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- IELTS Reading Multiple Choice Questions.
- IELTS Reading Matching Headings
- IELTS Reading Short Answer Questions.
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IELTS Reading Passage – why risks can go wrong
Why risks can go wrong
People make dreadful choices regarding the future. It’s apparent to see in everything from their stock market trading to the way they manage their companies. As a matter of fact, people are notoriously lousy at handling uncertainty, continually underestimating some types of danger while overestimating others. There must be a better way than just going with your gut, right?
A young American research psychologist named Daniel Kahneman became interested in the illogic of human decision-making in the 1960s. That was the beginning of his mission to demonstrate the irrationality of human behaviour. The idea of using psychological insights in economics and business decisions was met with some scepticism when Kahneman and his colleagues first began their study. However, the subfields of behavioural finance and economics have flourished during the past decade, and in 2002, Kahneman shared the Nobel Prize in economics. He is in high demand these days among corporations and financial institutions around the world. However, he claims that many organisations continue to disregard the causes of their poor judgement. Instead of being random, he says, these slip-ups follow a pattern that may be anticipated.
Over-optimism is a frequent contributor to poor judgement. In spite of evidence to the contrary, most individuals will continue to see nothing but sunshine if you ask them about the future. According to polls, investors are much more bullish in their expectations for the stock market’s future than the market’s long-term gains justify. The same holds true for their expectations of winning lottery prizes or seeing a steady increase in the value of their properties. Managers and athletes alike can benefit from this kind of confidence, which can occasionally become a self-fulfilling prophecy. Unfortunately, it usually leads to frustration and disappointment. There are three forms of hubris identified by Kahneman’s research. To begin, the majority of people overestimate their own abilities; for example, in surveys, a lot less than half of people think they are below-average drivers. Second, they put too much stock in their own abilities and too little in luck, attributing their successes to the latter rather than the former. Thirdly, when engaging in competitive activities like stock trading, they fail to remember that they must evaluate their own performance in relation to that of their rivals.
A second reason people make poor choices is that the first meeting is often the deciding factor, especially in monetary talks. The term “anchor effect” describes this phenomenon. Mentioning a person gives that person an eerie power on the human psyche. If we use a home sale as an example, the initial asking price is often the starting point for discussions. The same holds true for discussions of compensation or mergers and acquisitions. If no one has any solid facts, a number can be reassuring, even if it could cause a disastrous miscalculation.
Furthermore, stubbornness can lead to blunders. It’s never easy to give up on a long-held conviction, and the longer you wait after making a decision, the more ingrained that decision becomes. Companies in the pharmaceutical industry must make the tough call of terminating an unsuccessful research project before too much money is wasted. Similarly, experts’ early commitment to a single theory may have skewed their perspective. New eyes are always welcome.
Personal experience is also heavily weighted in people’s decision-making, even though it may not be the best indicator of truth. Someone may make the mistake of investing in an overpriced stock because a close relative made thousands. Most investors limit their investments to the country in where they are based because they place too much value on information that is near at hand. While most people are aware that diversifying one’s holdings is a good idea, the majority of Americans and Europeans still put a disproportionate amount of money into their native country’s stock market. They would do better to divide their risks among more parties.
While more data can only assist in decision making, Kahneman argues that people spend disproportionately more time on little choices and too little on major ones. They ought to readjust the proportions. Some businesses during the boom years spent as much time organising an office party as they did contemplating a merger.
Finally, lamenting the past isn’t just a waste of time; it can also distort one’s view of the future. Some people who invest in the stock market make too many trades each day in an attempt to catch up to the gains they would have made had they purchased the stock at an earlier date.
Kahneman believes that certain industries are naturally more adept at handling uncertainty than others. Drug-discovery programmes at pharmaceutical companies typically result in a large number of failures before a small number of major breakthroughs, therefore these organisations tend to be fairly risk-averse. But he claims that financial institutions still have ways to go. While they are willing to take chances on a few large loans, they are exceedingly cautious when lending to small businesses, despite the fact that these enterprises often pose less of a risk. There are ramifications for governing bodies as well as citizens from this study. They are subjected to a plethora of political pressures, many of which are at odds with one another, increasing the likelihood that they would make illogical choices.
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Questions 1-6
Reading Passage 1 has nine paragraphs A-I. Choose the correct heading for Paragraphs B and D-H from the list of headings below.Write the correct number (i-xi) in boxes 1-6 on your answer sheet.
List of headings
- Enhancing one’s inner resources
- Failing to establish the correct priorities
- A solution with a long-term perspective
- The difficulty of reversing a decision
- Reluctance to venture beyond the familiar
- Enhancing one’s inner resources
- An effective method for the study of decision-making
- The risk of relying on a global market
- The need for more efficient risk evaluation
- Underestimating the upcoming problems
- The power of the initial number
- Why looking back is detrimental
- Paragraph B
- Paragraph D
- Paragraph E
- Paragraph F
- Paragraph G
- Paragraph H
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Questions 7-10
Choose the correct answer A, B, C or D Write your answers in boxes 7-10 on your answer sheet.
7. People first found Kahneman’s work peculiar since he
- saw mistakes as following predictable patterns.
- was unaware of behavioural approaches.
- dealt with irrational types of practice.
- applied psychology to finance and economics.
8. The author cites homeowners’ perspectives on the value of their homes to demonstrate that
- Past failures may destroy an optimistic attitude.
- People tend to exaggerate their chances of success.
- Optimism may be justified in certain circumstances.
- People are influenced by the success of others.
9. Obstinate and inflexible may create complications when people
- Think their financial difficulties are just due to bad luck.
- Avoid seeking advice from experts and analysts.
- Refuse to invest in the early stages of a project.Are
- unwilling to give up unsuccessful activities or beliefs.
10. Why do so many Americans and Europeans fail to diversify their investment risks?
- They feel safer dealing in a context which is close to home.
- They do not understand the benefits of diversification.
- They are over-influenced by the successes of their relatives.
- They do not have sufficient knowledge of one another’s countries.
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Questions 11-13
Answer the questions below, using NO MORE THAN THREE WORDS for each answer. Write your answers in boxes 11-13 on your answer sheet.
11. Which two professions may profit from excessive optimism?
12. In which practical skill are most people overconfident?
13. Which business has an usually positive attitude toward dealing with uncertainty?
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1. vi
2. IX
3. III
4. VIII
5. I
6. D
7. D
8. B
9. D
10. A
11. MANAGERS (AND/OR) SPORTSPERSON
12. DRIVING
13. PHARMACEUTICAL (COMPANIES)
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