If the Futures Price Is Much Higher Than the Spot

question 158

Multiple Choice

If the futures price is much higher than the spot or current price, that is a sign that smart people with their own money on the line think that:

• A) there will be an excess supply in the near future.
• B) supply disruptions may soon occur.
• C) demand will decrease rapidly in the future.
• D) supply will be stable in the near future.

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Definitions:

Confirmation Bias

The proclivity to pursue, interpret, be inclined towards, and remember evidence that verifies one's antecedent beliefs or hypotheses.

Framing Effect

A cognitive bias where people react differently to a particular choice or decision depending on how it is presented to them.

Overconfidence

The condition of being excessively confident or assured in one’s ability, correctness, or reliability, often without sufficient reason.

Framing Effect

A cognitive bias where people react differently to a choice depending on how it is presented, or "framed," especially as a loss or gain.