57. Behavioral economics suggests that incentivizing people to save more of their income: A) entails manipulating the default options that relate to their employers' 401k plans B) is simply a matter of tricking them into thinking they have more income than they really have C) comes down to effectively analyzing the different asset classes available to investors D) all the above E) A & B only

57. Behavioral economics suggests that incentivizing people to save more of their income: A) entails manipulating the default options that relate to their employers' 401k plans B) is simply a matter of tricking them into thinking they have more income than they really have C) comes down to effectively analyzing the different asset classes available to investors D) all the above E) A & B only

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Federal insurance of bank deposits insulates depositors from risks, so depositors are (less or more)? concerned about riskier investment strategies by depository institutions. Thus, bank managers have an incentive to invest in (less risky or riskier?) assets to make (lower or higher? rates of return.
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Are the following preferences consistent with von Neumann Morgenstern’s axioms to maximize expected utility? Explain. a. You would rather have a sure $200 to a gamble with p=0.7 chance of $200, p=0.1 chance of $50, p=0.2 chance of $300. b. You prefer the gamble of p=2/3 chance of $300 and p=1/3 chance of $50 than a sure $250 win.
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1. Write down the behavioral trap that is more likely to occur in each of the following case and Justify your answer a) While investing her money on share market, Mila filters out the information that contradicts her original idea about some particular share. b) Lee attributes successful outcomes to her own actions and bad outcomes to external factors. c) Paul continues to invest in Aqua Company’s share despite its persistent negative return. d) Sifa buys only those shares that has a consistent upward trend of returns. e) Fariha suggests her friend Samia to invest on ABC Company’s share as she foresees higher return from it. f) Sunny sells a profitable Beximco share today that earned him positive return.
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1. Risk Premium: Assume your wealth is $100 and like in the Veritassium video you're offered a bet of a 50% chance of winning $10 and a 50% chance of losing $10. Assume you have square root utility. a. What is the utility you enjoy by holding the $100 of current wealth? b. What is the expected utility you foresee by entering the bet? Will you take the bet? c. What is your risk premium? Do you think someone would pay this to avoid the bet? d. Draw a diagram and label the relevant values.