Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 8, Problem 3RQ
To determine
Heuristics and biases.
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Label each of the following behaviors with the correct bias or heuristic. LO8.3 a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. c. Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. d. The sales of a TV that is priced at $999 rise after another very similar TV priced at $1,300 is placed next to it at the store. e. The sales of a brand of toothpaste rise after new TV commercials announce that the brand “is preferred by 4 out of 5 dentists.”
If a risk-neutral individual owns a home worth $200,000 and there is a three
percent chance the home will be destroyed by fire in the next year, then we know
15.
that:
a) He is willing to pay much more than $6,000 for full cover.
b) He is willing to pay much less than $6,000 for full cover.
c) He is willing to pay at most $6,000 for full cover.
d) None of the above are correct.
e) All of the above are correct.
Mike is the proud owner of Prospect X, which he values at $10 (so, for Mike, CE(X) = $10).
If EV(X) = $12, what is the most you can say about Mike's risk preferences and/or his utility of wealth function?
(Select all that apply)
O Mike's utility of wealth function must be concave.
O Mike must be risk averse.
O For Mike, it must be the case that U(EV(X) > $10.
O If Mike had to choose between Prospect X and receiving $9 with certainty, he would choose the $9.
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