University of Santo Tomas

Behavioral Finance
Essay 3

10 points each

1. How do gambling fallacy and clustering illusion relate to representativeness?

Provide examples from sports. In what way are they different?

2. Rex is a smart fellow. He gets an A in a course 80% of the time. Still, he likes his
leisure, only studying for the final exam in half of the courses he takes.
Nevertheless, when he does study, he is almost sure (95% likely) to get an A.
Assuming he got an A, how likely is it he studied? If someone estimates the above to
be 75%, what error are they committing? Explain.

P(studied|A) = P(A|studied) * [P(studied)/P(A)]

= .95 * (.5 / .8) = .59375

3. Is miscalibration greater for easy questions or hard questions? Is it greater when

we look at 50% confidence ranges or 98% confidence ranges?

4. Provide an example where someone can be both excessively optimistic and

miscalibrated at the same time.