Which of the Following Is an Example of How Incentive

question 170

Multiple Choice

Which of the following is an example of how incentive structures contributed to the collapse of investment banks?

• A) The bonus structures of most executives were tied to short-term profitability.
• B) The rating agencies acted independently in assigning ratings to mortgage-backed securities and had no incentive to understate the risks.
• C) Mortgage-backed securities were closely scrutinized in order to minimize risk and obtain higher ratings.
• D) Despite SEC regulations, investment banks kept leverage ratios low in order to increase profits.

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Definitions:

Taste-Aversion Learning

A form of learning in which an organism learns to avoid a food that has caused nausea or discomfort.

Garcia and Koelling

Researchers known for their work on taste aversion learning, showing how animals associate certain tastes with sickness.

Loud Noise

Sound that is strong and high in decibels, potentially causing harm or disturbance to human hearing and mental health.

White Rat

Often used in psychological and medical research, white rats are a common type of laboratory rat chosen for their genetic uniformity and ease of observation.