Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 11

Determine whether or not each of the following is an example of irrational expectations.
a. The price of Amazon's stock rises after tech blogs reveal that the company plans to release a new tablet, rumored to be competitive with Apple's iPad.
b. The CEO of a new start-up producing applications for tablets is quoted as proclaiming a new era of media, in which thirst for content will rise indefinitely as information becomes more and more convenient for people to digest. An economics blog continues the discussion a year later, discussing returns to investment that have never before been contemplated. Stock prices for media companies are consistently outperforming historical levels by 50 percent and seem to be on a permanent rise.
c. After an unusually cool summer, investors in Papa's Popsicles decide to sell, believing demand for popsicles will never reach historic levels again because of the weather.
d. The Justice Department reveals allegations against the CEO of a food and beverage company, alleging misconduct within the company. A trial could cost the company millions of dollars. The stock price falls by 5 percent by the day's end.