QUESTION I: KAHNEMAN AND TVERSKY'S (1972) TAXICAB PROBLEM A cab was involved in a hit and run accident at night. Two cab companies, the Green and the Blue, operate in the city. 87% of the cabs in the city are Green and 13% are Blue. A witness identied the cab as Blue. The court tested the reliability of the witness under the same circumstances that existed on the night of the accident and concluded that the witness correctly identied each one of the two W 82% of the time and failed 18% of the time. 1. (3 points) What is the probability that the cab involved in the accident was Blue rather than Green knowing that this witness identied it as Blue? 2. (4 points) Most subjects estimated the probability at more than 50 percent, some more than 80 percent. Use a behavioural bias or heuristic to explain these mistakes. Dene the behavioural bias or heuristic you are going to use rst. [Hints this is related to a behavioural bias or heuristic we discussed and illustrated using another example in class]