Mutual fund managers can be average, good or bad. The chance that an average manager beats the
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Question:
50% of all managers are average, 30% are bad and 20% are good.
Tyler is a new mutual fund manager.
(a) How many years in a row would Tyler have to beat the market to be at least 90% sure that he is a good manager?
(b) How many years in a row would Tyler have to underperform the market (i.e. NOT beat the market) to be at least 90% sure that he is a bad manager?
(c) Now suppose Tyler believes there is a 75% chance he is a good manager and a 25% chance he is an average manager (and no chance that he's a bad manager!). How many years in a row would Tyler have to beat the market for him to be 90% sure that he's a good manager?
(d) Tyler's belief in (c) is an example of what kind of cognitive bias?
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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