Problem 7. Design one diagnostic question for detecting a persons susceptibility to each of the following behavioral biases: 1) overconfidence bias, 2) and representativeness bias.

Problem 8. What are the market-based variables that Baker and Wurgler (2006) use to extract the market sentiment index? How are these variables related to the market sentiment index? Given the results documented in Baker and Wurgler (2006), design a portfolio strategy to profit from market sentiment-related mispricing. Please consider two scenarios: with and without short-sale constraints.

Problem 9. The internet bubble (also known as the tech/dot-com bubble) roughly started in mid 1990s and peaked in early 2000, during which stock prices in the internet sector and related fields rose rapidly. How might an investors portfolio have changed from early 1990s to late 1990s if the investor had become overconfident (e.g., the number and the types of stocks in the portfolio)? Explain why you expect such changes.