Exam 2

Question 1

Spurious Correlations

Answer 1

When to factors are correlated, but that doesn’t mean there is causation.

Question 2

Availability

Answer 2

We predict probability of event by ease with which we can recall similar example

Question 3

Bayes Rule

Answer 3

If you observe new evidence you revise you estimate

Question 4

Heuristics is

Answer 4

A general rule of thumb for complex judgements

Question 5

Representativeness

Answer 5

Stereotyping

Question 6

Regression to the Mean

Answer 6

Smaller samples are more likely to stray from the mean

Question 7

Anchoring and Adjustment

Answer 7

Biased. Start with a reference point, and make adjustments to reach your estimate

Question 8

Noisy Data is When the

Answer 8

Initial condition uncertain

Question 9

Endowment Effect

Answer 9

We demand more for what we have, and less for what we want

Question 10

Mental Accounts

Answer 10

Refers to money, we use money differently if say, it’s from a tax refund

Question 11

Planning Fallacy

Answer 11

We make unrealistic plans

Question 12

Why we’re overconfident?

Answer 12

We remember the hits, forget the misses

Question 13

Intuitive Judgement

Answer 13

We give more weight to intuition than evidence (moneyball)

Question 14

Precision

Answer 14

Closeness of two values

Question 15

Third Variables

Answer 15

A possible unknown third variable that is affecting the correlation between the other two variables

Question 16

Chaos is

Answer 16

nonlinear patterns.

Question 17

Selection Bias is

Answer 17

We look for cases that confirmed out pre-conceived hypotheses.

Question 18

Endogeneity is

Answer 18

Was it the chicken or the egg?

Example: Economic development causes democracy or democracy causes economic development?

Question 19

Confirmation Bias is

Answer 19

We selectively attend to information that conforms with our beliefs.

Question 20

Out of Sample is

Answer 20

A prediction made with the wrong data (housing)

Question 21

Risk is

Answer 21

Something you an put a price on. you know the odds and can account for it (poker)

Question 22

Uncertainty is

Answer 22

Unmeasurable. You have no idea of the odds because it’s complex (butterfly effect)

Question 23

Chaos Theory

Answer 23

Mathematics studying behavior of dynamic systems sensitive to initial conditions

Question 24

Rating Agencies Confused?

Answer 24

Uncertainty with risk

Question 25

Accuracy is

Answer 25

Closeness of a value to the known value