Conrad White, the former CFO of Efron Inc. having served time for fraud and embezzlement now needs to decide on a career. Which project should bring him more value?
- A. Accept the invitation of his prison buddy Robin Hoode and rob the bank at Parkland Blvd. and 10th st. The chance of being caught is 80%. Potential payout is $200,000.
- B. Become an Autumnfield city councilor. Salary is $80,000, but to get elected, Conrad needs to spend $30,000 for the posters and mail campaign “Conrad White for Change” and “Vote for Honesty and Accountability”.
- C. Become the food critic for the Autumnfield Sun, which comes with a salary of $20,000 per year.
Correct answer is B). If Conrad robs the bank, he should expect to get $40,000 = $200,000 (payout) * 20% (success rate). As city councilor he would get $50,000 = $80,000 salary – $30,000 (expenses). A food critic career would bring him $20,000. Therefore, the city councilor position would bring him more value.
How many randomly chosen people should be in a room to ensure a 99% chance that at least two of the would have the same birthday:
- A. 250.
- B. 127.
- C. 53.
Correct answer is C). This is so-called birthday paradox. Most of us believe that the number of people in the room would be significantly large.
Pirates of Caribbean 17: The legendary pirates Captain Jack Sparrow and Captain Barbossa find a treasure in a cave: two golden nuggets. Jack Sparrow is planning to use them to make two golden teeth to replace those broken by his manager/colleagues/pirates. Barbossa offers Jack only one nugget. What should Jack Sparrow do?
- A. Accept captain Barbossa’s offer and take one golden nugget
- B. Grab both nuggets and run away. In this case there is a 50% chance that captain Barbossa would catch him and keep all the nuggets.
Pirates of Caribbean 22: The legendary pirate Captain Jack Sparrow is imprisoned in a dungeon with two other pirates awaiting the hangman’s noose the following afternoon. As he plans his escape, he realizes that he can put his two gold teeth to good use. What should he do?
- A. When his two companions wake, promise them one gold tooth each to aid in his escape (they have not been sentenced to hang). However, once out of the prison he can run away before they can collect their reward. In this case, there is 50% chance that Jack will lose all of his golden teeth.
- B. Give a golden teeth to each of the companions.
Correct answer is A). in both Pirates of Caribbean 17 and 22. The expected value cost in all cases will be one golden nugget or one golden tooth. So all cases are identical from the expected value point of view. However most people would prefer to gamble when they decide about losses and take a sure bet when they decide about gains. So Jack Sparrow would most likely take sure bet 1 tooth from captain Barbossa, but will gamble to increase the chance that he does not loose teeth. This psychological effect is called Loss Aversion. You will learn about it in Chapter 11.
A Russian spy Ivan Petroff infiltrated the White House disguised as a rat exterminator and stole a top-secret document: a list of Washington DC’s approved escort agencies. Three people actually witnessed Ivan Petroff inside White House. Whose description of the Russian spy is most probable:
- A. White House bartender Mick Mousy described the exterminator as a big guy in a black suit.
- B. White House taxi driver Mohamed Toscanini described the exterminator as a big guy in black suit and sunglasses.
- C. White House secret service agent Bert Bigneck described the exterminator as a big guy in black suit and sunglasses, who spoke with Russian accent.
Correct answer is A). The more general a description, the more probable the description is.
Number people in black suits is greater than
Number of people in black suits and sunglasses is greater than
Number of people in black suits, sunglasses, and a Russian accent.
Who is happier?
- A. Millionaire Ronald Drump: Market value of his Vally’s Casino in Las Vegas has dropped over the past 5 years.
- B. Engineer John Bored: for last 5 years he is doing the same design of a girder without a raise or promotion
- C. Bouncer Jack Fist: over last 5 years he has improved his bouncing skill and can now toss a person out of the club with his eyes closed and hopping on one foot. However his compensation package has not improved.
- D. Dishwasher James Clean: every year was promoted to higher position including senior dishwasher, lead dishwasher, manager dishwashing, and director of enterprise dishwashing.
Correct answer is D). As we will would learn in Chapter 8, happiness is associated with increments of “units of happiness” which can be wealth, position, title, successful family, etc., but not in absolute number of units. The dishwasher James Clean who is constantly promoted probably is happier than others, even though his net worth is lower. You will learn more about happiness from Chapter 8.
A true story. The Ig Nobel Prizes are a parody of the Nobel Prizes and are given each year for ten achievements that “first make people laugh, and then make them think”. The Ig Nobel 1998 award in Literature was given to Dr. Mara Sidoli of Washington, DC, for her report “Farting as a Defense against Unspeakable Dread”, published in the “Journal of Analytical Psychology” (Sidoli 1996). Is farting research:
- A. Stupid
- B. Irrational and symptom of psychological problems of the author
- C. I cannot comment until I read the report.
Correct answer is C). You cannot judge rationality without a detailed analysis. In the case of scientific research, you need to read the paper to make this judgment. If something sounds strange and funny, it does not mean that it is irrational. Read about processing information in Chapter 9.
After reading inspirational stories about successful gamblers, you travel to Cesar’s Palace casino to play roulette. By 5 p.m. you have already lost $4000, by 9 pm your losses are $6000, and by 11 p.m. your losses stand at $8000. Your wife asks you to stop and threatens to leave you if you continue. What should you do?
- A. Stick with it, this losing streak has gone on for so long that it must be about to end. You chances of hitting a winning streak have increased by 50%. Wife will be singing a different tune when the good luck starts rolling your way.
- B. Your chance to win are always stays the same. You should listen to your wife and stop.
- C. You calculate that your chances of winning have increased by 25% and therefore you will continue, but limit future losses to $2000.
Correct answer is B). Your wife is correct as usual. Many people believe that chance of winning will increase after series of losses – the gambler’s fallacy. In reality, the chance of winning does not change. You will learn about it in chapter 11.
In the movie Dr. No, James Bond was, in the following order: almost killed in the car (chance of survival 10%), discovered a tarantula in his bed (chance of survival 10%), almost shot (chance of survival 10%), and almost executed in Dr. No’s hideout (chance of survival 10%). What was the overall chance that James Bond survived all of these situations:
- A. 10% – equal to eating non-organic cream cheese with 30% trans fat.
- B. 1% – equal to drinking tap water in a remote Mexican village.
- C. 0.01% – equal to jumping from a plane without parachute?
Correct answer is c) (0.01%). People tend to overestimate the probability of conjunctive events. This is a well known psychological bias. You will learn about it in Chapter 11.
Hollywood socialite Berlin Sheraton was arrested for driving under influence. Before her driving and subsequent arrest for driving under the same influence, she had visited the the Beverly Hills pub where she:
- A. Assaulted security guard with a lip stick: punishment for this offence is loss of said lip stick.
- B. Went to the kitchen and spit in the soup of the day: punishment for this offence is 1 year in a minimum security penitentiary.
- C. Instructed her miniature poodle Jay Y. to attack a barmen: : punishment for this offence is apprehension of Jay Y.
Police do not know yet about her activities at the bar yet. Which punishment should most concern Berlin Sheraton if Jay Y. is 8 times more important to her than 1 year in jail, and her favorite lip stick is two times more important than Jay Y?
Correct answer is A). The common denominator would be months in jail. In case of lip stick attack it would be equal to 16 months in jail. soup spitting is equal to 12 months, and in case of Jay Y. it would be 8 months in jail. You will learn basics about multi-criteria decision making in Chapter 10.
You are the head coach of new NHL franchise the East Coast Cockroaches. Struggling with a salary cap, a blind goaltender, and a defenseman with ADD, your team lost 20 games in a row. Fortunately, your team won its last two games because of your opponents team scoring few times on their own goal. You need to estimate the chance that the Cockroaches will skitter into the playoffs. How will the last two wins affect your estimate?
- A. Opponents defeating themselves is a growing trend and it should propel the Cockroaches into playoffs
- B. Since you have not really improved the play of your own team, the last two wins should not be considered a trend.
- C. Your chance to go to playoffs has increased 10%
Correct answer is B). People often ignore historical data (long-term average) when the perceive a recent short-term trend. This effect is called ignoring regression to mean. Learn about this effect in Chapter 7.
Now score yourself:
Number of correct answers 8-10: Your judgment is outstanding and not significantly affected by illusions. You may not need this book at all. Sorry, the authors do not issue refunds or accept returns.
Number of correct answers 4-7: You have sound judgment. Tell your boss, maybe you will get a raise (probably not, but it never hurts). Though your boss probably doesn’t see any value in your ability to make good choices, you can still improve your decision-making skills by reading this book.
Number of correct answers 0-3: Don’t worry; most people have difficulties answering these questions. In this book, you will find answers to this and many other questions. Even better, you don’t appear that your judgment is significantly affected by illusions as you bought this book. People who significantly affected by illusions, are completely unaware that there might be a problem and tend to spend their money on red cars and cosmetic surgery instead of investing in valuable books such as this.