuchin monkey study at Yale

  9. End

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