A researcher gave sports-card traders a sports card in exchange for their participation in the study. There were two possible cards, A and B. Each participant randomly received one of the two cards, and was then asked whether she would like to exchange it for the other card. a) By neoclassical (traditional economics) logic, approximately what percentage of participants should exchange? Why? (Hint, the reason does not depend on whether the two cards are of equal value.) b) Among inexperienced traders, 6.8% make the exchange. Explain this phenomenon using prospect theory. c) Among experienced traders, 46.7% make the exchange. Why might experienced traders behave differently from inexperienced ones?

A researcher gave sports-card traders a sports card in exchange for their participation in the study. There were two possible cards, A and B. Each participant randomly received one of the two cards, and was then asked whether she would like to exchange it for the other card. a) By neoclassical (traditional economics) logic, approximately what percentage of participants should exchange? Why? (Hint, the reason does not depend on whether the two cards are of equal value.) b) Among inexperienced traders, 6.8% make the exchange. Explain this phenomenon using prospect theory. c) Among experienced traders, 46.7% make the exchange. Why might experienced traders behave differently from inexperienced ones?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.9P

See similar textbooks

Related questions

Q: Consider the market for pita bread. All else equal, when tastes change such that more people like…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Anthony, Edward, and Gavin are roommates and are deciding which item to add to their apartment. They…

A: Answer - Need to find- Complete sentence- Given in the question- From, the table

Q: Which of the following is one of the four economic ginciples of individual decision making? O…

A: Economic principles refers to basic bits of insight or regulations that give a system to grasp how…

Q: A friend says, "I really, really need a new car." As an economist, you're thinking Right! Everyone…

A: Generally, people use 'needs' and 'wants' interchangeable, but in economics terms, they both have a…

Q: Differentiate between an exogenous variable and an endogenous variable in an economic model? Why…

A: Economic models contain many different types of variables, two of which are the Exogenous Variable…

Q: In a simple exchange economy, Alex and Sid both have identical lexicographic preferences with a…

A: Lexicographic preferences is explained as comparative preferences where an agent or an individual…

Q: "The experimental evidence on the ’ultimatum game' shows that players will sometimes reject offers…

A: Game theory, in economic terms, examines the result of a situation based on the interactions between…

Q: According to the rational choice model which of these two events should be valued more by rational…

A: We can see that the price of both mugs is same which is $10. But we should keep it mind that a mug…

Q: How do economists address the 3 central questions that economists ask to better understand decision…

A: While addressing the three central questions, the economist assumes that decision markers seek to…

Q: Ch. 5 Questions: 1.What is the Fisher Effect and why is it important?,

A: Fisher Effect essentially explains the connection between inflation,real financing cost and nominal…

Q: One topic of behavioral economics is?

A: Answer - Behavioral economic is abranch of economic which deals with the decision making and thought…

Q: Economics Explain in detail how you would extend the Cox- Ross{Rubinstein binomial tree model for…

A: The purpose of this question is to required modifications to the two-period framework (periods 0, 1…

Q: Hacmillan Learning Christine and Paul are deciding how to split their time between writing music and…

A: A comparative advantage is the capacity to produce goods and services at a lower cost, without…

Question

A researcher gave sports-card traders a sports card in exchange for their participation in the
study. There were two possible cards, A and B. Each participant randomly received one of
the two cards, and was then asked whether she would like to exchange it for the other card.
a) By neoclassical (traditional economics) logic, approximately what percentage of
participants should exchange? Why? (Hint, the reason does not depend on whether
the two cards are of equal value.)
b) Among inexperienced traders, 6.8% make the exchange. Explain this phenomenon using prospect theory.
c) Among experienced traders, 46.7% make the exchange. Why might experienced
traders behave differently from inexperienced ones?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

A5.
For Question 2 there is a typo. It is supposed to say consider Ronald from question 1. Both question 1 and 2 are provided, i would appreciate if someone could complete them as soon as possible. Also this is not a graded question from an exam, it is homework l have been given although l did not purchase the textbook so cant get the solutions for it.
Suppose an economist says that "Other things equal, the lower the price of strawberries, the greater the amount of strawberries purchased." This statement indicates that: one cannot generalize about the relationship between the price of strawberries and the quantity purchased. all factors other than the price of strawberries (for example, consumer tastes and incomes) are assumed to be constant. O the quantity of strawberries purchased determines the price of strawberries. O economists can conduct controlled laboratory experiments.
pls solve this question in 20-30 min I'll give you multiple upvotes
QUESTION 6 Which of the following was insight regarding optimal pricing that we gleaned from behavioral economics? O Make costs lump sum (integrate the costs into one cost) and separate allof the benefits of a purchase (separate the gains from an exchange). O Consumers always act rationally in their consumption decisions. O Expectations about products' prices don't matter for consumer behavior - all that matter's is the price they actually face, O Default choices for consumers don't matter for their behavior. QUESTION 7 Which of the following are the conditions for a firm to be able to profitably engage in bundlhpg?. O There is variation in consumers' willingness and abilities to pay for the goods, and consumers' valuations of the goods are positively correlated. O Consumers must like the bundled goods relatively equally. Consumers' preferences across the goods are relatively consistent with each other. O There is variation in consumers' willingness and abilities to pay for the goods,…
According to behavioral economists, why might consumers or businesses not act rationally? People might not act rationally because they A. are too realistic about their future behavior. В. ignore sunk costsignore sunk costs. C. ignore nonmonetary opportunity costsignore nonmonetary opportunity costs. D. experience no endowment effect. E. account for monetary costs.
Good Y Use this figure of a feasible frontier and a set of an agent's indifference curves to answer the following three questions: A B C D E Good X shot 2024-... i Q Q Economists use the symbol ">" to mean "is preferred to". For example, if for Ash JK, it means that they prefer J to K. Which of the responses below correctly indicates this agent's preferences over the five labeled points on the feasible frontier, listed from most preferred to least preferred? OD C B E A OC B D A E OB A C D E OE D C B>A OA B C D E
Give typing answer with explanation and conclusion Consider a good or service where consumers pay more than its actual valuation (for eg, products with markup prices at retail significantly higher than their cost: greetings cards, bottled water, stock price, movie theatre popcorn/candy). Based on the irrational decision-making and marginal analysis, explain why such irrational decision-making could take place in this situation.
What assumptions are necessary for supposing that individual preferences can be inferred and valued from the choices that individuals make?give a reason
Please help with question 2
E2
Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics) approach? Multiple Choice O O distributing online coupons providing discounts for buying in bulk positioning frequently purchased items at the back of the store offering price matching with other stores