FINC 340 WEEK 7 DISCUSION

The concept of market efficiency applies only in the financial market.  True or False?

The financial institution that assists in the initial sale of securities in the primary market is the

The problem of adverse selection in insurance markets means that it is generally a bad deal for companies to offer insurance at the same price for all potential customers. Why then do we observe some insurance companies (such as those selling “trip insurance” that refunds money to people who purchase trips that they are unable to take) do exactly this?

You are thinking about purchasing an elegant shirt by mail. Shirts Galore offer an unlimited return policy while Over the Tops will refund 80 percent of the value of the shirt if you return it. Which of the following statements is most likely to be true? Select one: Shirts Galore's shirts are more likely to be high quality, while Over the Top's shirts are less likely to be high quality a. b. Both companies' shirts are more likely to be high quality С. Shirts Galore's shirts are less likely to be high quality, while Over the Top's shirts are more likely to be high quality d. neither company's shirts are more likely to be high quality

The text points out that asymmetric information can have deleterious effects on market outcomes. a. Explain how asymmetric information about a hidden action or a hidden characteristic can lead to moral hazard or adverse selection. b. Discuss a few tactics that managers can use to overcome these problems.

1. The Dean of Columbia College is looking for a tenured professor to teach in the Core Curriculum. Monetary incentives are needed to get someone interested, but how much? The Dean decides to use an auction to do the job. Two professors, equally qualified, applied for the position. The two professors are invited to covertly submit their bids to the Dean. The Dean will give the position to the professor who submits the lower bid (if there is a tie, the job is assigned randomly). The professor who gets the job will be paid his/her own bid. Each professor's reservation value for teaching the course is his/her private information. It is common knowledge that their reservation values are independently and uniformly distributed over [0, 100]. So if a professor with a reservation value of 50 wins with a bid of 60, his payoff is 60 – 50 = 10. (a) Find a Bayesian Nash equilibrium of the bidding game. (b) Suppose the two professors' reservation values are 60 and 70, respec- tively. What are…

1. The Dean of Columbia College is looking for a tenured professor to teach in the Core Curriculum. Monetary incentives are needed to get someone interested, but how much? The Dean decides to use an auction to do the job. Two professors, equally qualified, applied for the position. The two professors are invited to covertly submit their bids to the Dean. The Dean will give the position to the professor who submits the lower bid (if there is a tie, the job is assigned randomly). The professor who gets the job will be paid his/her own bid. Each professor's reservation value for teaching the course is his/her private information. It is common knowledge that their reservation values are independently and uniformly distributed over [0, 100). So if a professor with a reservation value of 50 wins with a bid of 60, his payoff is 60 – 50 = 10. (a) Find a Bayesian Nash equilibrium of the bidding game. (b) Suppose the two professors' reservation values are 60 and 70, respec- tively. What are…

How we know that policies offered by private insurance companies are worse than fair game?

Which factor would facilitate tacit collusion among firms in a market?   a. a decrease in the interest rate.  b. a decrease in the probability the market will continue into future periods.  c. an increase in the number of firms.  d. none of these.

The adverse selection problem is least likely in which of the following occupations? explain               Lawyer Barber College professor Marketing Analyst Manager

1)Describe an example of moral hazard that we may run into in the real world. Think of something that is legal and not inherently lethal, yet still demonstrates elevated risk for the participant who would likely act safer if insurance or protection was not available. Explain why someone might take this risky action. What are the benefits to the risky behavior? In your response to two of your peers, explain what an insurance company may do to reduce the likelihood that an individual would take this risk. Keep in mind, that we cannot always just deny coverage if an individual is participating in the risky behavior.

In terms of general elections. A candidate will campaign and make promises. Voters have the option to vote for that candidate or another candidate. Why do voters often choose the wrong candidate? Use the principal-agent theory

Explain how moral Hazard can lead to market failure.

The winning bid for a house at a bank auction was $10.  But the house was not in good condition.  The couple had to pay $65,000 in explicit expenses and spend many months doing the repairs.  The time cost or lost wages are $10,000.  What is the market value of the house after repairs are done?   Explicit expenses = $65,000    Bid =         $10       Time Cost (Lost Wages) =     $  ?  Market Value of House =    Y (after expenses & repairs) Y = ?

In this simple insurance model, a company has a monopoly over a small market. There are 100K potential customers with a low risk profile, 60K potential customers with a medium risk profile, and 10K potential customers with a high risk profile.  A person’s risk profile is important as it determines how much insurance is worth to the customer and how much money the customer will cost on average to the insurance company. The following table summarizes the estimates put together by the company:   Low risk profile Medium risk profile High risk profile Number of potential customers 100,000 60,000 10,000 Expected expense per customer $2K $7K $15K Maximal price the customer isready to pay for insurance $3K $8K $16K Remark: Explaining where these numbers come from would require a subtler model that describes the risk covered by the insurance policy. While there is no need to do this for the purpose of this exercise, notice though how the maximal price…

An insurance company offered drivers auto insurance. Assume that claims by safe drivers cost the insurer $1,000 over the term of the policy and claims by reckless drivers costs $5,000. Drivers know whether they are safe or reckless, but the insurer only know that 10% of drivers are reckless. a. What is the expected cost of losses to the insurance company? b. How much does the insurance company have to charge for auto insurance to break-even? Why? I found answer for part a. but I didn't find any answer for part b. Could you please post answer for part b. Please don't repeat answer from old post. I just need answer for part b. Thank you

ISIS and al-Qaeda may appear similar to Western audiences, but the two groups regard each other as enemies. In order to attract more supporters, ISIS made an effort to engage in bigger and more frequent attacks than al-Qaeda. What strategy does this describe? A. Spoiling B. Outbidding C. Provocation D. Coercion

CHOOSE THE CORRECT ANSWER, NO FURTHER EXPLANATION IS NEEDED  Freeconomics refers to: A) The fact that good platforms should be free. B) The fact that we are getting used to free services in the digital world. C) None of the above. 2. Data Trading: A) Is necessarily based on a monetary transaction. B) Is based on Client-as-a-Target strategy. C) Is based on a Client-as-a-Source strategy.   3. Data-Driven Epiphany is a concept that refers to: A) The process that explains many of the cases saw in the MOOC. B) A structured process to have brilliant ideas from data. C) None of the above   4. Value sharing: A) Is emerging as a critical topic since platforms are becoming huger and huger. B) Is one of the elements of the platform DNA. C) None of the above. 5. The Data Board is: A) A tool that can support the identification of Orthogonal players. B) A tool to read the KPIs of orthogonal platforms. C) None of the above.

What is the mostly commonly used utility functions for the following and why: Risk Aversion Risk Seeking Risk Neutral