Behavioral Economists Argue That Asset Price Bubbles and Other Examples

question 23

Multiple Choice

Behavioral economists argue that asset price bubbles and other examples of herd behavior may be due to biases resulting from the law of small numbers. In particular, the investors may observe unusually ________ returns for some asset and use this limited information to ________ the probability that returns will be high in the future.

• A) low, over-estimate
• B) low, under-estimate
• C) high, over-estimate
• D) high, under-estimate

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Definitions:

Standard Deviation

A measure reflecting how much the data points diverge or spread out from each other.

Confidence Interval

A statistical range, with a certain probability, that is believed to contain the true value of an unknown parameter.

Random Variable

A variable whose values depend on the outcomes of a random phenomenon.

Sample Proportion

The ratio of members in a sample that have a particular characteristic to the total number of members in that sample, often used in statistics to estimate population proportions.