Cognitive biases

Ross Gittins cites some interesting questions used by some of my QUT colleagues to assess cognitive biases before undertaking a study of investment behavior. Here you go: Try to answer before reading on or checking comments:

Give me high and low estimates for the average weight of an adult male sperm whale (the largest of the toothed whales) in tonnes. Choose numbers far enough apart to be 90 per cent certain that the true answer lies somewhere between.

Don’t like that one? Try this: give me high and low estimates of the distance to the moon in kilometres. Choose numbers far enough apart to be certain that the true answer lies somewhere between.

Now something more personal. When you buy a Lotto ticket do you feel more encouraged regarding your chances if you choose the number yourself rather than using a computer-generated number?

Now, my answers
For the first question, I wanted a range that ought to give the right answer, but had some probability (ideally 10 per cent) of being wrong. I went for 5 to 50 tonnes (I suspect the frame encouraged me to pick a range of one order of magnitude.

Having taken this approach to the first question, the second was trivial. The range of 0 to 100 light years meets the criteria and I’m absolute certain that it’s right. (I had a fair idea of the actual distance, but that’s not what was asked for.

On the third question, last time I looked the advice was that numbers above 30 are less likely to be picked because a lot of people use birthdays. If that’s still true, I can do better in terms of expected return (but not in terms of chance of winning) by picking 31 to 36. However, if any significant number of people know this, then 31 to 36 is a bad choice. So, I’m left with the view that, if I had good access to the stats on other people’s choices, I could beat the machine, but in practice I can’t.

28 thoughts on “Cognitive biases

  1. I can confirm the overconfidence thing. I thought 10 – 40 tonnes would cover the sperm whale, but I was wrong.

    Incidentally, when at quiz nights, if I don’t know an answer, my guess is almost always wrong. It took time to learn that when you don’t know, you don’t know. And I’m still biased towards thinking that maybe I do know.

  2. “… I’m left with the view that, if I had good access to the stats on other people’s choices, I could beat the machine, but in practice I can’t.”

    Here you go:
    auslotteries.com.au/lottery-statistics/
    and
    http://www.tattersalls.com.au/Number-frequencies.aspx

    The house’s vig is pretty big, though, so I’m not sure whether you could ever raise the expected return enough so it exceeds 1. Better to gamble on something like stock market futures, where the vig (in the form of brokerage) is small.

  3. @Jack Strocchi
    You’ve missed the point, Jack.

    Your choice of numbers has zero effect on your chances of winning a First Division. But it has a big effect on your chances of having to share that win, because many of your fellow gamblers do not pick their numbers randomly but based on such things as birthdays. That is, you can raise your expected payoff if you know common selection patterns and avoid them.

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