Lesson #7 Quiz >> Financial Markets
1. Which of the following best describes the “invisible hand”?
- Subtle government economic interventions can lead to the inefficient allocation of resources.
- The free market, guided by self-interest, is mislead to inefficiently allocate resources.
- Subtle government economic interventions can ensure the sufficient production of goods to meet society’s demands.
- The free market, guided by self-interest, ensures the sufficient production of goods to meet society’s demands.
2. What problems does prospect theory solve? (check all that apply)
- People can underestimate high probabilities and overestimate low probabilities
- People do not treat gambles as equivalent to their expected utility
- People will make big gambles to avoid losses
- People will often make purchases impulsively
3. What is the wishful thinking bias?
- People think that, if they hope for something strongly enough, it will be more likely to happen.
- People over-estimate probabilities of things they would like to be true.
- People do not consider the probability of the things they want most.
- People hope that their sports team or political candidate will win
4. Ricardo thinks that, since society seems similar to what it was in the late 1920s, a second Great Depression is coming soon. To which cognitive bias is Ricardo falling victim?
- Representativeness heuristic
- The framing effect
- The disjunction effect
- Attention anomalies
5. What is Newcomb’s paradox?
- People behave irrationally when faced with decisions which involve large sums of money.
- People will behave differently if playing games against a computer compared to playing them with a human opponent.
- People sometimes change their behavior when they learn about a prediction which has been made about the future.
- People prefer a small chance at winning $1 million than a high chance of winning $1000.
6. Which of the following is NOT a common trait of somebody with Antisocial Personality Disorder?
- Lack of empathy
- Lack of desire to interact with others
- Manipulative
- Heightened self-esteem
