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.

---

Definitions:

Self-Actualization

The fruition or fulfillment of a person's gifts and capabilities, recognized as an inherent impulse or demand in each individual.

Situational Factor

A variable that influences an individual's behavior or decision-making process, depending on the current situation or environment.

"Blank Slate"

The theory that individuals are born without built-in mental content, and that all knowledge comes from experience or perception.

Genetic Inheritance

The process through which genes and traits are passed down from parents to their offspring, determining various physical and sometimes behavioral characteristics.