Investor Psychology Contest: Make A Guess, Win A ($20) Prize

First, the question:

What’s your best estimate of the value of the Dow Jones one month from today? Next pick a high value such that you are 99% sure that the Dow Jones a month from today well be lower than that value. Now pick a low value such that you are 99% sure that the Dow Jones a month from today well be higher than that value.

This actually is the first question asked in the paper titled "Aspects of Investor Psychology", by D. Kahneman and M. Riepe (published in 1998 in Journal Portfolio Management) that I read in September. The paper, whose target readers are financial advisors, offers some insights on the decision-making of investors and the above question is to assess whether or not you are overconfident in making financial decisions. If you carry out as instructed for the above question, your probability that the Dow will be even higher than your high estimate should be 1%, and your probability that the Dow will be lower than your low estimate should also be 1%. This means that you are 98% confident that the Down Jones will be in the ranges you picked one month from today.

If you have a good judegment of your knowledge and are not biased, you can expect that for 98% chance, the closing value of the Dow falls inside your estimates, and the probability of high surprises (the real value is higher than your high estimate) is 1%, the same of low surprises (the real value is lower than your low estimate). If the Dow Jones value indeed falls inside your estimated range one month from today, you are well-calibrated in your judgments of probability and not biased toward overconfidence in making financial decisions. However, for many people, there are too many surprises. In other words, investors are often overconfident about their abilities to make unbiased judgments.

Now, the contest:

Jonathan at MyMoneyBlog currently has a Thanksgiving giveaway contest. The contest is to leave a comment with a number between 0 and 99 and the winner will be picked by matching the last two digits after the decimal point of the closing value of Dow Jones Industrial Average on November 22nd against your entry and if you make the closest guess, you will be the first to choose the prize.

Now I'd like to add a little twist to Jonathan's contest and offer my own prize. Based on yesterday's closing value of DJIA (12105.55), make a guess of what the value will be when the market closes on November 22nd and leave the integer part of your guess here (and don't forget to give Jonathan the last two digits he wants, the number may be small but the prize could be big :D). The closest guess will get a $20 Amazon.com gift certificate, which is as good as $20 cash except that you can only spend it at Amazon.com (the prize money is from the two INGDirect sign on bonuses I got last month from unknown referals). If there is a draw, the first to comment will be the winner. Because of the nature of this contest, your entry must be received before the market close (4:00 pm) of this Friday, November 10th, to be eligible for the prize.

So make a guess, leave your number here before 4:00 pm, November 10th, then come back on November 22nd to see whether you are overconfident or not, and win a prize!

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