Question 1

All else held constant,as the variance of a payoff increases,the

Accepted Answer

A)  expected value of the payoff increases. 
B)  risk of the payoff increases. 
C)  expected value of the payoff decreases. 
D)  risk of the payoff decreases. 
A)  expected value of the payoff increases. 
B)  risk of the payoff increases. 
C)  expected value of the payoff decreases. 
D)  risk of the payoff decreases.

Question 2

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Accepted Answer

A)  his utility function is concave. 
B)  he has diminishing marginal utility of wealth. 
C)  he is willing to pay a premium to avoid a risky situation. 
D)  All of the above. 
A)  his utility function is concave. 
B)  he has diminishing marginal utility of wealth. 
C)  he is willing to pay a premium to avoid a risky situation. 
D)  All of the above.

Question 3

Catherine is risk-averse.When faced with a choice between a gamble and a certain level of wealth she will

Accepted Answer

A)  always prefer the gamble. 
B)  always prefer the certain level of wealth. 
C)  prefer the gamble if the expected utility from it is higher than the utility from the certain level of wealth. 
D)  prefer the certain level of wealth if the expected utility from the gamble is higher than the utility of the certain level of wealth. 
A)  always prefer the gamble. 
B)  always prefer the certain level of wealth. 
C)  prefer the gamble if the expected utility from it is higher than the utility from the certain level of wealth. 
D)  prefer the certain level of wealth if the expected utility from the gamble is higher than the utility of the certain level of wealth.

Question 4

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a head?

Accepted Answer

A)  1/50 
B)  1/25 
C)  1/2 
D)  1 (100%) 
A)  1/50 
B)  1/25 
C)  1/2 
D)  1 (100%)

Question 5

Sarah buys little stuffed animals for $5 each.They come in different varieties.If the producer stops making (retires)a certain variety,a stuffed animal of that variety will be worth $100; otherwise it is worth $0.There is 25% chance that any variety will be retired.For the purchase of an individual animal,what is the value to Sarah of knowing ahead of time whether or not that variety will be retired?

Accepted Answer

If Sarah did not know whether a variety

Question 6

The key economic difference between expected utility and expected value is that

Accepted Answer

A)  expected value only considers the value of outcomes, whereas expected utility considers the tradeoff between value and risk. 
B)  expected utility only considers the value of outcomes, whereas expected value considers the tradeoff between value and risk. 
C)  expected utility is the maximum value obtained, whereas expect value is the mean of the values from a set of possible outcomes. 
D)  None of the above - the differences are mathematical not economic. 
A)  expected value only considers the value of outcomes, whereas expected utility considers the tradeoff between value and risk. 
B)  expected utility only considers the value of outcomes, whereas expected value considers the tradeoff between value and risk. 
C)  expected utility is the maximum value obtained, whereas expect value is the mean of the values from a set of possible outcomes. 
D)  None of the above - the differences are mathematical not economic.

Question 7

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 8

Best guesses of an event occurring in the future are based on

Accepted Answer

A)  estimates derived from the frequency of the event occurring in the past. 
B)  coin flips. 
C)  subjective probability. 
D)  the wisdom of crowds. 
A)  estimates derived from the frequency of the event occurring in the past. 
B)  coin flips. 
C)  subjective probability. 
D)  the wisdom of crowds.

Question 9

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 10

Insurance companies offer only unfair insurance because

Accepted Answer

A)  they are run by greedy capitalists. 
B)  they can fool customers into buying it. 
C)  they have operating costs. 
D)  their risks are positively correlated. 
A)  they are run by greedy capitalists. 
B)  they can fool customers into buying it. 
C)  they have operating costs. 
D)  their risks are positively correlated.

Question 11

Sports announcers often refer to a batter in a hitting slump as "being due." If they are correct,then it must be the case that

Accepted Answer

A)  a batter's hits are randomly distributed. 
B)  a batter's at-bats are related to each other. 
C)  a batter's at-bats are independent of each other. 
D)  baseball players are acting irrationally. 
A)  a batter's hits are randomly distributed. 
B)  a batter's at-bats are related to each other. 
C)  a batter's at-bats are independent of each other. 
D)  baseball players are acting irrationally.

Question 12

Variance is a measure of ________ and the higher the variance,________.

Accepted Answer

A)  expected profit; the greater the profit 
B)  risk; the greater the risk 
C)  standard deviation; greater the standard deviation 
D)  risk; the lower the risk 
A)  expected profit; the greater the profit 
B)  risk; the greater the risk 
C)  standard deviation; greater the standard deviation 
D)  risk; the lower the risk

Question 13

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 14

If two events are perfectly negatively correlated,then

Accepted Answer

A)  diversification can reduce but not eliminate risk. 
B)  diversification can eliminate risk. 
C)  diversification has no impact on risk. 
D)  diversification cuts risk in half. 
A)  diversification can reduce but not eliminate risk. 
B)  diversification can eliminate risk. 
C)  diversification has no impact on risk. 
D)  diversification cuts risk in half.

Question 15

Framing often causes people to

Accepted Answer

A)  violate expected utility theory. 
B)  go to prison. 
C)  fall afoul of the certainty effect. 
D)  become risk-averse. 
A)  violate expected utility theory. 
B)  go to prison. 
C)  fall afoul of the certainty effect. 
D)  become risk-averse.

Question 16

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 17

If your risk of losing your house to catastrophe is 25%,how much would fair insurance cost if your home were worth $1,000,000?

Accepted Answer

A)  $250,000 
B)  $750,000 
C)  $1,000,000 
D)  Unable to determine with the information given. 
A)  $250,000 
B)  $750,000 
C)  $1,000,000 
D)  Unable to determine with the information given.

Question 18

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

Accepted Answer

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Question 19

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 20

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a tail?

Accepted Answer

A)  0 
B)  1/50 
C)  1/25 
D)  1/2 
A)  0 
B)  1/50 
C)  1/25 
D)  1/2

All else held constant,as the variance of a payoff increases,the

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Catherine is risk-averse.When faced with a choice between a gamble and a certain level of wealth she will

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a head?

The key economic difference between expected utility and expected value is that

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

Best guesses of an event occurring in the future are based on

Insurance companies do not cover losses that would

Insurance companies offer only unfair insurance because

Sports announcers often refer to a batter in a hitting slump as "being due." If they are correct,then it must be the case that

Variance is a measure of and the higher the variance,.

Which of the following sets of outcomes is mutually exclusive?

If two events are perfectly negatively correlated,then

Framing often causes people to

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 your risk of losing your house to catastrophe is 25%,how much would fair insurance cost if your home were worth $1,000,000?

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

Insurance companies do not offer fair insurance because

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a tail?

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

All else held constant,as the variance of a payoff increases,the

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Catherine is risk-averse.When faced with a choice between a gamble and a certain level of wealth she will

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a head?

The key economic difference between expected utility and expected value is that

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

Best guesses of an event occurring in the future are based on

Insurance companies do not cover losses that would

Insurance companies offer only unfair insurance because

Sports announcers often refer to a batter in a hitting slump as "being due." If they are correct,then it must be the case that

Variance is a measure of ________ and the higher the variance,________.

Which of the following sets of outcomes is mutually exclusive?

If two events are perfectly negatively correlated,then

Framing often causes people to

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 your risk of losing your house to catastrophe is 25%,how much would fair insurance cost if your home were worth $1,000,000?

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

Insurance companies do not offer fair insurance because

If you have flipped a coin and tails has come up 49 times in a row,what are the odds that the next flip will be a tail?

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

Variance is a measure of and the higher the variance,.