Question 1

What is the standard deviation of the investment payoff described in problem 4?

Accepted Answer

A)  $0 
B)  $2,581,875 
C)  $42.50 
D)  $1,606.82 
A)  $0 
B)  $2,581,875 
C)  $42.50 
D)  $1,606.82 D

Question 2

Assume Brandon's benefit function for water is   and he consumes water both in droughts, WD and in the rainy season, WR. Assume his water bundle is WD = 36 and WR = 25 and the probability of drought is 0.75. Expected water consumption is

Accepted Answer

A)  33.25 
B)  61 
C)  30.5 
D)  27 
A)  33.25 
B)  61 
C)  30.5 
D)  27 A

Question 3

What is Brandon's expected utility given the information in problem 29?

Accepted Answer

A)  5.75 
B)  33.25 
C)  11 
D)  30.5 
A)  5.75 
B)  33.25 
C)  11 
D)  30.5 A

Question 4

Suppose Brandon's benefit function for water is S(W)= W2 . Brandon is

Accepted Answer

A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above 
A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above

Question 5

Suppose Lily's indifference curves are defined as   where C is a constant. Lily receives 64 units of food when it is sunny, FS and 16 units of food when there is a hurricane,FS. If the probability of sunshine is P = 0.75, the expected consumption is

Accepted Answer

A)  52 
B)  28 
C)  40 
D)  5 
A)  52 
B)  28 
C)  40 
D)  5

Question 6

The hot-hand fallacy

Accepted Answer

A)  Is the belief that once an event has occurred several times in a row, it is less likely to repeat 
B)  Is the belief that once an event has occurred, it is less likely to repeat 
C)  Is the belief that once an event has occurred several times in a row, it is more likely to repeat 
D)  Is the belief that if an event has never occurred, it is more likely to occur 
A)  Is the belief that once an event has occurred several times in a row, it is less likely to repeat 
B)  Is the belief that once an event has occurred, it is less likely to repeat 
C)  Is the belief that once an event has occurred several times in a row, it is more likely to repeat 
D)  Is the belief that if an event has never occurred, it is more likely to occur

Question 7

Suppose we can represent Brandon's preferences for water with an expected utility function,   , where WD represents a quantity of water during a drought and WD represents a quantity of water in a rainy season. Brandon is

Accepted Answer

A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above 
A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above

Question 8

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

Accepted Answer

A)  $1,000,000 
B)  $1,000 
C)  $10,000 
D)  $500,000 
A)  $1,000,000 
B)  $1,000 
C)  $10,000 
D)  $500,000

Question 9

Brandon's certainty equivalent given the information in problem 29 is

Accepted Answer

A)  45.75 
B)  33.06 
C)  30.5 
D)  61 
A)  45.75 
B)  33.06 
C)  30.5 
D)  61

Question 10

Brandon's risk premium given the information in problem 29 is

Accepted Answer

A)  66.31 
B)  0.19 
C)  33.16 
D)  3.20 
A)  66.31 
B)  0.19 
C)  33.16 
D)  3.20

Question 11

Suppose Dean has $500 and he wants to maximize his expected benefit,   , where X is his resources in dollars. There are two companies he could invest in: Dog Gone Salon, which has a payoff of $1,000 with 50% probability and $0 with 50% probability and Pretty Kitty Grooming, which has a payoff of $2,000 with 50% probability and $0 with 50% probability. Dean's expected payoff from investing in Dog Gone Salon only is

Accepted Answer

A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500 
A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500

Question 12

Suppose Brandon's indifference curves are defined as   , where C is a constant,FH is consumption during sunny weather and FH is consumption during a hurricane. Further suppose Brandon receives 64 units of food when it is sunny and 16 units when there is a hurricane. If the probability of sunshine is P = 0.75, expected food consumption is

Accepted Answer

A)  28 
B)  40 
C)  52 
D)  80 
A)  28 
B)  40 
C)  52 
D)  80

Question 13

-Refer to Figure a. Assuming the bold line in the graph above is a constant expected consumption line where   , which constant expected consumption line reflects an increase in   ?

Accepted Answer

A)  Dotted line 
B)  Dashed line 
C)  An increase in   does not result in an change in the expected consumption line 
D)  A change in   results in a parallel shift in the expected consumption line, so neither the red or green line reflects this change 
A)  Dotted line 
B)  Dashed line 
C)  An increase in   does not result in an change in the expected consumption line 
D)  A change in   results in a parallel shift in the expected consumption line, so neither the red or green line reflects this change

Question 14

-Refer to Figure a. If   decreases, the x-intercept for the constant expected consumption line

Accepted Answer

A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Cannot be determined without more information 
A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Cannot be determined without more information

Question 15

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

Accepted Answer

A)  $325 
B)  $5,500 
C)  $1,175 
D)  $2,750 
A)  $325 
B)  $5,500 
C)  $1,175 
D)  $2,750

Question 16

Assume Brandon's benefit function for water is   and he consumes water both in droughts, WD and in the rainy season, WR. Assume his water bundle is WD = 400 and WR = 100 and the probability of drought is 0.75. Expected water consumption is

Accepted Answer

A)  500 
B)  250 
C)  325 
D)  175 
A)  500 
B)  250 
C)  325 
D)  175

Question 17

-Refer to Figure a, which set of rules is illustrated in the following payoff matrix?

Accepted Answer

A)  Rock tears paper, paper covers scissors, scissors clip rock 
B)  Rock crushes scissors, scissors cuts paper, paper covers rock 
C)  Rock crushes scissors, scissors cuts paper, scissors clip rock 
D)  Rock tears paper, paper covers scissors, paper covers rock 
A)  Rock tears paper, paper covers scissors, scissors clip rock 
B)  Rock crushes scissors, scissors cuts paper, paper covers rock 
C)  Rock crushes scissors, scissors cuts paper, scissors clip rock 
D)  Rock tears paper, paper covers scissors, paper covers rock

What is the standard deviation of the investment payoff described in problem 4?

Assume Brandon's benefit function for water is and he consumes water both in droughts, W_D and in the rainy season, W_R. Assume his water bundle is W_D = 36 and W_R = 25 and the probability of drought is 0.75. Expected water consumption is

What is Brandon's expected utility given the information in problem 29?

Suppose Brandon's benefit function for water is S(W)= W² . Brandon is

Suppose Lily's indifference curves are defined as where C is a constant. Lily receives 64 units of food when it is sunny, FS and 16 units of food when there is a hurricane,F_S. If the probability of sunshine is P = 0.75, the expected consumption is

The hot-hand fallacy

Suppose we can represent Brandon's preferences for water with an expected utility function, , where WD represents a quantity of water during a drought and W_D represents a quantity of water in a rainy season. Brandon is

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

Brandon's certainty equivalent given the information in problem 29 is

Brandon's risk premium given the information in problem 29 is

-Refer to Figure a. Assuming the bold line in the graph above is a constant expected consumption line where , which constant expected consumption line reflects an increase in ?

-Refer to Figure a. If decreases, the x-intercept for the constant expected consumption line

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

Assume Brandon's benefit function for water is and he consumes water both in droughts, W_D and in the rainy season, W_R. Assume his water bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75. Expected water consumption is

-Refer to Figure a, which set of rules is illustrated in the following payoff matrix?

Supply, Demand, Balancing Benefits, Costs, Principles and Preferences

From Demand to Welfare, Constraints, Choices, and Demand

Technology and Production

Cost

Choices Involving Time and Profit Maximization

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Exam 6: Behavioral Economics, Choices Involving Strateg and Choices Involving Risk

What is the standard deviation of the investment payoff described in problem 4?

Assume Brandon's benefit function for water is and he consumes water both in droughts, WD and in the rainy season, WR. Assume his water bundle is WD = 36 and WR = 25 and the probability of drought is 0.75. Expected water consumption is

What is Brandon's expected utility given the information in problem 29?

Suppose Brandon's benefit function for water is S(W)= W2 . Brandon is

Suppose Lily's indifference curves are defined as where C is a constant. Lily receives 64 units of food when it is sunny, FS and 16 units of food when there is a hurricane,FS. If the probability of sunshine is P = 0.75, the expected consumption is

The hot-hand fallacy

Suppose we can represent Brandon's preferences for water with an expected utility function, , where WD represents a quantity of water during a drought and WD represents a quantity of water in a rainy season. Brandon is

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

Brandon's certainty equivalent given the information in problem 29 is

Brandon's risk premium given the information in problem 29 is

-Refer to Figure a. Assuming the bold line in the graph above is a constant expected consumption line where , which constant expected consumption line reflects an increase in ?

-Refer to Figure a. If decreases, the x-intercept for the constant expected consumption line

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

Assume Brandon's benefit function for water is and he consumes water both in droughts, WD and in the rainy season, WR. Assume his water bundle is WD = 400 and WR = 100 and the probability of drought is 0.75. Expected water consumption is

-Refer to Figure a, which set of rules is illustrated in the following payoff matrix?

Supply, Demand, Balancing Benefits, Costs, Principles and Preferences

From Demand to Welfare, Constraints, Choices, and Demand

Technology and Production

Cost

Choices Involving Time and Profit Maximization

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Assume Brandon's benefit function for water is and he consumes water both in droughts, W_D and in the rainy season, W_R. Assume his water bundle is W_D = 36 and W_R = 25 and the probability of drought is 0.75. Expected water consumption is

Suppose Brandon's benefit function for water is S(W)= W² . Brandon is

Suppose Lily's indifference curves are defined as where C is a constant. Lily receives 64 units of food when it is sunny, FS and 16 units of food when there is a hurricane,F_S. If the probability of sunshine is P = 0.75, the expected consumption is

Suppose we can represent Brandon's preferences for water with an expected utility function, , where WD represents a quantity of water during a drought and W_D represents a quantity of water in a rainy season. Brandon is

Assume Brandon's benefit function for water is and he consumes water both in droughts, W_D and in the rainy season, W_R. Assume his water bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75. Expected water consumption is