@MultiLevelRecord Abror Rahmatullayev
Reading Part 3
Read the text and choose the correct heading for each paragraph from the
list of headings below. There are more headings than paragraphs, so you
will not use all of them. You cannot use any heading more than once.
____________________________________________________________________________________
List of Headings
A) Not identifying the correct priorities
B) A solution for the long term
C) The difficulty of changing your mind
D) The need for more effective risk assessment
E) The power of the first number
F) A successful approach to the study of decision-making
G) The danger of trusting a global market
H) Reluctance to go beyond the familiar
15. Paragraph I …….
16. Paragraph II …….
17. Paragraph III …….
18. Paragraph IV …….
19. Paragraph V …….
20. Paragraph VI …….
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@MultiLevelRecord Abror Rahmatullayev
WHY RISKS CAN GO WRONG
Human intuition is a bad guide to handling risk.
I. People make terrible decisions about the future. The evidence is all
around, from their investments in the stock markets to the way they run
their businesses. In fact, people are consistently bad at dealing with
uncertainty, underestimating some kinds of risk and overestimating others.
Surely there must be a better way than using intuition?
II. In the 1960s a young American research psychologist, Daniel Kahneman,
became interested in people's inability to make logical decisions. That
launched him on a career to show just how irrationally people behave in
practice. When Kahneman and his colleagues first started work, the idea of
applying psychological insights to economics and business decisions was
seen as rather bizarre. But in the past decade the fields of behavioural
finance and behavioural economics have blossomed, and in 2002 Kahneman
shared a Nobel prize in economics for his work. Today he is in demand by
business organizations and international banking companies. But, he says,
there are plenty of institutions that still fail to understand the roots of their
poor decisions. He claims that, far from being random, these mistakes are
systematic and predictable.
III. Another source of wrong decisions is related to the decisive effect of the
initial meeting, particularly in negotiations over money. This is referred to as
the 'anchor effect'. Once a figure has been mentioned, it takes a strange
hold over the human mind. The asking price quoted in a house sale, for
example, tends to become accepted by all parties as the 'anchor' around
which negotiations take place. Much the same goes for salary negotiations
or mergers and acquisitions. If nobody has much information to go on, a
figure can provide comfort - even though it may lead to a terrible mistake.
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@MultiLevelRecord Abror Rahmatullayev
IV. In addition, mistakes may arise due to stubbornness. No one likes to
abandon a cherished belief, and the earlier a decision has been taken, the
harder it is to abandon it. Drug companies must decide early to cancel a
failing research project to avoid wasting money, but may find it difficult to
admit they have made a mistake. In the same way, analysts may have
become wedded early to a single explanation that coloured their perception.
A fresh eye always helps.
V. People also tend to put a lot of emphasis on things they have seen and
experienced themselves, which may not be the best guide to decision-
making. For example, somebody may buy an overvalued share because a
relative has made thousands on it, only to get his fingers burned. In finance,
too much emphasis on information close at hand helps to explain the
tendency by most investors to invest only within the country they live in.
Even though they know that diversification is good for their portfolio, a large
majority of both Americans and Europeans invest far too heavily in the
shares of their home countries. They would be much better off spreading
their risks more widely.
VI. More information is helpful in making any decision but, says Kahneman,
people spend proportionally too much time on small decisions and not
enough on big ones. They need to adjust the balance. During the boom
years, some companies put as much effort into planning their office party as
into considering strategic mergers.
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@MultiLevelRecord Abror Rahmatullayev
Answers:
15. D
16. F
17. E
18. C
19. H
20. A
