Assignment Task: Explain the answers to these questions based on heuristics that people might employ.
(a) Why do some people become scared of flying after they observe a plane crash, even if statistically the probability of another crash is still the same?
Which heuristic explains the behavior of people?
(b) A used car salesman has the following typical strategy for selling cars. His car is really worth £5000. But he starts his negotiations with a buyer by asking for a starting price of £6000. He then negotiates the price down to £5750 at which point the buyer is happy to buy the car. What heuristic is the salesman exploiting?
(c) Why are many stock market traders who earned exceptionally high returns last year, likely to earn lower returns this year? Furthermore, those who earned very poor returns last year are likely to earn better returns this year.
What statistical phenomena can explain this finding?