Question 1

According to prospect theory,

Accepted Answer

A)  people are concerned with wealth levels only. 
B)  people are concerned with changes in wealth levels only. 
C)  people never use a reference level when making their decisions. 
D)  everybody is risk-neutral. 
A)  people are concerned with wealth levels only. 
B)  people are concerned with changes in wealth levels only. 
C)  people never use a reference level when making their decisions. 
D)  everybody is risk-neutral.

Question 2

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

Accepted Answer

A)  temperature in location A has a higher variance. 
B)  temperature in location B has a higher standard deviation. 
C)  temperature in location A has a lower standard deviation. 
D)  temperatures in both locations have the same standard deviation but different variances. 
A)  temperature in location A has a higher variance. 
B)  temperature in location B has a higher standard deviation. 
C)  temperature in location A has a lower standard deviation. 
D)  temperatures in both locations have the same standard deviation but different variances.

Question 3

A risk-preferring person is willing to pay

Accepted Answer

A)  a risk premium. 
B)  a fee to make a fair bet. 
C)  to obtain decreasing marginal utility. 
D)  None of the above. 
A)  a risk premium. 
B)  a fee to make a fair bet. 
C)  to obtain decreasing marginal utility. 
D)  None of the above.

Question 4

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Accepted Answer

A)  mutually exclusive. 
B)  exhaustive. 
C)  Both A and B. 
D)  None of the above. 
A)  mutually exclusive. 
B)  exhaustive. 
C)  Both A and B. 
D)  None of the above.

Question 5

Michelle invested $50 in a project that has a 40% chance of being worth $80 and a 60% chance of being worth $20.One can conclude that Michelle 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 6

Janet prefers to implement a public policy that can save 100 people out of 1,000 people than a policy that has a 10% chance of saving 1,0000 people.Once can say that Janet's preferences

Accepted Answer

A)  do not support the expected utility theory. 
B)  are not rational. 
C)  are not complete. 
D)  are not risk neutral. 
A)  do not support the expected utility theory. 
B)  are not rational. 
C)  are not complete. 
D)  are not risk neutral.

Question 7

Prospect theory can explain why

Accepted Answer

A)  people tend to gamble on long odds with small expected utility. 
B)  people tend to sell their losing stocks and keep their winning stocks. 
C)  people should only sell their losing stocks. 
D)  people should never play the lottery. 
A)  people tend to gamble on long odds with small expected utility. 
B)  people tend to sell their losing stocks and keep their winning stocks. 
C)  people should only sell their losing stocks. 
D)  people should never play the lottery.

Question 8

-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

Accepted Answer

A)  risk averse. 
B)  risk neutral. 
C)  risk loving. 
D)  risk premium. 
A)  risk averse. 
B)  risk neutral. 
C)  risk loving. 
D)  risk premium.

Question 9

Which of the following evidence does NOT support the expected utility theory?

Accepted Answer

A)  People assign disproportionately high weights to rare events. 
B)  Risk-averse people do not engage in fair bets. 
C)  Risk-loving people do not purchase insurance policies. 
D)  Risk-neutral people engage in fair bets. 
A)  People assign disproportionately high weights to rare events. 
B)  Risk-averse people do not engage in fair bets. 
C)  Risk-loving people do not purchase insurance policies. 
D)  Risk-neutral people engage in fair bets.

Question 10

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 11

Lauren noticed that in the last 60 games,her hometown minor league baseball team won 40 times.Lauren estimate the probability of losing the game to be

Accepted Answer

A)  1/6. 
B)  1/4. 
C)  1/3. 
D)  1/2. 
A)  1/6. 
B)  1/4. 
C)  1/3. 
D)  1/2.

Question 12

-The above figure shows Bob's utility function,which is

Accepted Answer

A)  concave. 
B)  convex. 
C)  linear. 
D)  L-shaped. 
A)  concave. 
B)  convex. 
C)  linear. 
D)  L-shaped.

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.Calculate the expected value and variance of his earnings,and interpret.

Accepted Answer

E(X)= (0 ∗ .2)+ (100 ∗ .4)+ (300 ∗ .2)=

Question 14

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Accepted Answer

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

Question 15

Empirical evidence suggests that usury laws

Accepted Answer

A)  help poor consumers by lowering the interest rate they pay. 
B)  hurt poor consumers by limiting their ability to borrow. 
C)  keep interest rates low. 
D)  limit the amount borrowed by wealthier consumers. 
A)  help poor consumers by lowering the interest rate they pay. 
B)  hurt poor consumers by limiting their ability to borrow. 
C)  keep interest rates low. 
D)  limit the amount borrowed by wealthier consumers.

Question 16

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 17

You purchased two stocks that are perfectly negatively correlated.

Accepted Answer

A)  Your portfolio is well diversified, so you should face no risk whatsoever. 
B)  Even though you diversified the idiosyncratic risk away, your portfolio is still affected by systemic risks like a stock market crash. 
C)  Even though you diversified the systemic risk away, your portfolio is still affected by idiosyncratic risks like a stock market crash. 
D)  Your portfolio is not diversified; thus you face no systemic risk. 
A)  Your portfolio is well diversified, so you should face no risk whatsoever. 
B)  Even though you diversified the idiosyncratic risk away, your portfolio is still affected by systemic risks like a stock market crash. 
C)  Even though you diversified the systemic risk away, your portfolio is still affected by idiosyncratic risks like a stock market crash. 
D)  Your portfolio is not diversified; thus you face no systemic risk.

Question 18

Which of the following games involving the roll of a single die is a fair bet?

Accepted Answer

A)  Bet $1 and receive $1 if 3 or 4 comes up. 
B)  Bet $1 and receive $1 if 3, 4, or 5 comes up. 
C)  Bet $1 and receive $4 if 6 comes up. 
D)  None of the bets is a fair bet. 
A)  Bet $1 and receive $1 if 3 or 4 comes up. 
B)  Bet $1 and receive $1 if 3, 4, or 5 comes up. 
C)  Bet $1 and receive $4 if 6 comes up. 
D)  None of the bets is a fair bet.

Question 19

If global warming began to cause random world-wide damage to crops,insurance companies

Accepted Answer

A)  would insure against specific crop failures. 
B)  would not insure against specific crop failures. 
C)  would be indifferent between insuring or not. 
D)  would find themselves facing prosecution for ignoring the problem for so long. 
A)  would insure against specific crop failures. 
B)  would not insure against specific crop failures. 
C)  would be indifferent between insuring or not. 
D)  would find themselves facing prosecution for ignoring the problem for so long.

Question 20

Concerning an investment project which of the following is TRUE?

Accepted Answer

A)  A risk-neutral individual is more likely to invest than a risk-averse individual. 
B)  A risk-neutral individual is more likely to invest than a risk-loving individual. 
C)  A risk-neutral individual is less likely to invest than a risk-averse individual. 
D)  Not enough information is given. 
A)  A risk-neutral individual is more likely to invest than a risk-averse individual. 
B)  A risk-neutral individual is more likely to invest than a risk-loving individual. 
C)  A risk-neutral individual is less likely to invest than a risk-averse individual. 
D)  Not enough information is given.

According to prospect theory,

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

A risk-preferring person is willing to pay

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Michelle invested $50 in a project that has a 40% chance of being worth $80 and a 60% chance of being worth $20.One can conclude that Michelle is

Janet prefers to implement a public policy that can save 100 people out of 1,000 people than a policy that has a 10% chance of saving 1,0000 people.Once can say that Janet's preferences

Prospect theory can explain why

-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

Which of the following evidence does NOT support the expected utility theory?

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

Lauren noticed that in the last 60 games,her hometown minor league baseball team won 40 times.Lauren estimate the probability of losing the game to be

-The above figure shows Bob's utility function,which is

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.

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Empirical evidence suggests that usury laws

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

You purchased two stocks that are perfectly negatively correlated.

Which of the following games involving the roll of a single die is a fair bet?

If global warming began to cause random world-wide damage to crops,insurance companies

Concerning an investment project which of the following is TRUE?

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 17: Uncertainty

According to prospect theory,

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

A risk-preferring person is willing to pay

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Michelle invested $50 in a project that has a 40% chance of being worth $80 and a 60% chance of being worth $20.One can conclude that Michelle is

Janet prefers to implement a public policy that can save 100 people out of 1,000 people than a policy that has a 10% chance of saving 1,0000 people.Once can say that Janet's preferences

Prospect theory can explain why

-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

Which of the following evidence does NOT support the expected utility theory?

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

Lauren noticed that in the last 60 games,her hometown minor league baseball team won 40 times.Lauren estimate the probability of losing the game to be

-The above figure shows Bob's utility function,which is

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.

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Empirical evidence suggests that usury laws

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

You purchased two stocks that are perfectly negatively correlated.

Which of the following games involving the roll of a single die is a fair bet?

If global warming began to cause random world-wide damage to crops,insurance companies

Concerning an investment project which of the following is TRUE?

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters