An investor puts money into one of five roughly similar start-ups. Two years later, that start-up has tripled in value while the other four have folded. The investor says:
" I knew it would be the winner. It was obviously the best choice. "
Which statement best explains the flaw in this reasoning?

Question

An investor puts money into one of five roughly similar start-ups. Two years later, that start-up has tripled in value while the other four have folded. The investor says: 
  " I knew it would be the winner. It was obviously the best choice. "  
Which statement best explains the flaw in this reasoning?

Answer

The choice was essentially random, so it cannot have been a good pick.

Answer

The true outcome was unknowable in advance. Hindsight makes the result feel inevitable, but at the time all five start-ups carried genuine uncertainty.

Answer

Start-ups always increase in value regardless of which one is chosen.

Answer

Probability reasoning doesn't meaningfully apply to financial decisions.

Answer

Since the stock went up, the investor's reasoning must be correct.

Crowdly

An investor puts money into one of five roughly similar start-ups. Two years lat...

Want instant access to all verified answers on learning.monash.edu?