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At American Widgets in 2020, across salespeople the average annual sales was $500,000, with a standard deviation of $100,000. Assume that a given salesperson's sales are positively but imperfectly correlated from one year to the next; in the past, year-to-year correlations have been about .5. Also, suppose that average sales (and the standard deviation in sales) across salespeople are expected to be the same in 2021 as they were in 2020. (That is, assume the 2021 overall average will be $500,000 and the 2021 standard deviation will be $100,000.)
Based on the information available, which of the following would be the most appropriate (i.e., normative) prediction for Patty's 2021 sales?
(a) $300,000
(f) $550,000
(b) $350,000
(g) $600,000
(c) $400,000
(h) $650,000
(d) $450,000
(I) $700,000
(e) $500,000
(j) $750,000
Describe your logic and show your work. (Hint: If you're having difficulty here, you may want to consider the method sketched out in Ch 18 of Kahneman's book.)
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