MyLab Economics with Pearson eText -- Access Card -- for Microeconomics
2nd Edition
ISBN: 9780134519517
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 15, Problem 4Q
To determine
To calculate the effect of discount weight on current decisions, and to know whether it is true or not that the greater the discount weight, the more driven the current decisions will be by future consequences.
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The more risky future options or alternatives are
a) the less rational people will necessarily be.
b) the more future values must be discounted to obtain their present values.
c) the greater their present values.
d) the greater their net values in the future.
Show that a decision maker who has a linear utilityfunction will rank two lotteries according to their expectedvalue.
A risk-averse manager is considering a project that will cost £100. There is a 10 percent chance the project will generate revenues of £100, an 80 percent chance it will yield revenues of £50, and a 10 percent chance it will yield revenues of £500. Should the manager adopt the project? Explain. What will a risk-neutral and risk-loving manager do in the same situation?
Chapter 15 Solutions
MyLab Economics with Pearson eText -- Access Card -- for Microeconomics
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- What type of bias relies too heavily on one piece of information in making a final decision? A. Availability Heuristic Bias B. Bandwagon Effect C. Anchoring Biasarrow_forwardIf the benefits of a given choice option are delayed further into the future(all other relevant factors remaining constant),then the present value of the option will a) increase b) decrease c) remain the same d) ( unknow, not enough information to say).arrow_forwardWhich of the following are examples of common behavioral errors in decision making (multiple correct answers; check all that apply). A. Always paying more than true willingness to pay. B. Letting unrecoverable sunk costs influence ongoing decisions for when such costs have no bearing on benefits and costs going forward. C. Making different decisions when an identical problem is framed in two different ways, especially when one is framed in terms of gains and the other in terms of losses. D. Always saving too little. E. Generally spending too little on high-quality, high-priced items. F. Settling on a default alternative in the face of a difficult or complex decision G. Considering the average cost and average benefit, instead of the marginal cost and marginal benefit, When choosing whether a little more or less should be bought or produced.arrow_forward
- If you were a real estate agent, how would you determine whether it’s worth investing a significant amountof time in a particular prospect?arrow_forwardBehavioral economics suggests that people are more likely to take risks when given choices that are framed in terms of ________ rather than _______. (Fill in both blanks, separated by a comma.)arrow_forwardU(W) in an appropriate utility function, where W is the level of wealth. Which of the following is TRUE for a risk-loving investor? Select one: A. U[E(W)] < E[U(W)] B. U[E(W)] > E[U(W)] C. U[E(W)] = E[U(W)] = 0 D. U[E(W)] = E[U(W)]arrow_forward
- It is often costly to obtain the information necessary to make good decisions. Yet, your own interests can best be served by rationally weighing all options available to you. This requires informed decision making. Does this mean that making uninformed decisions is irrational? How do you determine how much information is the right amount?arrow_forwardIndicate whether the statement is true or false, and justify your answer.Individuals who alwaysmake decisions consistent with completeness, transitivity, and independence are exhibiting bounded rationality.arrow_forwardThe tendency of people to discount long-term values more than they do near-term values—making many people "future blind"— is known in behavioral economics as myopia. anchoring. framing effects. time inconsistency.arrow_forward
- Loss aversion refers to the idea that people ________. generally tend to avoid risky activities are more prone to making losses than gains in day-to-day transactions psychologically weight a loss more heavily than they psychologically weight a gain are unwilling to undertake expenditures that reduce the probability of future lossesarrow_forwardDiscuss the Contingent Valuation Methodarrow_forwardHow do their perceptions of probability (in their 'weighting function') in prospect theory cause biases in their decision making?arrow_forward
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