Question

Length of answers (excluding references): approximate half page for Q1, Q2; approximate one page for Q3, single-line spacing and font size 12

Questions:

- Q1 (4% of the total course marks): Identify and explain the bias committed in the following passage. Use ONLY ONE of the biases of probability judgement that you have learned about in this course to explain the mistakes.

Results of a recent survey of 74 chief executives officers (CEOs) indicate that there may be a link between childhood pet ownership and future career success. Fully 94% of the CEOs, all of them employed within Fortune 500 companies, had possessed a dog, a cat, or both as youngsters... The respondents asserted that pet ownership had helped them to develop many of the positive character traits that make them good managers today, including responsibility, empathy, respect for other living beings, generosity, and good communication skills.

Q2 (4% of the total course marks): The following case has been cited in support of a hypothesis that pyramids have special powers.
A young woman who was having difficulty with her complexion was told to keep a pitcher of water under a pyramid and then wash her face in that water, only with the mildest of soap, once in the morning and once in the evening. She was also told to put nothing else on her face, no creams or medications of any kind, and no makeup. Although she has been in the habit of using quantities of makeup, she agreed to the experiment. Within two weeks there was a clearly noticeable improvement in her complexion. Formulate an alternative hypothesis to explain her improvement.

Q3 (7% of the total course marks):
As the president of an airline company, you have invested $100 million of the company’s money into a research project. The purpose was to build an airplane that would not be detected by conventional radar, in other words, a radar-blank plane. When the project is 90% completed, another firm begins to make a plane that cannot be detected by radar. Also, it is obvious that their plane is much faster and far more economical than the plane your company is building. Under what condition, if any, should you invest the last 10 percent of the research funds to finish your radar-blank plane? Under what condition, if any, should you not do that? Explain your answers in terms of the definition of decision making. Why do you have a tendency to keep on investing even if you should not?

Answer 1

Answer to Q1: While pet ownership might help to develop positive character traits but we can't conclude with 100% certainty that there is a sure-shot link between pet ownership and future career success. Although the study claims that 94% of the CEOs of Fortune 500 companies have all owned a pet that likely led them to career success, the study suffers from incomplete search bias. This means that the study is not completely reliable because the study is incomplete. It does not tell us about non-CEOs who didn't own pets but yet have great career success. The study also does not tell us about non-CEOs who owned pets and had great career success. So, for a complete picture, we need the following four information:

(i) CEOs who owned pets and had great career success.

(ii) CEOs who didn't own pets and had great career success.

(iii) Non-CEOs who owned pets and had great career success.

(iv) Non-CEOs who didn't own pets and had great career success.

Only after taking the above four factors into account, we can establish a concrete link between pet ownership and career success.

Answer to Q2: The alternative hypothesis for her improvement can be explained in the following way- The improvement was not because of using the miracle pitcher water. It was because of using no cosmetic creams and make-up for two weeks. Often makeup contains harmful chemicals that adversly affects the complexity of the skin. Using a very mild soap and water on her skin helped her get rid of the pollutants on her skin regularly. As toxic chemicals and pollutants didn't get accumulated on her skin over the 2-weeks period because of regular washing of the skin with mild soap, her skin tone automatically began to improve.

Another alternative hypothesis could be the Placebo effect that made her believe that her skin complexion improved over the period despite no real significant change. It might be that she whole-heartedly believed that the pitcher water would do miracle on her skin, and it was only because of her strong belief that made her notice an improvement even if there was none.

Answer to Q3:

We should not,be investing the last 10% of the research funds to finish our radar-blank plane. This is because we have already invested 90% of our research funds in a project that has high uncertainty of success. The 90% of the research funds that we have already utilized represent our "sunk costs" which cannot be recovered. If we utilize 100% of our research funds and the project does not became a success, then we are going to lose the entire research funds. So, it is better to stop the project so that we can atleast save on the remaining 10% of the research funds. Savings, no matter how small, is important.

We have a tendency to invest in this case because, most of us are likely to think that since we have already invested a lot of time and spent 90% of our money, so we should go ahead and spend the remaining 10% of the money as well. This is a natural tendency but it should be avoided. Our decision to continue or discontinue with the project should NOT be dependent on the size of the investment we have already made. We should be in the look out to avoid losses.