Downloadable - About University

258 Biases in probability assessment
(a) Linda is a bank teller;
(b) Linda is a bank teller who is active in the feminist movement?
Almost 90% of people in the study thought that it was more probable that
Linda was a bank teller who was active in the feminist movement. Yet
this answer is wrong. There must be more bank tellers in the population,
of all kinds, than bank tellers who are specifically active in the feminist
movement. The conjunction (or co-occurrence) of two events (in this case
‘bank teller’ and ‘feminist’) cannot be more probable than each event on
its own. It is more likely that your boss is a female than it is that your
boss is female and married. Similarly, your car is more likely to be red
than red and less than two years old.
So why did 90% of subjects in the experiment get it wrong? It appears
that they were approaching the problem by judging how representative
each of the options (a and b) was of Linda, given the way she was
described. Since the description was designed to be more typical of a
feminist than a bank teller, a feminist bank teller seemed to be the most
representative of the two options.
The conjunction fallacy will have important implications when we
consider scenario planning in Chapter 15. The more detailed and plausible
a scenario is, the more likely it will appear to be, even though more
specific scenarios must have a lower probability of occurring than general
ones. For example, if a company is formulating possible scenarios
for a time period five years from now, the detailed scenario, ‘War in the
Middle-East between Israel and a neighboring state leads to rocketing
oil prices and economic recession in both Western Europe and the USA’,
may seem more plausible, and hence more probable, than the general
scenario, ‘Economic recession occurs in both Western Europe and the
USA’.
Test your judgment: answers to questions 9 and 10
Q9. (a) is most likely.
Q10. Scenario (a) is most likely.
The anchoring and adjustment heuristic
Judgment is widely used to make estimates of values such as how long
a job will take to complete or what next month’s sales level will be.