Exercises in Decision Making (I)

Abstract

Used in conjunction with Exercises in Decision Making (II) (UVA-QA-0608). This exercise asks four questions around which people make cognitive mistakes.

Excerpt

UVA-QA-0607

Rev. Jun. 6, 2014

Exercises in DECISION MAKING (I)

1.You are a marine-property adjuster charged with minimizing the loss of cargo on three insured barges that sank yesterday off Alaska. Each barge holds $ 200 million worth of cargo that will be lost if not salvaged within 72 hours. Along with a local marine-salvage company, you have developed two options, both of which will cost the same:

Plan A: This plan will result in the loss of two of the three cargoes, worth $ 400 million.

Plan B: This plan has a two-thirds probability of resulting in the loss of all three cargoes (the entire $ 600 million) but has a one-third chance of losing no cargo.

Which plan would you choose? Plan A or Plan B?

2.Is the population of Fiji greater than 500,000 people? Yes or No?

. . .

Keywords: quantitative analysis, decision making, cognitive bias