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Behavioral Economics
        What can it teach the Blackstone Group?



                                                  1
Linda is 31 years old, single, outspoken, and very bright.
She majored in philosophy. As a student, she was
deeply concerned with issues of discrimination and
social justice, and also participated in anti-nuclear
demonstrations.
  A.Linda is a teacher in elementary school.

  B.Linda works in a bookstore and takes Yoga classes.

  C.Linda is active in the feminist movement.

  D.Linda is a psychiatric social worker.

  E.Linda is a member of the League of Women Voters.

  F.Linda is a bank teller.

  G.Linda is an insurance salesperson.

  H.Linda is a bank teller and is active in the feminist movement.

                                                                     2
1. Take the last 3 digits of your phone
number.

2. Add 400 to that number.

3. Write that new number down and write

 “AD” next to it to the right.



                                          3
In what year did Attila the Hun’s rampage
through Europe finally end?




                                        4
Program A or Program B?




                          5
Linda is 31 years old, single, outspoken, and very bright.
She majored in philosophy. As a student, she was
deeply concerned with issues of discrimination and
social justice, and also participated in anti-nuclear
demonstrations.
  A.Linda is a teacher in elementary school.

  B.Linda works in a bookstore and takes Yoga classes.

  C.Linda is active in the feminist movement.

  D.Linda is a psychiatric social worker.

  E.Linda is a member of the League of Women Voters.

  F.Linda is a bank teller.

  G.Linda is an insurance salesperson.

  H.Linda is a bank teller and is active in the feminist movement.

                                                                     6
Feminist
               Bank tellers




Bank tellers


                              7
85% of people will rank “Linda is a
bank teller and is active in the
feminist movement” as more
probable than “Linda is a bank
teller.”



                                      8
In what year did Attila the Hun’s rampage
through Europe finally end?




                                        9
Attila the Hun (406–453) was
finally routed in 451.
  Initial Anchor   Average Estimate

    400-599              629

    600-799              680

    800-999              789

   1000-1199             885

   1200-1399             988




                                      10
Program A or Program B?




                          11
Imagine that the nation is preparing for the outbreak of a new Swine
Flu, which is expected to kill 600 people. Two alternative programs to
combat the disease have been proposed. Assume that the exact
scienti c estimates of the consequences of the programs are as
follows:

   If Program A is adopted, 200 people will be saved.

   If Program B is adopted, there is a one-third probability
   that 600 people will be saved and a two-thirds probability
   that no people will be saved.

Imagine that the nation is preparing for the outbreak of a new Avian
Flu, which is expected to kill 600 people. Two alternative programs to
combat the disease have been proposed. Assume that the exact
scienti c estimates of the consequences of the programs are as
follows:

   If Program A is adopted, 400 people will die.

   If Program B is adopted, there is a one-third probability
   that nobody will die and a two-thirds probability
   that 600 people will die.
                                                                         12
“I am large, I contain multitudes”
                         -Walt Whitman
                                     13
Plato compared the mind to a
chariot drawn by wild horses.
                                14
Buddha compared it to a rider and
his elephant.
                                    15
Today, driving a car
is our metaphor.
                   16
We think we are
this guy...



                  17
We’re more like this guy




                           18
Linda is 31 years old, single, outspoken, and very
bright. She majored in philosophy. As a student, she
was deeply concerned with issues of discrimination and
social justice, and also participated in anti-nuclear
demonstrations.

Linda is active in the feminist movement.
Linda is a bank teller and is active in the
feminist movement.
Linda is a bank teller.



                                                         19
20
21
22
23
24
25
26
What is the default option?

  Check the box if you want to participate in the organ donor program.



  Check the box if you don’t want to participate in the organ donor
  program.




                                                                         27
28
01 him was worried she always
02 from are Florida oranges temperature
03 ball the throw toss silently
04 shoes give replace old the
05 he observes occasionally people watches
06 be will sweat lonely they
07 sky the seamless gray is
08 should now withdraw forgetful we
09 us bingo sing play let
10 sunlight makes temperature wrinkle
raisins

                                             29
30
31
To know that one knows what one knows, and
to know that one doesn't know what one
doesn't know, therein lies true wisdom.

                           — CONFUCIUS




                                             32

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Beh Econ.Key

  • 1. Behavioral Economics What can it teach the Blackstone Group? 1
  • 2. Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. A.Linda is a teacher in elementary school. B.Linda works in a bookstore and takes Yoga classes. C.Linda is active in the feminist movement. D.Linda is a psychiatric social worker. E.Linda is a member of the League of Women Voters. F.Linda is a bank teller. G.Linda is an insurance salesperson. H.Linda is a bank teller and is active in the feminist movement. 2
  • 3. 1. Take the last 3 digits of your phone number. 2. Add 400 to that number. 3. Write that new number down and write “AD” next to it to the right. 3
  • 4. In what year did Attila the Hun’s rampage through Europe finally end? 4
  • 5. Program A or Program B? 5
  • 6. Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. A.Linda is a teacher in elementary school. B.Linda works in a bookstore and takes Yoga classes. C.Linda is active in the feminist movement. D.Linda is a psychiatric social worker. E.Linda is a member of the League of Women Voters. F.Linda is a bank teller. G.Linda is an insurance salesperson. H.Linda is a bank teller and is active in the feminist movement. 6
  • 7. Feminist Bank tellers Bank tellers 7
  • 8. 85% of people will rank “Linda is a bank teller and is active in the feminist movement” as more probable than “Linda is a bank teller.” 8
  • 9. In what year did Attila the Hun’s rampage through Europe finally end? 9
  • 10. Attila the Hun (406–453) was finally routed in 451. Initial Anchor Average Estimate 400-599 629 600-799 680 800-999 789 1000-1199 885 1200-1399 988 10
  • 11. Program A or Program B? 11
  • 12. Imagine that the nation is preparing for the outbreak of a new Swine Flu, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scienti c estimates of the consequences of the programs are as follows: If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Imagine that the nation is preparing for the outbreak of a new Avian Flu, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scienti c estimates of the consequences of the programs are as follows: If Program A is adopted, 400 people will die. If Program B is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die. 12
  • 13. “I am large, I contain multitudes” -Walt Whitman 13
  • 14. Plato compared the mind to a chariot drawn by wild horses. 14
  • 15. Buddha compared it to a rider and his elephant. 15
  • 16. Today, driving a car is our metaphor. 16
  • 17. We think we are this guy... 17
  • 18. We’re more like this guy 18
  • 19. Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Linda is active in the feminist movement. Linda is a bank teller and is active in the feminist movement. Linda is a bank teller. 19
  • 20. 20
  • 21. 21
  • 22. 22
  • 23. 23
  • 24. 24
  • 25. 25
  • 26. 26
  • 27. What is the default option? Check the box if you want to participate in the organ donor program. Check the box if you don’t want to participate in the organ donor program. 27
  • 28. 28
  • 29. 01 him was worried she always 02 from are Florida oranges temperature 03 ball the throw toss silently 04 shoes give replace old the 05 he observes occasionally people watches 06 be will sweat lonely they 07 sky the seamless gray is 08 should now withdraw forgetful we 09 us bingo sing play let 10 sunlight makes temperature wrinkle raisins 29
  • 30. 30
  • 31. 31
  • 32. To know that one knows what one knows, and to know that one doesn't know what one doesn't know, therein lies true wisdom. — CONFUCIUS 32