Question 1

John derives more utility from having $1,000 than from having $100. From this, we can conclude that John

Accepted Answer

A) is risk averse. 
B) is risk loving. 
C) is risk neutral. 
D) has a positive marginal utility of wealth. 
A) is risk averse. 
B) is risk loving. 
C) is risk neutral. 
D) has a positive marginal utility of wealth.

Question 2

Farmers who purchase insurance against crop failures tend to be pooled with farmers far away. Why might this be the case?

Accepted Answer

A) The weather in a single geographic area represents idiosyncratic risk, which is diversifiable. 
B) The weather in a single geographic area represents systematic risk, which is not diversifiable. 
C) The weather in far-flung geographic areas represents systematic risk, which is not diversifiable. 
D) The weather in far-flung geographic areas are commonly positively correlated. 
A) The weather in a single geographic area represents idiosyncratic risk, which is diversifiable. 
B) The weather in a single geographic area represents systematic risk, which is not diversifiable. 
C) The weather in far-flung geographic areas represents systematic risk, which is not diversifiable. 
D) The weather in far-flung geographic areas are commonly positively correlated.

Question 3

If an event will NOT occur, it has a probability (pr)of

Accepted Answer

A) 0. 
B) 0 < pr < 1. 
C) 1. 
D) Not enough information to determine. 
A) 0. 
B) 0 < pr < 1. 
C) 1. 
D) Not enough information to determine.

Question 4

On any given day, a salesman can earn $0 with a 30% probability, $100 with a 20% probability, or $300 with a 50% probability. His expected earnings equal

Accepted Answer

A) $0. 
B) $100. 
C) $150. 
D) $170. 
A) $0. 
B) $100. 
C) $150. 
D) $170.

Question 5

Which of the following sets of outcomes is mutually exclusive?

Accepted Answer

A) win, lose, tie 
B) employed full-time, employed part-time, unemployed 
C) married, single, widowed 
D) All of the above. 
A) win, lose, tie 
B) employed full-time, employed part-time, unemployed 
C) married, single, widowed 
D) All of the above.

Question 6

Insurance companies do NOT offer fair insurance because

Accepted Answer

A) they are run by greedy capitalists. 
B) they could not stay in business. 
C) they cannot diversify their risks. 
D) they are risk-avoiding. 
A) they are run by greedy capitalists. 
B) they could not stay in business. 
C) they cannot diversify their risks. 
D) they are risk-avoiding.

Question 7

If there are 10,000 people in your age bracket, and 10 of them died last year, an insurance company believes that the probability of someone in that age bracket dying this year would be

Accepted Answer

A) 0. 
B) .001. 
C) .0001. 
D) 1,000. 
A) 0. 
B) .001. 
C) .0001. 
D) 1,000.

Question 8

If a person is entertained by gambling, then

Accepted Answer

A) she is not risk averse. 
B) she does not understand the concept of a fair game. 
C) she may gamble even if it is an unfair game. 
D) she will definitely not buy automobile insurance. 
A) she is not risk averse. 
B) she does not understand the concept of a fair game. 
C) she may gamble even if it is an unfair game. 
D) she will definitely not buy automobile insurance.

Question 9

The gambler's fallacy suggests that what happened in the past will influence the present. Suffering from the gambler's fallacy is most likely TRUE in which of the following situations?

Accepted Answer

A) flipping cards from a single deck 
B) tossing a fair coin 
C) the quality of play of a baseball team 
D) horse racing 
A) flipping cards from a single deck 
B) tossing a fair coin 
C) the quality of play of a baseball team 
D) horse racing

Question 10

If an individual makes her investment decisions based solely on the Expected Value criterion, one can conclude that she is

Accepted Answer

A) risk averse. 
B) risk neutral. 
C) risk loving. 
D) extremely wealthy. 
A) risk averse. 
B) risk neutral. 
C) risk loving. 
D) extremely wealthy.

Question 11

Which of the following losses to an individual would an insurance company NOT cover?

Accepted Answer

A) The person's automobile is stolen. 
B) Fire destroys the person's home. 
C) The person's father dies. 
D) The person's country is invaded. 
A) The person's automobile is stolen. 
B) Fire destroys the person's home. 
C) The person's father dies. 
D) The person's country is invaded.

Question 12

A fair bet is one where

Accepted Answer

A) the player has a 50/50 chance of winning. 
B) the player's utility function is convex. 
C) the expected value is zero. 
D) the expected value is positive. 
A) the player has a 50/50 chance of winning. 
B) the player's utility function is convex. 
C) the expected value is zero. 
D) the expected value is positive.

Question 13

On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. His expected earnings equal

Accepted Answer

A) $0. 
B) $100 because that is the most likely outcome. 
C) $100 because that is what he will earn on average. 
D) $200 because that is what he will earn on average. 
A) $0. 
B) $100 because that is the most likely outcome. 
C) $100 because that is what he will earn on average. 
D) $200 because that is what he will earn on average.

Question 14

From the expected value of a game, we

Accepted Answer

A) cannot determine the risk. 
B) can determine the risk. 
C) can determine exactly how much a player will receive. 
D) can infer the subjective probabilities of each possible outcome. 
A) cannot determine the risk. 
B) can determine the risk. 
C) can determine exactly how much a player will receive. 
D) can infer the subjective probabilities of each possible outcome.

Question 15

What is one reason a gambler might bet $1,000 that a team that is ranked sixteenth will win the NCAA basketball tournament?

Accepted Answer

A) irrationality 
B) overconfidence 
C) exuberance 
D) gambler's fallacy 
A) irrationality 
B) overconfidence 
C) exuberance 
D) gambler's fallacy

Question 16

Politicians often highlight the plight of a single individual as a reason to support a particular project or agenda. In this case, politicians are using

Accepted Answer

A) the Kahneman effect. 
B) the Allais effect. 
C) framing. 
D) prospect theory. 
A) the Kahneman effect. 
B) the Allais effect. 
C) framing. 
D) prospect theory.

Question 17

According to ________, people are often risk averse when it comes to gains and risk preferring when it comes to losses.

Accepted Answer

A) prospect theory 
B) the reflection effect 
C) the certainty effect 
D) the framing effect 
A) prospect theory 
B) the reflection effect 
C) the certainty effect 
D) the framing effect

Question 18

Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Her risk premium is $19. What is her certainty equivalent?

Accepted Answer

A) $19 
B) $43 
C) $81 
D) $208 
A) $19 
B) $43 
C) $81 
D) $208

Question 19

Insurance companies do NOT cover losses that would

Accepted Answer

A) happen to all of the policyholders at once. 
B) happen with a very low probability. 
C) happen to just a handful of policyholders. 
D) happen with uncertainty. 
A) happen to all of the policyholders at once. 
B) happen with a very low probability. 
C) happen to just a handful of policyholders. 
D) happen with uncertainty.

Question 20

If Stock A and Stock B both decrease in value at the same time, they are

Accepted Answer

A) negatively correlated. 
B) uncorrelated. 
C) positively correlated. 
D) bad bets. 
A) negatively correlated. 
B) uncorrelated. 
C) positively correlated. 
D) bad bets.

John derives more utility from having $1,000 than from having $100. From this, we can conclude that John

Farmers who purchase insurance against crop failures tend to be pooled with farmers far away. Why might this be the case?

If an event will NOT occur, it has a probability (pr)of

On any given day, a salesman can earn $0 with a 30% probability, $100 with a 20% probability, or $300 with a 50% probability. His expected earnings equal

Which of the following sets of outcomes is mutually exclusive?

Insurance companies do NOT offer fair insurance because

If there are 10,000 people in your age bracket, and 10 of them died last year, an insurance company believes that the probability of someone in that age bracket dying this year would be

If a person is entertained by gambling, then

The gambler's fallacy suggests that what happened in the past will influence the present. Suffering from the gambler's fallacy is most likely TRUE in which of the following situations?

If an individual makes her investment decisions based solely on the Expected Value criterion, one can conclude that she is

Which of the following losses to an individual would an insurance company NOT cover?

A fair bet is one where

On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. His expected earnings equal

From the expected value of a game, we

What is one reason a gambler might bet $1,000 that a team that is ranked sixteenth will win the NCAA basketball tournament?

Politicians often highlight the plight of a single individual as a reason to support a particular project or agenda. In this case, politicians are using

According to ________, people are often risk averse when it comes to gains and risk preferring when it comes to losses.

Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Her risk premium is $19. What is her certainty equivalent?

Insurance companies do NOT cover losses that would

If Stock A and Stock B both decrease in value at the same time, they are

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Asymmetric Information

Government and Business

Global Business

Filters

Exam 14: Managerial Decision-Making Under Uncertainty

John derives more utility from having $1,000 than from having $100. From this, we can conclude that John

Farmers who purchase insurance against crop failures tend to be pooled with farmers far away. Why might this be the case?

If an event will NOT occur, it has a probability (pr)of

On any given day, a salesman can earn $0 with a 30% probability, $100 with a 20% probability, or $300 with a 50% probability. His expected earnings equal

Which of the following sets of outcomes is mutually exclusive?

Insurance companies do NOT offer fair insurance because

If there are 10,000 people in your age bracket, and 10 of them died last year, an insurance company believes that the probability of someone in that age bracket dying this year would be

If a person is entertained by gambling, then

The gambler's fallacy suggests that what happened in the past will influence the present. Suffering from the gambler's fallacy is most likely TRUE in which of the following situations?

If an individual makes her investment decisions based solely on the Expected Value criterion, one can conclude that she is

Which of the following losses to an individual would an insurance company NOT cover?

A fair bet is one where

On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. His expected earnings equal

From the expected value of a game, we

What is one reason a gambler might bet $1,000 that a team that is ranked sixteenth will win the NCAA basketball tournament?

Politicians often highlight the plight of a single individual as a reason to support a particular project or agenda. In this case, politicians are using

According to ________, people are often risk averse when it comes to gains and risk preferring when it comes to losses.

Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Her risk premium is $19. What is her certainty equivalent?

Insurance companies do NOT cover losses that would

If Stock A and Stock B both decrease in value at the same time, they are

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Asymmetric Information

Government and Business

Global Business

Filters