Question 1

Behavioral economics under uncertainty documents that

Accepted Answer

A)  people's behavior often differs from what standard expected utility theory predicts. 
B)  people's behavior can change with their circumstances. 
C)  people might put considerable weight on certain outcomes. 
D)  All of the above. 
A)  people's behavior often differs from what standard expected utility theory predicts. 
B)  people's behavior can change with their circumstances. 
C)  people might put considerable weight on certain outcomes. 
D)  All of the above.

Question 2

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

Accepted Answer

A) True 
 B)False

Question 3

-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.If Bob could keep $50 with certainty,his utility would be

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  d. 
A)  a. 
B)  b. 
C)  c. 
D)  d.

Question 4

Your friend Diana tells you that she thinks that her favorite softball team has a 70% chance of winning the next game because that is exactly the winning rate of her team in the last two seasons.This is an example of a(n)

Accepted Answer

A)  objective probability. 
B)  subjective probability. 
C)  risk-averse statement. 
D)  Friedman-Savage preference. 
A)  objective probability. 
B)  subjective probability. 
C)  risk-averse statement. 
D)  Friedman-Savage preference.

Question 5

A risk-averse investor will decide whether or not to invest by determining if the expected value of the investment if positive.

Accepted Answer

A) True 
 B)False

Question 6

Expected value represents

Accepted Answer

A)  the actual payment one expects to receive. 
B)  the average of all payments one would receive if one undertook the risky event many times. 
C)  the payment one receives if he or she makes the correct decision. 
D)  the payment that is most likely to occur. 
A)  the actual payment one expects to receive. 
B)  the average of all payments one would receive if one undertook the risky event many times. 
C)  the payment one receives if he or she makes the correct decision. 
D)  the payment that is most likely to occur.

Question 7

-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.To reduce the chance of theft to zero,Bob is willing to pay

Accepted Answer

A)  $20. 
B)  $50. 
C)  $70. 
D)  $80. 
A)  $20. 
B)  $50. 
C)  $70. 
D)  $80.

Question 8

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

Accepted Answer

If two returns are perfectly p

Question 9

Without usury laws,banks will

Accepted Answer

A)  charge very high interest rates to all borrowers. 
B)  charge higher interest rates to riskier borrowers than to safer borrowers. 
C)  charge very low interest rates to all borrowers. 
D)  face no demand for loans. 
A)  charge very high interest rates to all borrowers. 
B)  charge higher interest rates to riskier borrowers than to safer borrowers. 
C)  charge very low interest rates to all borrowers. 
D)  face no demand for loans.

Question 10

Many people do not fully insure against risk because

Accepted Answer

A)  they are risk averse. 
B)  the insurance companies are all crooks. 
C)  the insurance offered is less than fair. 
D)  the insurance offered is more than fair. 
A)  they are risk averse. 
B)  the insurance companies are all crooks. 
C)  the insurance offered is less than fair. 
D)  the insurance offered is more than fair.

Question 11

Fair insurance is a contract between an insurer and a policyholder in which.

Accepted Answer

A)  the value of the contract to the policyholder is negative. 
B)  the value of the contract to the policyholder is zero. 
C)  the risk of the contract to the policyholder is diversifiable. 
D)  the value of the contract to the policyholder is positive. 
A)  the value of the contract to the policyholder is negative. 
B)  the value of the contract to the policyholder is zero. 
C)  the risk of the contract to the policyholder is diversifiable. 
D)  the value of the contract to the policyholder is positive.

Question 12

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

Accepted Answer

A) True 
 B)False

Question 16

What is one reason the federal government might "bail out" farmers in flood prone areas of the country?

Accepted Answer

A)  Such flooding is not diversifiable and therefore only non-profit entities, such as the federal government, can cover the risks. 
B)  Such flooding is diversifiable, but insurance company CEOs are more concerned with their stockholder wealth than the well-being of farmers. 
C)  Such flooding is diversifiable, but the market for such insurance policies cannot clear without the assistance of the International Community. 
D)  Such flooding is known to happen on a regular basis and therefore there is no "risk" to be insured against. 
A)  Such flooding is not diversifiable and therefore only non-profit entities, such as the federal government, can cover the risks. 
B)  Such flooding is diversifiable, but insurance company CEOs are more concerned with their stockholder wealth than the well-being of farmers. 
C)  Such flooding is diversifiable, but the market for such insurance policies cannot clear without the assistance of the International Community. 
D)  Such flooding is known to happen on a regular basis and therefore there is no "risk" to be insured against.

Question 17

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

Accepted Answer

Most people are risk averse.They only ma

Question 18

A stock mutual fund is generally

Accepted Answer

A)  less risky than buying individual stocks. 
B)  more risky than buying individual stocks. 
C)  just as risky as buying individual stocks. 
D)  a way for the rich to avoid taxes. 
A)  less risky than buying individual stocks. 
B)  more risky than buying individual stocks. 
C)  just as risky as buying individual stocks. 
D)  a way for the rich to avoid taxes.

Question 19

A stock mutual fund's primary advantage is to allow

Accepted Answer

A)  investors to diversify away systematic risk. 
B)  investors to diversify away all risk. 
C)  investors to diversify away idiosyncratic risk. 
D)  the rich to avoid taxes. 
A)  investors to diversify away systematic risk. 
B)  investors to diversify away all risk. 
C)  investors to diversify away idiosyncratic risk. 
D)  the rich to avoid taxes.

Question 20

Suppose a blackjack gambler approaches an insurance company and seeks to purchase an insurance policy that his next trip to Reno,NV will not net $10,000.The insurance company

Accepted Answer

A)  will sell her an insurance policy because the proposal entails uncertainty not risk. 
B)  will sell her an insurance policy because the proposal entails risk not uncertainty. 
C)  will not sell her an insurance policy because the proposal entails uncertainty not risk. 
D)  will not sell her an insurance policy because the proposal entails risk not uncertainty. 
A)  will sell her an insurance policy because the proposal entails uncertainty not risk. 
B)  will sell her an insurance policy because the proposal entails risk not uncertainty. 
C)  will not sell her an insurance policy because the proposal entails uncertainty not risk. 
D)  will not sell her an insurance policy because the proposal entails risk not uncertainty.

Behavioral economics under uncertainty documents that

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

-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.If Bob could keep $50 with certainty,his utility would be

Your friend Diana tells you that she thinks that her favorite softball team has a 70% chance of winning the next game because that is exactly the winning rate of her team in the last two seasons.This is an example of a(n)

A risk-averse investor will decide whether or not to invest by determining if the expected value of the investment if positive.

Expected value represents

-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.To reduce the chance of theft to zero,Bob is willing to pay

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

Without usury laws,banks will

Many people do not fully insure against risk because

Fair insurance is a contract between an insurer and a policyholder in which.

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

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

If a person is entertained by gambling,then

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

What is one reason the federal government might "bail out" farmers in flood prone areas of the country?

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

A stock mutual fund is generally

A stock mutual fund's primary advantage is to allow

Suppose a blackjack gambler approaches an insurance company and seeks to purchase an insurance policy that his next trip to Reno,NV will not net $10,000.The insurance company

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

Behavioral economics under uncertainty documents that

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

-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.If Bob could keep $50 with certainty,his utility would be

Your friend Diana tells you that she thinks that her favorite softball team has a 70% chance of winning the next game because that is exactly the winning rate of her team in the last two seasons.This is an example of a(n)

A risk-averse investor will decide whether or not to invest by determining if the expected value of the investment if positive.

Expected value represents

-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.To reduce the chance of theft to zero,Bob is willing to pay

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

Without usury laws,banks will

Many people do not fully insure against risk because

Fair insurance is a contract between an insurer and a policyholder in which.

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

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

If a person is entertained by gambling,then

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

What is one reason the federal government might "bail out" farmers in flood prone areas of the country?

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

A stock mutual fund is generally

A stock mutual fund's primary advantage is to allow

Suppose a blackjack gambler approaches an insurance company and seeks to purchase an insurance policy that his next trip to Reno,NV will not net $10,000.The insurance company

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