For each of the following tasks, 1. identify which heuristic may be relevant.
2. Identify what bias may result.
3. Explain how to overcome this bias.
A. Hedge Fund Manager A just had a banner year (5% more growth than the total market) while Hedge Fund Manager B just had a terrible year (7% less growth than the total market). How well do you think A will do this next year? That is how much better than the total market? How well do you think B will do this next year?
B. Did Abraham Lincoln die before or after 40? How old was he when he died? Did Steve Jobs die before or after 60? How old was he when he died?
C. A drug is known to be effective in 80% of patients. 5 patients have been treated with this drug. How many will respond well?