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Exercises 271
Did you receive
timely
feedback on the
accuracy of your
forecasts?
Yes
Assess a
subjective
probability
Have you made
repetitive forecasts
of such an event
in the past?
Yes No
No
Is there a reference class of events
that is similar and on which relative
frequency information exists?
Yes No
Utilize the relative
frequency information
as a subjective
probability for the
occurrence of the
event
Be aware of the
potential biases
resulting from the
use of inappropriate
heuristics in assessing
subjective probabilities
Figure 9.1 – A methodology for choosing how to develop a subjective probability
assessment
Exercises
(1) Identify the heuristics that decision makers might use in making
estimates in the situations listed below. Explain how biases might
emanate from the use of these heuristics.
(a) Members of an interview panel making estimates of the probability
that a candidate would be a successful appointment.
(b) A marketing manager of a company manufacturing computer
peripherals making a forecast of the number of new orders that
will be obtained next month.
(c) A sales executive estimating the correlation between the sales of
a product and advertising expenditure.
(d) A manager of an international construction company making
an estimate of the risk of civil unrest in a country which was
formerly part of the Soviet Union and where the company is
considering making investments.