All Theories Attempting to Explain a General Phenomenon Are Partial

question 22

Essay

All theories attempting to explain a general phenomenon are partial in scope. Which theory of drug use do you believe is most adequate? Which one covers the most ground, explains more about drug use than any other? Why do you feel this way?

---

Definitions:

Regression Equation

An equation used in statistics to describe the relationship between a dependent variable and one or more independent variables.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between the expected return and risk of investing in a security.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, typically represented by the yield on government securities like U.S. Treasury bonds.

Equity Premium Puzzle

The observed phenomenon where stocks have historically outperformed government bonds by a greater margin than can be explained by traditional financial theories.