Non Standard Beliefs

Question 1

Camerer & Lovallo (1999)

Answer 1

If payoff is a function of our ability we overestimate ourselves

Question 2

Simonson (1990)

Answer 2

People choose more diversity when choices and broadly bracketed - “Diversification bias”

Question 3

Read & Van Leeuwen (1998)

Answer 3

Snack choices provide evidence of projection bias: hungry or satiated states

Question 4

Dalton & Ghosal (2012)

Answer 4

Framing effects influence choice and hence welfare Context is endogenous, our actions influence our references

Question 5

Kahneman & Tversky (1974)

Answer 5

3 Core Heuristics: Representativeness Availability Anchoring Adjustment Effective and Economical

Question 6

Burks et. al (2013)

Answer 6

Test over confidence, due to positive signalling and portrayal Large negative skew in beliefs about quintile position for IQ and Math ability

Those who are are told they did well in the test often ask for more information around relative performance

Driven By Society Views Social Signalling

Not By: Bayesian Updates Imperfect information Self Image models

“Minnesota Personality Scale”

• Social Potetnecy Scale
• Social Closeness Scale
• Stress Reaction Scale

Question 7

Kahneman & Thaler (2000)

Answer 7

Fail to max EU since we don’t know our true utility function

Question 8

DellaVigna & Malmendier (2006)

Answer 8

Overestimate gym attendance, monthyl subscribers outlast annual…could save $600

Question 9

Rabin (2002)

Answer 9

Law of Small Numbers: over-inference, under-predict SR repetition…alternating to generate randomness “Fictitious variation” - overinference leads to exaggeration of rate variation drawn from population

Question 10

Conlin et. al (2007)

Answer 10

Projection bias leads to seasonal purchases, catalogue orders find higher probabilities of returning the items when future temperatures are higher or temperatures at time of order are lower ME = 0.57% points, or a 3.95% increase in return likelihood However….cannot distinguish between whether it is due to 1. Projection Bias 2. Incorrect beliefs about future temperatures

Question 11

Loewenstein, O’Donoghue & Rabin (2003)

Answer 11

We think our states are stable over time, our belief lies somewhere between our true future state and our current state “Projection Bias” - we know our preferences change but we mis-predict the magnitude massively

Question 12

Gilbert, Gill & Wilson (2002)

Answer 12

Shopping when hungry leads to higher expenditure

Question 13

Loewenstein et al. (2003)

Answer 13

Life cycle of consumption under present bias Expenditure exceeds planned due to neglecting adaptation, sudden drop due as money runs out

Durable goods, varying utiliity day to day - must resist any temptation on “Peak days”, avoiding projection bias of current desire into the future

Question 14

Bernartzi (2001)

Answer 14

Investing in own stock based on past returns Raise Price = Lower Return

Question 15

Koehler and Conley (2003)

Answer 15

Hot hand effect in professional basketball, inferring a positive correlation between statistically independent events

Question 16

Mullen et. al. (1985)

Answer 16

People believe that their decisions are common among others and hence must be appropriate “False consensus effect”

Question 17

Malmendier and Tate (2005; 2008)

Answer 17

CEOs run too many projects and tend to overpay during mergers

Question 18

Daniel et. al (1998)

Answer 18

“Self attribution bias” - explain SR + correlation of returns… i.e. momentum Long term reversals may explain LR negative correlation

Question 19

Wilson and Gilbert (2005)

Answer 19

Prefeeling and hedonic experience, we initially simulate the feelings based on expectations before actually experiencing Overestimate reaction duration due to 1 - Focalism; ignoring other influential events 2 - Anticipation Failure; how resilient we can be

Question 20

Reversed:

If payoff is a function of our ability we overestimate ourselves

Answer 20

Camerer & Lovallo (1999)

Question 21

Reversed:

People choose more diversity when choices and broadly bracketed - “Diversification bias”

Answer 21

Simonson (1990)

Question 22

Reversed:

Snack choices provide evidence of projection bias: hungry or satiated states

Answer 22

Read & Van Leeuwen (1998)

Question 23

Reversed:

Framing effects influence choice and hence welfare Context is endogenous, our actions influence our references

Answer 23

Dalton & Ghosal (2012)

Question 24

Reversed:

3 Core Heuristics: Representativeness Availability Anchoring Adjustment Effective and Economical

Answer 24

Kahneman & Tversky (1974)

Question 25

Reversed:

Test over confidence, due to positive signalling and portrayal Large negative skew in beliefs about quintile position for IQ and Math ability Those who are overconfident do not ask to reveal the true score Driven By Society Views Social Signalling

Not By: Bayesian Updates Imperfect information Self Image models

“Minnesota Personality Scale”

• Social Potetnecy Scale
• Social Closeness Scale
• Stress Reaction Scale

Answer 25

Burks et. al (2013)

Question 26

Reversed:

Fail to max EU since we don’t know our true utility function

Answer 26

Kahneman & Thaler (2000)

Question 27

Reversed:

Overestimate gym attendance, monthly subscribers outlast annual…could save $600

Answer 27

DellaVigna and Malmendier (2006)

Question 28

Reversed:

Law of Small Numbers: over-inference, under-predict SR repetition…alternating to generate randomness “Fictitious variation” - overinference leads to exaggeration of rate variation drawn from population

Answer 28

Rabin (2002)

Question 29

Reversed:

Projection bias leads to seasonal purchases, catalogue orders find higher probabilities of returning the items when future temperatures are higher or temperatures at time of order are lower ME = 0.57% points, or a 3.95% increase in return likelihood However….cannot distinguish between whether it is due to 1. Projection Bias 2. Incorrect beliefs about future temperatures

Answer 29

Conlin et. al (2007)

Question 30

Reversed:

We think our states are stable over time, our belief lies somewhere between our true future state and our current state “Projection Bias” - we know our preferences change but we mis-predict the magnitude massively

Answer 30

Loewenstein, O’Donoghue & Rabin (2003)

Question 31

Reversed:

Shopping when hungry leads to higher expenditure

Answer 31

Gilbert, Gill & Wilson (2002)

Question 32

Reversed:

Life cycle of consumption under present bias Expenditure exceeds planned due to neglecting adaptation, sudden drop due as money runs out

Durable goods, varying utiliity day to day - must resist any temptation on “Peak days”, avoiding projection bias of current desire into the future

Answer 32

Loewenstein et al. (2003)

Question 33

Reversed:

Investing in own stock based on past returns Raise Price = Lower Return

Answer 33

Bernartzi (2001)

Question 34

Reversed:

Hot hand effect in professional basketball, inferring a positive correlation between statistically independent events

Answer 34

Koehler and Conley (2003)

Question 35

Reversed:

People believe that their decisions are common among others and hence must be appropriate “False consensus effect”

Answer 35

Mullen et. al. (1985)

Question 36

Reversed:

CEOs run too many projects and tend to overpay during mergers

Answer 36

Malmendier and Tate (2005; 2008)

Question 37

Reversed:

“Self attribution bias” - explain SR + correlation of returns… i.e. momentum Long term reversals may explain LR negative correlation

Answer 37

Daniel et. al (1998)

Question 38

Reversed:

Prefeeling and hedonic experience, we initially simulate the feelings based on expectations before actually experiencing Overestimate reaction duration due to 1 - Focalism; ignoring other influential events 2 - Anticipation Failure; how resilient we can be

Answer 38

Wilson and Gilbert (2005)

Question 39

Koszegi (2006); Weinberg (2006)

Answer 39

Can we explain overconfidence due to uncertainty and insufficient ability to perform Bayesian updates? - “optimistic beliefs”

Gives rise to very speciifc “threshold” style models:

1. High Abiliity = Less Information Seeking as fearing a downward revision
2. Low Ability = More Info Seeking…can always get an upward revision

Question 40

Reversed:

Can we explain overconfidence due to uncertainty and insufficient ability to perform Bayesian updates? - “optimistic beliefs”

Gives rise to very speciifc “threshold” style models:

1. High Abiliity = Less Information Seeking as fearing a downward revision
2. Low Ability = More Info Seeking…can always get an upward revision

Answer 40

Koszegi (2006); Weinberg (2006)

Question 41

Frank (2016)

Answer 41

We often neglect the impact of luck, being overconfident about our ability influence

Question 42

Reversed:

We often neglect the impact of luck, being overconfident about our ability influence

Answer 42

Frank (2016)