26 March 2007
Eric Rasmusen
Erasmuse@indiana.edu
A Thinking Test
This test illustrates some common flaws in the way people think. Most
of the questions are adapted from notes of Professor Michael Metzger,
of Indiana University's Dept. of Business Law. I have modified them
quite a bit.
BB 1. Here are some reasons why a car might not start in the
morning. For each
of them, assign percentage probabilities to the best of your
knowledge:
(a) Insufficient battery charge: ( % )
(b) Defective fuel system: ( % )
(c) Engine problems: ( % )
(d) Defective starter: ( % )
(e) Vandalism: ( % )
(f) Electrical problems: ( % )
(g) All other problems: ( % )
BB 2. A newly hired engineer for a computer firm in the Osaka area
has four
years of experience and good all-round qualifications. When asked to
estimate
the starting salary for this person, a freshman in high school said
(admitting that he knew nothing about the industry) $82,000,
translating yen
into dollars. What is your guess?
BB 3. Imagine that the U.S. is preparing for the outbreak of an
unusual Asian disease, which is expected to kill 600 people. Two
alternative programs to combat the disease have been proposed. Assume
that the exact scientific estimates of the consequences of the
programs are as follows: If program X is adopted, 400 people will die.
If program Y is adopted, there is a one-third probability
that nobody will die and a two-thirds probability that 600
people will die.
Which of the two programs would you favor?
Program X
Program Y
AABB 4. Your company has factories in Altoona and Beloit. Your
capital budget
this year allows you to invest in a filtration system in just one
of these
two cities. You would like to reduce cancer incidence among your
workers, not
because you fear legal liability (it is too hard to prove) but because
you care
about your workers (and you want to reduce health insurance costs).
Circle
your choice.
Altoona. There's a 20 percent chance that the chemicals in this
plant might
be causing 10 cancer cases per year among your workers. The filtration
system
would reduce this to a 5 percent chance.
Beloit. There's a 10 percent chance that the chemicals in this
plant might be
causing 10 cancer cases per year among your workers. The filtration
system would
entirely eliminate this risk.
BB 5. As a hurricane approaches Florida, there is a shortage of
gasoline-
powered electrical generators. Smith's Hardware had been selling
them at
$200 below list price before, but now Smith sells them at list
price. Is
this ethical?
YES
NO
BB 6. A public opinion poll asks you the question, "Do you agree
that dairy
farmers deserve at least the level of protection against unfair
competition
that they have been getting for the past thirty years?"
YES
NO
AABB 7. How would you evaluate your safety and skill as a driver?
BOTTOM QUARTER OF THE POPULATION
25th-50th PERCENTILE OF THE POPULATION
50-75th PERCENTILE OF THE POPULATION
75th-100 PERCENTILE OF THE POPULATION
BB 8. Joe had to decide whether to flip one of two coins, each of
which would
yield him $7 million if it comes up Heads, and $0 if it comes up
Tails. Coin A
has a 50 percent chance of Heads, while Coin B has a 60 percent
chance. Joe
chose B, but it came up Tails. Someone else tossed A, and it came up
Heads. On a
scale from 1 (What an idiot!) to 7 (clearly did the right thing),
what do you
think of Joe?
1 2 3 4 5 6 7
AABB 9. A fair coin will be flipped four times. You can take one (and
only one) of
the following three bets on the sequence of heads and tails, putting
up 1 dollar
of your money and winning the amount indicated if your sequence turns
up when the coin is actually tossed.
(a) 1. Heads. 2. Heads. 3. Heads. 4. Heads. You get $.49 if you win.
(b) 1. Heads. 2. Heads. 3. Heads. 4. Tails. You get $.48 if you win.
(c) 1. Heads. 2. Tails. 3. Heads. 4. Tails. You get $.47 if you win.
(d) You may refuse all three bets and keep your dollar.