An episode of the BBC program Horizons featured the following experiment. A researcher in a park with
Question:
An episode of the BBC program Horizons featured the following experiment. A researcher in a park with a lot of pedestrians invited passersby to examine an unopened bottle of wine, which the researcher stated he had just purchased at a nearby wine shop, and estimate the price the researcher had paid. Before participants actually came up with their estimates, the researcher asked them to pull a ping pong ball from a bag, keeping their eyes closed. The researcher indicated that each ball in the bag had a number between 1 and 100 written on it. However, this was not true, as all the ping pong balls had the same number.
The experiment was conducted twice, on two different days, with two different groups of participants. The first group of people drew a ping pong ball with the number 10, while the second group drew a ping pong ball with the number 65. After seeing the number on the ball, the researcher asked each participant for his or her estimate of the wine’s price. The first group estimated the cost to be between $10 and $30, while the second group guessed much higher, between $40 and $100. Discuss what psychological phenomenon might explain this behavior pattern.
Step by Step Answer:
Behavioral Corporate Finance Concepts And Cases For Teaching Behavioral Finance
ISBN: 9781259277207
2nd Edition
Authors: Hersh Shefrin