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QUESTIONNAIRE

Behavioral Finance, University of Lugano


Hersh Shefrin

Below you will find a set of questions to answer. These questions do not constitute a test,
where the objective is to get as many right answers as possible. Rather, these questions
are designed to help identify the way that people think about making judgments and
decisions in the face of risk and uncertainty.
The way to answer these questions is to simply respond as you would if you actually
faced the situations described. There are no grades in the traditional sense.
There is an Excel file named BF Questionnaire answer template.xls for you to record
your answers to this questionnaire. The first thing you should do is save the file with the
filename MY NAME.xls where MY NAME is your name. That way, both you and your
instructor will be able to locate your file easily. When you open the file, you will see that
your name is to be entered in cell H1, and your responses to the questions are to be
entered in column H.
Note: Many of the questions in the questionnaire describe risky alternatives you might
take. In these questions, assume that the outcome of the risky alternative is made known
to you shortly after your choice, that you receive any monies won or lost shortly after the
risky alternative, and that there are no tax consequences attached to these monies.
Important: Please be careful when entering your answers in the Excel answer
template. The answers are numerical, so please be sure to enter your answers as
numbers, not as text. The Excel answer template offers a few reminder comments in
Column B and the occasional text box. If your answer is a percent (%), then enter
the percent sign, to avoid answering, say 15, when you mean 15%. Your answer
templates are collated, so input errors can create distortions. One aspect of a quality
response is avoiding input errors.

Please bring a copy of the questionnaire and your answers with you to
class.
Note: This is a long questionnaire to complete. Do not attempt to complete it in one
go, but break it up into manageable segments. The intent of the questionnaire is to
assess decision style when it comes to making judgments and choices in situations
involving risk and uncertainty.
Please answer question 17 during (but not before) the week beginning Monday,
June 9, 2014, and send the completed questionnaire to me at hshefrin@scu.edu on
or before midnight, Friday, June 13, 2014.
H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

1. Below you will find a list of 18 possible events that might happen to you during your
lifetime. Examine the events and answer the questions that appear below.

Being fired from a job

Your work recognized with award

Having gum problems

Living past 80

Having a heart attack

Tripping and breaking bone

Being sued by someone

No night in hospital for 5 years

Victim of mugging

10

Decayed tooth extracted

11

Your achievements in newspaper

12

Weight constant for 10 years

13

Having your car stolen

14

Injured in auto accident

15

In 10 years, earnings greater than $2 million a year

16

Developing cancer

17

Not ill all winter1

18

Deciding you chose wrong career

Please answer the following question: Compared to other people in this class same sex
as you what do you think are the chances that the following will happen to you in the

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future? The choices range from much less than average, through average, to much more
than average? Note: Enter the number to the left of the category as your answer, not
the category itself. For example, if your answer is 60% less, type 3 as your answer, not
60% less. For some of you, these events might have already happened to you in the
past. If so, simply answer the question in terms of the events happening to you again in
the future. The categories from which you choose are as follows:

1.

100% less (no chance)

2.

80% less

3.

60% less

4.

40% less

5.

20% less

6.

10% less

7.

average

8.

10% more

9.

20% more

10.

40% more

11.

60% more

12.

80% more

13.

100% more

14.

3 times average

15.

5 times average

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2. Below you will find a trivia test consisting of ten questions for you to answer from
memory alone. In addition to giving your best guess, consider a range: a low guess and
a high guess so that you feel 90% confident that the right answer will lie between your
low guess and your high guess. Try not to make the range between your low guess and
high guess too narrow. Otherwise, you will appear overconfident. At the same time, try
not to make the range between your low guess and high guess too wide. This will make
you appear underconfident. If you are well-calibrated, you should expect that only one
out of the ten correct answers you provide does not lie between your low guess and your
high guess.1

After each question, write down three numbers, your best guess, low guess, and high
guess. Do not add words such as miles, etc. to your answer.

1.

How old was Martin Luther King when he died?

2.

How long, in miles, is the Nile River?

3.

How many countries were members of OPEC in 1989?

4.

According to the conventional canon, how many books are there in the Hebrew
Bible?

5.

What is the diameter, in miles, of the moon?

6.

What is the weight, in pounds, of an empty Boeing 747?

7.

In what year was Wolfgang Amadeus Mozart born?

For readers who use the metric system, note that there are 2.2 pounds in a kilo, 5,280 feet in a mile, and
that 1 km corresponds to 5/8 (0.625) of a mile.
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8.

How long, in days, is the gestation period of an Asian elephant?

9.

What is the air distance, in miles, from London to Tokyo?

10.

How deep, in feet, is the deepest known point in the ocean?

3. Relative to all the people in the class, how would you rate yourself as a driver?
(1) Above average? (2) Average? (3) Below average? Here average is defined as the
median. Enter a number (1, 2, or 3) in the Excel answer template.

4. Imagine that you are presented with four cards placed flat on a table in front of you.
There is a letter appearing on one side of the card and a number on the other side of the
card. You see the following on the four cards: a, b, 2, and 3.

Suppose you are asked to test the following hypothesis about these four cards: Any card
having a vowel on one side has an even number on the other side. Imagine that you are
asked to select those cards, and only those cards, that will determine whether the
hypothesis is true. That is, please select the minimum number of cards that will enable
you to determine whether or not the hypothesis is true. Of the four cards, which would
you turn over to verify the hypothesis? Indicate your choices by placing a 1 beside
your choices, and a 0 otherwise.

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5. Imagine that you hear about a thirty-one year-old woman named Linda, from people
who know her quite well. They tell you that she is single, outspoken, and very bright.
When she was a student, she was deeply concerned with issues of social justice. Linda's
friends neglect to tell you about her current interests and career. Consider the following
eight choices.

1.

Linda is a teacher in an elementary school.

2.

Linda manages a bookstore, and takes Yoga classes.

3.

Linda is active in the women's movement.

4.

Linda is a psychiatric social worker.

5.

Linda is a member of the League of Women Voters.

6.

Linda is a bank teller.

7.

Linda is an insurance salesperson.

8.

Linda is a bank teller, and is active in the women's movement.

Rank these possibilities about Linda from 1 to 8 by assigning 1 to what you regard
as the most likely possibility, and 8 to what you regard as the least likely possibility.

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6. Please answer the following three questions:

6.1. Record the last three digits of your home phone number?

6.2. Add 400 to the last three digits of your home phone number. Call the sum X.
Without looking up the answer anywhere, do you think that Attila the Hun was defeated
in Europe before or after the year X? (Before = 1, After = 2)

6.3. Without looking up the answer anywhere, provide your best guess about the actual
year that Attila the Hun was defeated in Europe?

7. You will answer either 7.2 or 7.3, depending on the date of your birthday.
7.1. Is the date of your birthday an even number or an odd number? (For example, if your
birthday falls on January 2, enter a 0 for even. Enter a 1 for odd.)

If the date of your birthday is an even number, answer question 7.2. If the date of your
birthday is an odd number skip this section and continue with question 7.3.

7.2. Imagine that you are offered the opportunity to participate in a baseball pool. The
pool works as follows. Imagine that in front of you lies a pile of 227 baseball cards, with
the face of each card displaying the picture of a different baseball player. Indeed, imagine

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that there are two identical piles in front of you, each containing 227 baseball cards. The
organizer of the pool asks you to look through the pile, select one card, and show it to
him. After you have done so, the organizer looks through the second (duplicate) pile,
finds the twin of the card you selected, and deposits the twin into a brown cardboard
carton. In order to participate, you pay $1 to a pool organizer for each card you select.
After all the cards have been sold, there will be 227 cards in the organizers carton, of
which one will be yours. The organizer will then draw exactly one card from the carton.
The owner of the winning card receives a $50 prize.

Suppose that all the cards have been sold, but the drawing has yet to take place.
The pool organizer approaches you to say that someone who really wanted to participate
can't, because all the cards have been sold. He asks you how much you would be willing
to accept in exchange for the card you drew. What is the minimum amount you would ask
to give up your card?

7.3. If the date of your birthday is an odd number answer the following question. If the
date of your birthday is an even number you should have answered question 7.2 and
should also skip this section and continue with question 8.

Imagine that you are offered the opportunity to participate in a baseball pool. The pool
works as follows. Imagine that in front of you lies a pile of 227 baseball cards, with the
face of each card displaying the picture of a different baseball player. Indeed, imagine
that there are two identical piles in front of you, each containing 227 baseball cards. The

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organizer of the pool has flipped through the pile, selected one card, and given it to you.
After having done so, the organizer looks through the second (duplicate) pile, finds the
twin of the card she selected, and deposits the twin into a brown cardboard carton. In
order to participate, you pay $1 to a pool organizer for the card you select. After all the
cards have been sold, there will be 227 cards in the organizers carton, of which one will
be yours. The organizer will then draw exactly one card from the carton. The owner of
the winning card receives a $50 prize.

Suppose that all the cards have been sold, but the drawing has yet to take place.
The pool organizer approaches you to say that someone who really wanted to participate
can't, because all the cards have been sold. He asks you how much you would be willing
to accept in exchange for the card you drew. What is the minimum amount you would ask
to give up your card?

8. Suppose that a university is attempting to predict the grade point average (GPA) of
some graduating students based upon their high school GPA levels. As usual, a students
GPA lies between 0 and 4. Below are some data for undergraduates at Santa Clara
University, based on students who entered the university in the years 1990, 1991, and
1992. During this period, the mean high school GPA of students who entered as freshmen
and graduated was 3.44 (standard deviation was 0.36). The mean college GPA of those
same students was 3.08 (standard deviation 0.40). Suppose that it is your task to predict
the college GPA scores of 3 graduating students, based solely on their high school GPA

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scores. The 3 high school GPAs are 2.2, 3.0, and 3.8. Write down your prediction below
for the college GPAs of these students upon graduation.

Prediction of Graduation GPA of student with high school GPA of 2.2 = ______
Prediction of Graduation GPA of student with high school GPA of 3.0 = ______
Prediction of Graduation GPA of student with high school GPA of 3.8 = ______

9: Question 1 pertains to a series of possible life events. Please assess each of these
events on the following criteria:

9.1. For each of the life events, assign one of the following controllability category
numbers (1 through 5).

1. There is nothing one can do that will change the likelihood that the event will take
place.
2. There are things one can do to have a small effect on the chances that the event
will occur.
3. There are things one can do to have a moderate effect on the chances that the
event will occur.
4. There are things one can do to have a large effect on the chances that the event
will occur.
5. The event is completely controllable.

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9.2. For each of the life events, assign a desirability number on a scale of 1 to 9 where

1 = extremely undesirable

3 = undesirable

5 = neutral

7 = desirable

9 = extremely desirable

9.3. For each of the life events, assign a category number for familiarity, where the
categories are:

1. The event has not happened to anyone I know.


2. The event has happened to acquaintances.
3. The event has happened to friends or close relatives.
4. The event happened to me once.
5. The event has happened to me more than once.

9.4. For each of the life events, assign a category number for mental imaging, where the
categories are:

1. No particular person with a high chance comes to mind.

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2. When I think about the event, a type of person comes to mind to whom it is likely
to happen, but this image is not very clear.
3. When I think about the event, a clear picture comes to mind of a particular type of
person to whom it is likely to happen.

10. Imagine that you are given the opportunity to play a 50-50 risky alternative whose
outcome will be determined by the toss of a coin. If the coin toss comes up tails, you lose
$500. If the coin toss comes up heads, you win $5,000. You can choose to accept the
risky alternative, or you can choose to reject the risky alternative.

10.1 Would you accept or reject the 50-50 risky alternative where you either lose $500 or
win $5,000? (Accept = 1, Reject = 0)

10.2 Imagine a 50-50 risky alternative where you lose $500 if the coin toss comes up
tails, but win a different amount if the coin toss turns up heads. What is the lowest
amount you would have to win in this risky alternative and yet still accept the risky
alternative? For example, if you accepted the 50-50 risky alternative between winning
$5,000 and losing $500, would you still be willing to accept if the risky alternative was
between winning $2,500 and losing $500? If you answer yes, would you still be willing
to accept if the risky alternative was between winning $1,250 and losing $500? In other
words, think about how low your win would have to be before you were indifferent

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between accepting and rejecting the opportunity to face the risky alternative. Enter the
lowest acceptable winning amount in your Excel answer template.

11. Imagine that you face the following pair of concurrent decisions. Think of making
your choices in the morning, with the outcome to the first decision being determined in
the afternoon, and the outcome of the second decision being determined in the evening.
Imagine that the current time is morning. First examine both decisions, and then indicate
the option you prefer.

First decision: Choose between


A. a sure gain of $2,400
B. 25% chance to gain $10,000 and 75% chance to gain nothing.

a. Second decision: Choose between


C. a sure loss of $7,500
D. 75% chance to lose $10,000 and 25% chance to lose nothing

Indicate your choices by placing a 1 beside your choices in the Excel answer
template, and a 0 otherwise.

In plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet.
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12. Consider the danger of death or injury stemming from four sources, all involving
water:
1.

shark attacks

2.

hurricanes

3.

riptides

4.

floods

Which item in the above list involves the most danger to people? (Note: Enter the
number of the item.)

13. Consider different categories of tasks for which you have deadlines. On average, how
many hours before each deadline do you typically complete these types of tasks? (Use
minus numbers if you typically complete the task after the deadline). The task categories
are below:

1. school assignments
2. everyday tasks around the home
3. holiday shopping
4. completing income tax returns

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14. Consider the same four categories of tasks as in question 13. On average, how
accurate are you in predicting when you will complete these tasks, relative to your plans?
The task categories are:

1. school assignments
2. everyday tasks around the home
3. holiday shopping
4. completing income tax returns

In answering this question, enter a number between -2 and +2 where -2 is much


earlier than predicted , -1 is earlier than predicted, 0 is as predicted, +1 is later than
predicted and +2 is much later than predicted.

15. Consider breast cancer screening using mammography which is conducted in your
region. You know the following information about women in this region:

The probability that a woman has breast cancer is 1%.

If a woman has breast cancer, the probability that she tests positive is 90%.

If a woman does not have breast cancer, the probability that she nevertheless
tests positive is 9%.

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A woman tests positive. She wants to know from you what the chances are she has breast
cancer. In the Excel answer template, enter your answer, and remember to use a %
sign because your answer is a probability.

16. Imagine that you have a choice among two alternatives. Your first alternative is to
accept $150 immediately. Your second alternative is to accept possibly a different
amount of money at a future date.

1. If you had to wait one month, instead of receiving $150 immediately, what is the
lowest amount of money that you would consider accepting?

2. If you had to wait 12 months, instead of receiving $150 immediately, what is the
lowest amount of money that you would consider accepting?

3. If you had to wait 10 years, instead of receiving $150 immediately, what is the lowest
amount of money that you would consider accepting?

In plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet.

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17. (To be completed the week of June 9). Below you will find a list of 10 companies.
You will also find Yahoo links to online sources for information about these companies
as a separate tab in the Excel answer template file called Yahoo links. For each
company, please answer the following five questions, placing your answers in the answer
template.

1. On a scale of 0 to 10 how would you rate the quality of the company, where 0 is worst
and 10 is best?
2. On a scale of 0 to 10 how would you rate the company in terms of financial soundness,
where 0 is insolvent and 10 is solid as a rock?
3. On a scale of 0 to 10 how would you rate the companys stock in regard to value as a
long-term investment, where 0 is no value and 10 is extremely high value?
4. What percentage rate of return would you expect to earn on the companys stock if you
held it for one year? NOTE: Please type in the number followed by the %-sign.
5. On a scale of 0 to 10, where 0 is risk-free and 10 is extremely speculative, how would
you rate the riskiness of the companys stock?

The 10 companies, with ticker symbols in parentheses are:


1. Facebook (FB)
2. BlackBerry (BBRY)
3. Hewlett-Packard (HPQ)
4. Unisys (UIS)
5. Microsoft (MSFT)
6. JPMorgan Chase (JPM)
7. Intel (INTC)
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8. Twitter (TWTR)
9. eBay (EBAY)
10. Wal Mart (WMT)

In plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet. You do not have to
describe what you did for all ten stocks. However, it would be good to describe your
general approach, and to pick some examples to describe how you came up with the
answers you did.

18. A company uses a first pass quality assurance test for its products. Below are data
relevant to the testing process.

Ten out of every 1,000 items are defective.

Of these 10 items, the test indicates that 9 are defective.

Of the 990 items that are free of defects, the test indicates that about 89 are
defective.

If the test identifies an item as defective, a more detailed (second pass) screening test is
used to ascertain with certainty whether the item is indeed defective. Suppose that the
first pass test identifies a particular item as defective. Identify a whole number X in
connection with the sentence About 1 in X items that are identified as defective by the
first past test actually turn out to be defective. Enter your answer (a whole number) in
the Excel answer template.

19. Imagine that you are in a contest. As your contest entry, choose a whole number
between 0 and 100. The winner will be the person whose choice comes closest to twothirds of the average entry.
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20. Imagine that you have a choice among two alternatives. Your first alternative is to
accept $150 in exactly 12 months. Your second alternative is to accept possibly a
different amount of money at a future date that goes beyond 12 months.
1. If you had to wait 13 months, instead of receiving $150 in 12 months, what is the
lowest amount of money that you would consider accepting?
2. If you had to wait 24 months, instead of receiving $150 in 12 months, what is the
lowest amount of money that you would consider accepting?
3. If you had to wait eleven years, instead of receiving $150 in 12 months, what is the
lowest amount of money that you would consider accepting?

In plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet.

21. Imagine a situation where you have an opportunity to choose from among six
different funds. These funds have to be held for a period of one year. The six charts that
appear on the following pages provide the probability distribution for what the funds will
be worth after you have held them for a year. Examine all six charts and then answer the
following questions. You will also see a table that shows the mean, variance, and
standard deviation for what each fund will be worth after a year. The funds are named as
follows:
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1.

Risk Floor

2.

Short Shot

3.

Peaked

4.

Uniform

5.

Bimodal

6.

Long Shot

1.

Suppose that you are to receive part of your bonus in the form of one of these

funds. Rank order the funds from top to bottom, by placing a 1 beside the fund you
regard as the best, a 2 beside the fund you regard as second best, etc. Then, in plain
English, explain your thought process in answering this question. Your explanation
should be intelligible to someone like an intelligent fellow student. Enter your answer in
the tab Text Box that is in the Excel spreadsheet.

2.

Imagine yourself as the owner of one of these funds, which you received as part

of your bonus. If you were asked to sell the fund, what is the minimum price (WTA) you
would accept in order to give it up? (Think about owning each of the six funds in turn.
That is, provide six different values when answering this question, one beside each fund.)
Then in plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet.

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3.

Now suppose that instead of receiving funds as part of your bonus, you have to

buy the funds instead. Write down the maximum amount (WTP) you would be willing to
pay to purchase each of the six funds. Then, in plain English, explain your thought
process in answering this question. Your explanation should be intelligible to someone
like an intelligent fellow student. Enter your answer in the tab Text Box that is in the
Excel spreadsheet.

4.

If these were the only funds you could use to build your personal portfolio, and

you have $250,000 to invest, what percentage of your wealth would you invest in each?
Please make sure the percentages add up to 100%. In this respect, a share of each fund
costs $1000, and the charts below pertain to the future value of a single share after one
year. Then, in plain English, explain your thought process in answering this question.
Your explanation should be intelligible to someone like an intelligent fellow student.
Enter your answer in the tab Text Box that is in the Excel spreadsheet.

5. Assuming that instead of receiving funds as part of your bonus, you have to buy the
funds instead. For each fund, what is the minimum (annual) expected return, expressed as
a percentage, you feel you would require in order to be willing to buy that fund, and hold
it for a year? Because there are six funds, your answer will consist of six minimum
required returns. Then, in plain English, explain your thought process in answering this
question. Your explanation should be intelligible to someone like an intelligent fellow
student. Enter your answer in the tab Text Box that is in the Excel spreadsheet.

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For your hardcopy, place the answers to the above questions below each graph, noting the
question number.

The table below provides data describing the expected dollar payoff (Mean) for each
fund. The columns for Variance and Stdev provide the variance and standard deviation
for the dollar payoff of each fund.

Fund
1
2
3
4
5
6

Name
Risk Floor
Short Shot
Peaked
Uniform
Bimodal
Long Shot

Mean
Variance
$1,100 $125,434
$1,100 $125,434
$1,100 $195,637
$1,100 $444,214
$1,100 $724,922
$1,100 $1,403,741

Stdev
$354
$354
$442
$666
$851
$1,185

The histogram charts depicting the probabilities associated with the various payoffs
appear on the next pages.

Examine each chart carefully before answering the various parts of this question.

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22

Risk Floor
35

30

Probability (%)

25

20

15

10

0
$770

$935

$1,089

$1,254

$1,419

$1,573

$1,727

$1,892

$2,057

$2,200

Payoff

Short Shot
35

30

Probability (%)

25

20

15

10

0
$0

$143

$308

$473

$627

$781

$946

$1,111

$1,265

$1,430

Payoff

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Payoff

24

$2,200

$2,079

$1,958

$1,848

$1,738

$1,617

$1,496

$1,386

$1,276

$1,155

$1,034

$924

$814

$693

$572

$462

$352

$231

$110

$0

Probability (%)

$2,200

$2,046

$1,892

$1,749

$1,606

$1,452

$1,309

$1,166

$1,023

$880

$726

$583

$440

$286

$143

$0

Probability (%)

Peaked

35

30

25

20

15

10

Payoff

Uniform

35

30

25

20

15

10

Bimodal
35

30

Probability (%)

25

20

15

10

$2,200

$2,046

$1,892

$1,749

$1,606

$1,452

$1,309

$1,166

$1,023

$880

$726

$583

$440

$286

$0

$143

Payoff

Long Shot
35

30

Probability (%)

25

20

15

10

0
$0

$539

$1,078

$1,606

$2,145

$2,684

$3,212

$3,751

$4,290

$4,829

Payoff

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25

SM
22. For each of the following statements, please indicate the degree to which you believe
it is reflective of your own behavior. Please respond by circling the number that best
reflects how true you think each statement is about you.
1 = Certainly, always false
2 = Generally false
3 = Somewhat false, but with exception
4 = Somewhat true, but with exception
5 = Generally true
6 = Certainly, always true
1.

In social situations, I have the ability to alter my behavior if I feel


something else is called for.
1

I am often able to read people's true emotions correctly through


their eyes.
1

I have the ability to control the way I come across to people


depending on the impression I wish to give them.

In conversations, I am sensitive to even the slightest change in the


facial expression of the person I am conversing with.
1
2

When I feel that the image I am portraying isn't working, I can


readily change to something that does.
1

My powers of intuition are quite good when it comes to understanding


others' emotions and motives.
1
2
3

I have trouble changing my behavior to suit different people and


different situations.
1

I can usually tell when others consider a joke to be in bad taste,


even though they may laugh convincingly.
1

I have found that I can adjust my behavior to meet the requirements


of any situation I find myself in.
1
2

10. I can usually tell when I've said something inappropriate by reading
it in the listener's eyes.
1
2

2.

3.

4.

5.

6.

7.

8.

9.

11. Even when it might be to my advantage, I have difficulty putting up


H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

26

a good front.

12. If someone is lying to me, I usually know it at once from that person's
manner of expression.
1
2

13. Once I know what the situation calls for, it's easy for me to regulate
my actions accordingly.
1
2

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

27

DC
23. Below you will find a series of statements. Please read each statement
carefully and respond to it by expressing the extent to which you believe the
statement applies to you. For all items, a response from 1 to 7 is required. Use
the number that best reflects your belief with the scale defined as follows:
1 = The statement does not apply to me at all.
2 = The statement usually does not apply to me.
3 = Most often, the statement does not apply
4 = I am unsure about whether or not the statement applies to me or it applies to me
about half the time.
5 = The statement applies more often than not.
6 = The statement usually applies to me.
7 = The statement always applies to me.
1.

I prefer a job where I have a lot of control over what I do and when
I do it.
1

I enjoy political participation because I want to have as much of a say


in running government as possible.
1 2

3.

I try to avoid situations where someone else tells me what to do. 1

4.

I would prefer to be a leader than a follower.

5.

I enjoy being able to influence the actions of others.

6.

I am careful to check everything on an automobile before I leave for


a long trip.
1

7.

Others usually know what is best for me.

8.

I enjoy making my own decisions.

9.

I enjoy having control over my own destiny.

10. I would rather someone else take over the leadership role when I'm
involved in a group project.
1

11. I consider myself to be generally more capable of handling situations


than others are.
1 2

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28

2.

12. I'd rather run my own business and make my own mistakes than listen
to some else's orders.
1 2

13. I like to get a good idea of what a job is all about before I begin.

14. When I see a problem, I prefer to do something about it rather than sit
by and let it continue.
1 2

15. When it comes to orders, I would rather give them than receive them.
1 2

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

29

DC pg 2
1 = The statement does not apply to me at all.
2 = The statement usually does not apply to me.
3 = Most often, the statement does not apply
4 = I am unsure about whether or not the statement applies to me or it applies to me
about half the time.
5 = The statement applies more often than not.
6 = The statement usually applies to me.
7 = The statement always applies to me.
16. I wish I could push many of life's daily decisions off on someone else.
1 2

17. When driving, I try to avoid putting myself in a situation where I could be
hurt by another person's mistake.
1 2 3

18. I prefer to avoid situations where someone else has to tell me what it
is I should be doing.
1 2

19. There are many situations in which I would prefer only one choice rather
than having to make a decision.
1 2 3

20. I like to wait and see if someone else is going to solve a problem so that
I don't have to be bothered with it.
1 2

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30

SA
24. Please read the following statements and indicate the extent to which each
describes you. Indicate your answers on the following 5-point scale
1 = Not at all characteristic
2 = Slightly characteristic
3 = Moderately characteristic
4 = Very characteristic
5 = Extremely characteristic
1.

I often feel nervous even in casual get-togethers.

2.

I usually feel uncomfortable when I am in a group of people I


don't know.
1

I am usually at ease when speaking to a member of the opposite sex.


1
2

4.

I get nervous when I must talk to a teacher or boss.

5.

Parties often make me feel anxious and uncomfortable.

6.

I am probably less shy in social interactions than most people.


1

I sometimes feel tense talking to people of my own sex if I don't


them very well.
1

8.

I would be nervous if I were being interviewed for a job.

9.

I wish I had more confidence in social situations.

10. I seldom feel anxious in social situations.

11. In general, I am a shy person.

13. I often feel nervous when calling someone I don't know very well
on the telephone.
1
2

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31

3.

7.

12. I often feel nervous when talking to an attractive member of the


opposite sex.
1

14. I get nervous when I speak to someone in a position of authority.


1

15. I usually feel relaxed around other people, even people who are
quite different from me.
1

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32

AF
25. This scale consists of a number of words that describe different feelings and
emotions. Read each item and then mark the appropriate answer in the space
next to that word. Indicate to what extent you generally feel this way, that is,
how you feel on the average. Use the following scale to record your answers.
1

very slightly
or not at all

a little

moderately

quite a bit

extremely

____

interested

____

irritable

____

distressed

____

alert

____

excited

____

ashamed

____

upset

____

inspired

____

strong

____

nervous

____

guilty

____

determined

____

scared

____

attentive

____

hostile

____

jittery

____

enthusiastic

____

active

____

proud

____

afraid

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33

WB
26. Below you will find a series of statements a person might use to describe his
or her attitudes, opinions, interests, and other characteristics. Please decide
whether, for each statement, the true or false choice best describes you. Please
answer every statement, even if you are not completely sure of the answer, by
entering 1 for true and 2 for false. Read each statement carefully, but do not
spend too much time deciding on the answer.
1.

It is easy for me to become enthusiastic about things I am doing True

False

2.

My mood often goes up and down

True

False

3.

I always seem to have something pleasant to look forward to.

True

False

4.

I suffer from nervousness.

True

False

5.

I often feel happy and satisfied for no particular reason.

True

False

6.

Often I get irritated at little annoyances.

True

False

7.

I sometimes change from happy to sad, or vice versa, without good


reason.
True

False

8.

Every day I do some things that are fun.

True

False

9.

I often find myself worrying about something.

True

False

10.

I usually find ways to liven up my day.

True

False

11.

There are days when I'm "on edge" all of the time.

True

False

12.

I am too sensitive for my own good.

True

False

13.

Most days I have moments of real fun or joy.

True

False

14.

My feelings are hurt rather easily.

True

False

15.

In my spare time I usually find something interesting to do.

True

False

16.

I sometimes feel "just miserable" for no good reason.

True

False

17.

For me life is a great adventure.

True

False

18.

Occasionally I experience strong emotions--anxiety, anger--without


really knowing what causes them.
True

False

19.

I often lose sleep over my worries.

True

False

20.

Every day interesting and exciting things happen to me.

True

False

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34

21.

Minor setbacks sometimes irritate me too much.

True

False

22.

I often feel sort of lucky for no special reason.

True

False

23.

I sometimes get myself into a state of tension and turmoil as I think of


the day's events.
True

False

24.

I am easily startled by things that happen unexpectedly.

True

False

25.

I live a very interesting life.

True

False

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

35

OP
27. Please indicate the extent to which you agree with each of the following
statements. Use the following scale for your responses.
1 = Strongly disagree
2 = Disagree
3 = Neutral
4 = Agree
5 = Strongly Agree

1.

In uncertain times, I usually expect the best.

3 4 5

2.

If something can go wrong for me, it will.

3 4 5

3.

I always look on the bright side of things.

3 4 5

4.

I'm always optimistic about my future.

3 4 5

5.

I hardly ever expect things to go my way.

3 4 5

6.

Things never work out the way I want them to. 1

3 4 5

7.

I am a believer in the idea that "every cloud has a


silver lining."
1

3 4 5

I rarely count on good things happening to me. 1

3 4 5

8.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

36

SPA
28. Below you will find a series of statements. Please read each statement
carefully and respond to it by expressing the extent to which you believe the
statement applies to you. For all items, a response from 1 to 7 is required. Use
the number that best reflects your belief with the scale defined as follows:
1 = The statement does not apply to me at all.
2 = The statement usually does not apply to me.
3 = Most often, the statement does not apply
4 = I am unsure about whether or not the statement applies to me or it applies to me
about half the
time.
5 = The statement applies more often than not.
6 = The statement usually applies to me.
7 = The statement always applies to me.

1. When I am in a situation where the outcome is uncertain, the emotion I


feel the most intensely is fear.
2. When I am in a situation where the outcome is uncertain, the emotion I
feel the most intensely is hope.
3. When I am in a situation where the outcome is uncertain, I usually feel
cautiously hopeful.
4. When I am in a situation where the outcome is uncertain, I usually have a
target outcome in mind which defines success for me.

5. When I am in a situation where the outcome is uncertain, my major


concern is avoiding as unfavorable an outcome as possible.

6. When I am in a situation where the outcome is uncertain, my major


concern is to achieve as favorable an outcome as possible.

7. When I am in a situation where the outcome is uncertain, my major


concern is to maximize the odds of my achieving an outcome that I would
characterize as success.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

37

8. I am comfortable taking a risk where there is a small but reasonable


chance of an extremely favorable outcome as long as the downside is not
too unfavorable.
9. I am comfortable taking a risk where there is a small but reasonable
chance of an extremely favorable outcome even if the downside is quite
unfavorable.
10. I prefer taking small risks to large risks because the downside looms much
larger for me than the upside.
11. I prefer taking large risks to small risks because the upside looms much
larger for me than the downside.
12. When I am in a situation where the outcome is uncertain, missing my goal
causes me great pain.
13. When I am in a situation where the outcome is uncertain, I would be
willing to take a little more risk on the downside if doing so would
increase the chances of achieving my goal.
14. When I am in a situation where the outcome is uncertain, I would be
willing to lower the odds of achieving an extremely favorable outcome, if
doing so would increase the chances of achieving my goal.

15. When I am in a situation where the outcome is uncertain, I would be


willing to increase the odds of achieving an extremely unfavorable
outcome, if doing so would increase the chances of achieving my goal.

16. When Im in a situation that can only turn out well I am willing to take
more risk than usual.
17. When Im in a situation that can only turn out badly I am willing to take
more risk than usual.
18. When Im in a situation where just a little bit of bad luck will result in a
disaster, I try to take as little risk as possible.
19. When Im in a situation where a moderate amount of bad luck will result
in a disaster, I am willing to take more risk than when a little bit of bad
luck will result in a disaster.

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38

20. When Im in a situation where a reasonably ambitious goal I am trying to


achieve is within reach, and a little bit of good luck will result in the
achievement of my goal, I am willing to take a fair amount of risk.
21. When Im in a situation where a reasonably ambitious goal I am trying to
achieve is within reach, and but will require a moderate amount of good
luck, I am willing to take more risk than when a situation where just a
little bit of good luck is all that I need to achieve my goal.
22. When Im in a situation where I have achieved a reasonably ambitious
goal that I aimed for, but just a little bit of bad luck will result in my
falling short of that goal, I try to take as little risk as possible.
23. When Im in a situation where I have achieved a reasonably ambitious
goal that I aimed for, and it would take a moderate amount of bad luck to
result in my falling short of that goal, I am willing to take more risk than
when just a little bit of bad luck will result in my falling short of that goal.
24. When I am in a situation where a moderate amount of bad luck would be
required to cause disaster, but at the same time I am quite far away from
achieving a reasonably ambitious goal, my focus is on avoiding disaster.
25. When I am in a situation where a moderate amount of bad luck would be
required to cause disaster, but at the same time I am quite far away from
achieving a reasonably ambitious goal, I am willing to take a lot of risk.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

39

Question 29
Imagine 100 book bags, each of which contains 1,000 poker chips. 45 bags
contain 700 black chips and 300 red chips. The other 55 bags contain 300 black
chips and 700 red chips. You cannot see inside any of the bags. One of the bags is
selected at random by means of a coin toss.
Consider the following three questions about the book bag.

29a.

What probability would you assign to the event that the selected bag contains
predominantly black chips?
Probability = ______________%

29b.

Now imagine that 12 chips are drawn, with replacement, from the selected bag.
These twelve draws produce 8 blacks and 4 reds. Would you use the new
information about the drawing of chips to revise your probability that the selected
bag contains predominantly black chips? If so, what new probability would you
assign?
Probability = ______________%

29c.

In addition to giving your best probability estimate in 29b, consider a range: a


low estimate and a high estimate so that you feel 90% confident that the right
answer will lie between your low estimate and your high estimate. Try not to
make the range between your low estimate and high estimate too narrow.
Otherwise, you will appear overconfident. At the same time, try not to make the
range between your low estimate and high estimate too wide. This will make you
appear underconfident. If you are well-calibrated, you should expect the true
probability to lie outside the range between your low estimate and your high
estimate one time in ten.

Low estimate = __________%

High estimate = ___________%

In plain English, explain your thought process in answering this question. Your
explanation should be intelligible to someone like an intelligent fellow student. Enter
your answer in the tab Text Box that is in the Excel spreadsheet.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

40

30.

Suppose that you face a choice between two situations, designated 30.1 and 301.2.
Which would you prefer? Enter 1 for 30.1 and 2 for 30.2.

30.1: 90% chance of winning $2000


10% chance of zero.
30.2: 45% chance of winning $4000
55% chance of zero.
In plain English, explain your thought process in making this choice. Your explanation
should be intelligible to someone like an intelligent fellow student. There is an entry in
column H of the tab Answer Template for your response to this question. However, if
your response is too long, you can also record your answer in the tab Text Box, being
sure to identify the number of the question. Similar remarks about using Text Box apply
to all the remaining questions below that begin In plain English

31.

Suppose that you face a choice between two situations, designated 31.1 and 31.2.
Which would you prefer? Enter 1 for 31.1 and 2 for 31.2.

31.1: $2000 with probability .002


0 with probability .998
31.2: $4000 with probability .001
0 with probability .999

In plain English, explain your thought process in making this choice. Your explanation
should be intelligible to someone like an intelligent fellow student.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

41

32. Choose between A and B (circle your choice on the hard copy, and enter 1 for A or 2
for B in the spreadsheet table), where
A = a guaranteed loss of $750
B = 25% chance to lose nothing, 75% chance to lose $1000
In plain English, explain your thought process in making this choice. Your explanation
should be intelligible to someone like an intelligent fellow student. Then, as part of your
answer, explain whether your response to this question would be different if the stakes
were larger by a factor of 10 and 100 respectively, and smaller by 1/10 the size and 1/100
the size respectively. Important: If there is a stake size scaling factor that would leave
you indifferent between the two choices, please indicate its value as part of your answer.

33. Imagine that you face the following choice. You can accept a guaranteed $1,500 or
accept a stylized risk. The outcome of the stylized risk is determined by the toss of a
fair coin. If heads comes up, you win $1,950. If tails comes up, you win $1,050.
Which would you choose?
C = the guaranteed $1,500
D = the 50-50 risk of winning $1,950 or winning $1,050
Enter 1 for C and 2 for D in the Excel answer sheet. In plain English, explain your
thought process in making this choice. Your explanation should be intelligible to
someone like an intelligent fellow student.

34. Imagine that you face the following choice. You can accept a guaranteed loss of $750
or accept a stylized risk. The outcome of the stylized risk is determined by the toss of
a fair coin. If heads comes up, you lose $525. If tails comes up, you lose $975. Which
would you choose?
E = the guaranteed loss of $750
F = the 50-50 risk of losing $525 or losing $975
Enter 1 for E and 2 for F in the Excel answer sheet. In plain English, explain your thought
process in making this choice. Your explanation should be intelligible to someone like an
intelligent fellow student.
H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

42

35. Imagine that you are in a situation where 75% of the time you lose $760. And 25% of
the time you win $240. Its an unavoidable risk you have to take. Now I give you a
choice. Which would you choose?
G = face the risk I just described and in addition Ill give you $10
H = face the risk I just described and instead of giving you $10, Ill give you $0
Enter 1 for G and 2 for H in the Excel answer sheet. In plain English, explain your
thought process in making this choice. Your explanation should be intelligible to
someone like an intelligent fellow student.

36. This question concerns how your attitude to risk depends on other aspects of your
financial situation. Imagine that you have just won $1,500 in one stylized lottery, and
have the opportunity to participate in a second stylized lottery. The outcome of the
second lottery is determined by the toss of a fair coin. If heads comes up, you win
$450 in the second lottery. If tails comes up, you lose $450. Which would you
choose?
I = accept the 50-50 risk of winning $450 or losing $450
J = reject the 50-50 risk of winning $450 or losing $450

Enter 1 for I and 2 for J in the Excel answer sheet. In plain English, explain your thought
process in making this choice. Your explanation should be intelligible to someone like an
intelligent fellow student.

37. Imagine that you have just lost $750 in one stylized lottery, but have the opportunity
to participate in a second stylized lottery. The outcome of the second lottery is
determined by the toss of a fair coin. If heads comes up, you win $225 in the second
lottery. If tails comes up, you lose $225. Which would you choose?
K = accept the 50-50 risk of winning $225 or losing $225
L = reject the 50-50 risk of winning $225 or losing $225
H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

43

Enter 1 for K and 2 for L in the Excel answer sheet. In plain English, explain your
thought process in making this choice. Your explanation should be intelligible to
someone like an intelligent fellow student.

38. Consider a decision task featuring choice from a set of two alternatives M and N with
the same expected payoffs. Which would you choose?
M = a sure loss of $500
N = a 50-50 risk where you will either lose $1000 or lose $0

Enter 1 for M and 2 for N in the Excel answer sheet. In plain English, explain your
thought process in making this choice. Your explanation should be intelligible to
someone like an intelligent fellow student. Then, as part of your answer, explain whether
your response to this question would be different if the stakes were larger by a factor of
10 and 100 respectively, and smaller by 1/10 the size and 1/100 the size respectively.
Important: If there is a stake size scaling factor that would leave you indifferent between
the two choices, please indicate its value as part of your answer.

39. Consider a decision task featuring choice from a set of two alternatives O and P with
the same expected payoffs. Which would you choose?
O = a sure loss of $500
P = a 2:1 risk where you will either lose $1000 with probability 1/3 or lose $250
with probability 2/3
Enter 1 for O and 2 for P in the Excel answer sheet.
In plain English, explain your thought process in making this choice. Your explanation
should be intelligible to someone like an intelligent fellow student. Then, as part of your
answer, explain whether your response to this question would be different if the stakes
were larger by a factor of 10 and 100 respectively, and smaller by 1/10 the size and 1/100
the size respectively. Important: If there is a stake size scaling factor that would leave
you indifferent between the two choices, please indicate its value as part of your answer.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

44

40. This question concerns how your attitude to risk depends on other aspects of your
financial situation. Imagine that you have just won $1,500 in one stylized lottery, and
have the opportunity to participate in a second stylized lottery. The outcome of the
second lottery is determined by the toss of a fair coin. If heads comes up, you win
$1,550 in the second lottery. If tails comes up, you lose $1,550. Which would you
choose?
Q = accept the 50-50 risk of winning $1,550 or losing $1,550
R = reject the 50-50 risk of winning $1,550 or losing $1,550

Enter 1 for Q and 2 for R in the Excel answer sheet. In plain English, explain your
thought process in making this choice. Your explanation should be intelligible to
someone like an intelligent fellow student.

41. Opening a new restaurant is risky. Suppose that you were assessing the various ways
that a once profitable restaurant might go out of business. One possible way this might
happen is that revenues fall. Another possibility is that costs increase. Of course, both
might happen, but for the purpose of this question, assume that only one happens but not
the other. In the figure below, you will find a fault tree that describes various possible
ways that this might happen, including an all other category at the bottom. Write down
your best guess for the conditional probability attached to each branch. For example,
notice that there are only two possible ways the revenues can decrease, decreasing
customers and decreasing checks per customer. Assuming that both do not occur at once,
the sum of the two conditional probabilities should add up to 100%. Hence, the
probability you would attach to Decreasing Number of Customers is conditional on the
restaurant failing because of Decreasing Revenues. For example, if you assigned a
60% probability to Decreasing Number of Customers, then you would assign a 40%
probability to Decreasing Average Food/Beverage Check. Similarly, the probabilities
under Decreasing Number of Customers should sum to 100%, as these probabilities are
conditional on the event Decreasing Number of Customers. That is, the probabilities of
the events beginning with Incorrect Pricing and ending with All Other should sum to
100%. Similar statements hold for all five columns in the figure below. Fill in the
probabilities, remembering to include the probability of any reason not specifically listed
in the All Other category.

See figure next page.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

45

FAULT TREE FOR RESTAURANT


Restaurant
Failure Due to
Decreasing
Profits
Decreasing
Revenues

Decreasing
Number of
Customers

Increasing
Costs

Decreasing
Average
Food/Beverage
Check
Decreasing
Perceived Value by
Customers

Incorrect Pricing

Increasing Food
Costs
Improper
Purchasing and
Receiving
Menu Variety
(Too Limited or
Too Extensive)

Changing
Atmosphere
Outdated
Restaurant
Concept
Inadequate
Promotion
and
Advertising

Inadequate Service
Pace

Poor Sales
Forecasting

Poor
Merchandising

Changes in
Supplier Market

Lack of Employee
Motivation

Changing
Expectations
of Customers

Changing
Customer Diningout Budget

High Waste and


Leftovers
Inadequate
Number of
Production
Employees

All Other

All Other

All Other

Incorrect
Pricing
Unclear
Image of
Property

Increasing
Labor Costs
Increasing
Overtime
Scheduling
Decreasing
Productivity of
Employees
Poor
Organizational
Climate

Union Rules
Improper
Physical
Layout and
Equipment

Increasing Overhead
Costs
High Debt Service
Cost
Poor Design of
Facility
High Occupancy
Costs
Inadequate Capital
Structure

Low Sales Volume

Poor Employee
Selection and
Training

Improper Growth Rate

All Other

All Other

42. Consider the following list of activities and technologies. Imagine that the year is
1978. On a scale of 1-100, rate these activities and technologies in terms of how risky
you perceive them to be for the general population in the U.S. Assign a 100 to what you
believe to be the riskiest activity. Low numbers should connote low risk, and high
numbers high risk. Some people think about this question by guessing the average
number of deaths that occur per year in connection with each category.
Motor vehicles
Food coloring
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46

Mountain climbing
Fire fighting
General aviation
Motorcycles
Smoking
Food preservatives
Power mowers
Police work
Large construction
Swimming
Alcoholic beverages
Pesticides
High school and college football
Contraceptives
Bicycles
Surgery
Prescription antibiotics
Skiing
Commercial aviation
Hunting
X-rays
Handguns
Spray cans
Vaccinations
Nuclear power
Home appliances
Railroads
Electric power

43. Question 10 above asked you to imagine being given the opportunity to play a 50-50
risky alternative whose outcome will be determined by the toss of a coin. If the coin toss
comes up tails, you lose $500. If the coin toss comes up heads, you win $5,000. You can
choose to accept the risky alternative (1), or you can choose to reject the risky alternative
(0).

1. If the amounts in question 10 were lose $450 and win $450 instead of lose
$500 and win $5000, then would you accept the risk or reject the risk?
H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

47

2. If the amounts in question 10 were lose $225 and win $225 instead of lose
$500 and win $5000, would you accept the risk or reject the risk?

In plain English, explain your thought process in making this choice. Your explanation
should be intelligible to someone like an intelligent fellow student.

44. Repeat question 40, but using the figure below in place of the figure in question 40. In
doing so, do not go back and look at your answers based upon figure 1. Write down your
best guess for the conditional probability attached to each branch. For example, notice
that there are only two possible ways the revenues can decrease, decreasing customers
and decreasing checks per customer. Assuming that both do not occur at once, the sum of
the two conditional probabilities should add up to 100%. Hence, the probability you
would attach to Decreasing Number of Customers is conditional on the restaurant
failing because of Decreasing Revenues. For example, if you assigned a 60%
probability to Decreasing Number of Customers, then you would assign a 40%
probability to Decreasing Average Food/Beverage Check. Similarly, the probabilities
under Decreasing Number of Customers should sum to 100%, as these probabilities are
conditional on the event Decreasing Number of Customers. That is, the probabilities of
the events beginning with Incorrect Pricing and ending with All Other should sum to
100%. Similar statements hold for all five columns in the figure below. Fill in the

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48

probabilities, remembering to include the probability of any reason not specifically listed
in the All Other category.

See figure next page.

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49

FAULT TREE FOR RESTAURANT


Restaurant
Failure Due to
Decreasing
Profits
Decreasing
Revenues

Increasing
Costs

Incorrect Pricing

Decreasing
Average
Food/Beverage
Check
Decreasing
Perceived Value by
Customers

Unclear Image of
Property

Incorrect Pricing

Increasing Food
Costs
Improper
Purchasing and
Receiving
Menu Variety
(Too Limited or
Too Extensive)

Changing
Atmosphere

Inadequate Service
Pace

Poor Sales
Forecasting

Outdated
Restaurant Concept

Poor
Merchandising

Changes in
Supplier Market

Inadequate
Promotion and
Advertising

Lack of Employee
Motivation

Changing
Expectations of
Customers

Changing
Customer Diningout Budget

High Waste and


Leftovers
Inadequate
Number of
Production
Employees

Poor Quality of
Food

Changing Mix of
Food/Beverage
Sales

Changing
Competition
Poor Quality of
Service

Inconsistent
Quality of Food
Changing
Competition

Changing Customer
Demographics
Lack of Menu
Variety

Improper Portion
Size
Changing
Customer
Demographics

Changing Location
Characteristics

Changing
Customer Tastes

All Other

All Other

Decreasing Number
of Customers

Increasing
Labor Costs
Increasing
Overtime
Scheduling
Decreasing
Productivity of
Employees
Poor
Organizational
Climate

Union Rules
Improper
Physical
Layout and
Equipment

Increasing Overhead
Costs
High Debt Service
Cost
Poor Design of
Facility
High Occupancy
Costs
Inadequate Capital
Structure

Low Sales Volume

Poor Employee
Selection and
Training

Improper Growth Rate

High Theft

High Employee
Turnover

High Administrative
Costs

Poor Supervision
Incorrect Size of
Food Portions

Menu Variety
Too Extensive
Poor
Supervision

Incorrect Work
Method of Personnel
Improper Business
Hours

Inadequate
Wage Structure
Inefficient
Employee
Scheduling

Outdated Facility and


Equipment

Improper Storage
and Issuing

All Other

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High Inflation

Increasing
Benefit Costs

Poor Credit Rating

All Other

All Other

50

45. Question 21 asks you series of questions about six risky alternatives. All of the charts
pertaining to those alternatives feature positive gross payoffs. Suppose now that you have
to consider facing these same alternatives, except now the amounts represent possible
losses instead. Please answer the following questions.

1.

Rank order the six alternatives from top to bottom, by placing a 1 beside the fund

you regard as the best, a 2 beside the fund you regard as second best, etc. Then, in plain
English, explain your thought process in answering this question. Your explanation
should be intelligible to someone like an intelligent fellow student. Enter your answer in
the tab Text Box that is in the Excel spreadsheet.

2.

Imagine that you are asked to consider accepting the risk associated with each of

the six alternatives in exchange for compensation. What is the minimum amount (WTA)
you would accept in order to take on the risk? Please provide an answer for each
alternative in turn. That is, provide six different values when answering this question, one
beside each alternative.) Then in plain English, explain your thought process in
answering this question. Your explanation should be intelligible to someone like an
intelligent fellow student. Enter your answer in the tab Text Box that is in the Excel
spreadsheet.

3.

Now suppose that you were actually to face each of the risky alternatives, but

have an opportunity to pay a fixed amount (WTP) to avoid the risk entirely. Write down
the maximum amount (WTP) you would be willing to pay to buy your way out of facing

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51

each of the six alternatives. Then, in plain English, explain your thought process in
answering this question. Your explanation should be intelligible to someone like an
intelligent fellow student. Enter your answer in the tab Text Box that is in the Excel
spreadsheet.

46. Question 11 asked you to consider the following concurrent choices:

First decision: Choose between


A. a sure gain of $2,400
B. 25% chance to gain $10,000 and 75% chance to gain nothing.

Second decision: Choose between


C. a sure loss of $7,500
D. 75% chance to lose $10,000 and 25% chance to lose nothing

Think about your choice between A and B and suppose that the stakes were different.
Would the size of the stakes change your choice? For example, if the stakes were 1/1000
the size, so that A would feature a gain of $2.40 and B a chance to gain $10, would you
choose differently? Likewise, if the stakes were 100 times larger, with A featuring a gain
of $240,000, would you choose differently? Please identify the critical value for stake
size that would just leave you indifferent between choosing A or B, and enter your
response. If no such critical value exists, enter -1 as your answer. However, if your
answer is 1/10, enter 0.1 as your response. Or if your answer is 100, enter 100 as your
response.
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52

Likewise, think about your choice between C and D. Please identify the critical value for
stake size that would just leave you indifferent between choosing C or D, and enter your
response. If no such critical value exists, enter -1 as your answer. However, if your
answer is 1/10, enter 0.1 as your response. Or if your answer is 100, enter 100 as your
response.

In plain English, please explain your thinking. You may enter your response in the
worksheet, or in the tab Text Box, whichever you prefer.

47.
In an earlier question you were asked to imagine that you face the following
choice. You can accept a guaranteed $1,500 or accept a stylized risk. The outcome of the
stylized risk is determined by the toss of a fair coin. If heads comes up, you win $1,950.
If tails comes up, you win $1,050. You were then asked: Which would you choose?
C = the guaranteed $1,500
D = the 50-50 risk of winning $1,950 or winning $1,050
If you could replace the win $1,050 amount with a number $X that would leave you
indifferent between facing C and D, what would the value of X be?
Alternatively, if you could instead replace the win $1,950 amount with an amount $Y,
what would the value of Y be?
In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

48.

In an earlier question you were asked to imagine that you face the following
choice. You can accept a guaranteed loss of $750 or accept a stylized risk. The
outcome of the stylized risk is determined by the toss of a fair coin. If heads comes
up, you lose $525. If tails comes up, you lose $975. You were then asked: Which
would you choose?

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53

E = the guaranteed loss of $750


F = the 50-50 risk of losing $525 or losing $975
If you could replace the $975 amount with a number $X that would leave you indifferent
between facing E and F, what would the value of X be?
Alternatively, if you could instead replace the lose $525 amount with an amount $Y,
what would the value of Y be? If Y represents a loss, enter a minus number, and if Y
represents a gain, enter a number without a minus sign.

In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

49. In an earlier question you were asked to imagine that you have just won $1,500 in one
stylized lottery, and have the opportunity to participate in a second stylized lottery.
The outcome of the second lottery is determined by the toss of a fair coin. If heads
comes up, you win $450 in the second lottery. If tails comes up, you lose $450. You
were then asked: Which would you choose?
I = accept the 50-50 risk of winning $450 or losing $450
J = reject the 50-50 risk of winning $450 or losing $450
If you could replace the lose $450 amount with a number $X that would leave you
indifferent between facing I and J, what would the value of X be?
Alternatively, if you could instead replace the winning $450 amount with an amount
$Y, what would the value of Y be?

In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

50. In an earlier question you were asked to imagine that you have just lost $750 in one
stylized lottery, but have the opportunity to participate in a second stylized lottery.
The outcome of the second lottery is determined by the toss of a fair coin. If heads
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54

comes up, you win $225 in the second lottery. If tails comes up, you lose $225. You
were then asked: Which would you choose?
K = accept the 50-50 risk of winning $225 or losing $225
L = reject the 50-50 risk of winning $225 or losing $225

If you could replace the lose $225 amount with a number $X that would leave you
indifferent between facing K and L, what would the value of X be?
Alternatively, if you could instead replace the winning $225 amount with an amount
$Y, what would the value of Y be?

In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

51. In an earlier question you were asked to consider a decision task featuring choice
from a set of two alternatives M and N with the same expected payoffs. You were
then asked: Which would you choose?
M = a sure loss of $500
N = a 50-50 risk where you will either lose $1000 or lose $0
If you could replace the lose $1000 amount with a number $X that would leave you
indifferent between facing M and N, what would the value of X be?
Alternatively, if you could instead replace the lose $0 amount with an amount $Y, what
would the value of Y be? If Y represents a loss, enter a minus number, and if Y represents
a gain, enter a number without a minus sign.

In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

H. M. Shefrin 2014. All rights reserved. Do not copy or duplicate.

55

52. In an earlier question, you were asked to consider a decision task featuring choice
from a set of two alternatives O and P with the same expected payoffs. You were then
asked: Which would you choose?
O = a sure loss of $500
P = a 2:1 risk where you will either lose $1000 with probability 1/3 or lose $250
with probability 2/3
If you could replace the lose $1000 amount with an amount $X that would leave you
indifferent between facing O and P, what would the value of X be?
Alternatively, if you could instead replace the lose 250 amount with an amount $Y,
what would the value of Y be?
In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

53. In an earlier question you were asked to imagine that you have just won $1,500 in one
stylized lottery, and have the opportunity to participate in a second stylized lottery.
The outcome of the second lottery is determined by the toss of a fair coin. If heads
comes up, you win $1,550 in the second lottery. If tails comes up, you lose $1,550.
You were then asked: Which would you choose?
Q = accept the 50-50 risk of winning $1,550 or losing $1,550
R = reject the 50-50 risk of winning $1,550 or losing $1,550
If you could replace the lose $1,550 amount with an amount $X that would leave you
indifferent between facing Q and R, what would the value of X be?
Alternatively, if you could instead replace the win $1,550 amount with an amount $Y,
what would the value of Y be?
In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

54. In an earlier question you were asked to imagine that you face a choice between the
two alternatives below, designated 30.1 and 301.2. You were then asked: Which
would you prefer?

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56

30.1: 90% chance of winning $2000


10% chance of zero.
30.2: 45% chance of winning $4000
55% chance of zero.

If you could replace the 45% probability of winning $4000 with a probability P that
would leave you indifferent between facing these two alternatives, what would the value
of P be?
In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

55. In an earlier question you were asked to imagine that you face a choice between two
situations, designated 31.1 and 31.2. You were then asked: Which would you prefer?

31.1: $2000 with probability .002


0 with probability .998
31.2: $4000 with probability .001
0 with probability .999
If you could replace the .001 probability of winning $4000 with a probability P that
would leave you indifferent between facing these two alternatives, what would the value
of P be?
In plain English, explain the thought process underlying your response. Your explanation
should be intelligible to someone like an intelligent fellow student.

56. Are you an MBA student, a PhD, student, or fall into some other category?

57. Briefly describe what you hope to learn from this course.

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57