Nobel Prize winner Daniel Kahneman, of Princeton University, and Daniel Lovallo, of theUniversity of New South Wales, Australia, describe optimism bias in more technical terms. Theynote a tendency of investors to adopt an inside view, in lieu of the outside view that is oftenmore appropriate when making financial decisions. An inside view is one that focuses on acurrent situation and reflects personal involvement. An outside view, however, dispasSsionatelyassesses a current situation in the context of results obtained in past, related situations. Theinside-versus-outside thought process distinguishes investors exhibiting optimism bias frominvestors exhibiting rational economic decision making, because most unreasonably rosy70 IL Essay1. Differentiate inside and outside view in investing. Give a scenario where theyhappening.areusually

Before investing, investors look up certain possibilities regarding what their investment can yield…

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1. Differentiate inside and outside view in investing. Give a scenario where they are usually happening.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Nobel Prize winner Daniel Kahneman, of Princeton University, and Daniel Lovallo, of the
University of New South Wales, Australia, describe optimism bias in more technical terms. They
note a tendency of investors to adopt an inside view, in lieu of the outside view that is often
more appropriate when making financial decisions. An inside view is one that focuses on a
current situation and reflects personal involvement. An outside view, however, dispasSsionately
assesses a current situation in the context of results obtained in past, related situations. The
inside-versus-outside thought process distinguishes investors exhibiting optimism bias from
investors exhibiting rational economic decision making, because most unreasonably rosy
70

IL Essay
1. Differentiate inside and outside view in investing. Give a scenario where they
happening.
are
usually

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